SHRM

Strategic Human Resource Management 0

Strategic Human Resource Management

Neelima Pinnamaneni

Daliang Xu

Dr. Henry Findley


Introduction:

As we enter the new era of an advanced high-tech environment, the business

world is also entering into an era of fierce competition noticed by takeovers and mergers.

This illuminates the type of dynamic and complex business environment that companies

have to face. The rapid change in the environment reminds us that, for a business to

survive, it has to focus on its core competencies and discover in order to keep ahead of

the competitors. The field of Strategic Human Resource Management has evolved mainly

in accordance to the fact that human resources need to be managed strategically for the

firm to enjoy sustainable competitive advantage over competition. Several scholars have

noted that managing people is tedious than managing technology or capital (Barney, 1991;

Lado and Wilson, 1994). Firms that learn how to manage their human resources well

would have an advantage over others in long run since acquiring and deploying human

resources effectively and efficiently is difficult and takes longer time. (Wright et al.,

1994).

Strategic Human Resource Management:

Human resource management (HRM) involves all management decisions and

practices that directly affect or influence the people, or human resources, who work for

the organization. HRM is strategy-focused, i.e., by itself it is strategic in nature. HRM at

strategic level is SHRM. (Kazmi, 2002)

Strategic Human Resource Management (SHRM) implies a concern with the ways

in which HRM is crucial to organizational effectiveness. (Miller 1987) defines Strategic

Human Resource Management practice as the decisions and actions, which concern the

management of employees at all, levels in the business, and is related to the


implementation of strategies directed towards sustaining competitive advantage.

Organizations are increasingly becoming aware of the importance of linking the

organization’s human resource practices to strategy that leads to greater performance

(Huselid, 1995; Youndt et al., 1996; Delery and Doyt, 1996). Ian Clark defines Strategic

HRM that “centers on how organizations can improve their competitive performance by

considering and utilizing their human resource more effectively.”

Wright and McMahan define Strategic HRM as “the pattern of planned human

resource deployments and activities intended to enable the firm to achieve its goals.” The

definition implies four components to Strategic HRM. First, it focuses on a firm’s human

resources, which is the primary resource to be strategically leveraged as a source of

competitive advantage. Second, the concept of activities highlights HR programs,

policies and practices as a means by which people of the firm gain competitive advantage.

Third, both the “pattern” and” plan” describe the goal and process of strategy, described

as” fit.” The definition has the people, practices, and planned pattern are all purposeful, in

“goal achievement”

Theoretical Perspectives of SHRM:

Number of theoretical models has been developed to explain what exactly SHRM

requires in an organization and the processes by which SHRM contributes to the bottom-

line success of a firm. There is an overlap among the various theoretical perspectives

from which they are derived. No single process is correct and each one points to different

aspects of the process needed for developing an effective strategic HR function. The

Five theoretical perspectives formulated to define the concept, are as follows:


Universalistic approach: John Delery and Harlod Doty describe universalistic approach

to Strategic HRM as the process of transforming traditional HR practices into a limited

set of “correct” HR procedures and policies. There is no single best way to manage

human resources and strategy. The set of HR practices include: High levels of

employment security, Selective hiring practices, A focus on teams and decentralized

decision making, High pay levels, Extensive employee training and so on.

Strategic fit approach: Contrary to the universalistic approach strategic HRM involves

matching specific HR practices to the firm’s overall business strategy. External fit refers

to how well HR practices align with specific aspects of the external environment.

Internal Service Provider: In this approach Strategic HRM, involves the role of HR

professionals in providing HR services to business units within the firm. The goal is to

enhance the effectiveness and efficiency of the operations of the concerned business unit

customers.

Configurational: The configurational approach to SHRM suggests that there are various

configurations of HR practices that go hand- in-hand and, collectively improving the

business performance. The effectiveness of HRM in enhancing a firm’s competitive

advantage depends on a set, or bundle, of HR practices rather than on any single HR

program or policy.

Resource based Model: This model of SHRM is based on the idea that organizations

gain competitive advantage with the resource (employees) that are valuable, rare, difficult

with high competence levels for competitors to imitate or acquire success by enhancing

the overall value of the firm.


Different Approaches to Strategic Human Resource Management:

The four major approaches to Strategic Human Resource Management identifies

the differing views which are consolidated below:

1) Strategy-focused Approach: Authors Mathis& Jackson and Beer et al view HRM and

SHRM to be identical. They define that HRM by its nature itself is strategic. The

elements of HRM like training, recruitment, selection all of them operate as

derivatives of requirements of strategy within the organization. Strategic planning

suggests HRM planning. This view is not accepted by many of the scholars and view

that HRM is strategic to some extent but not in all aspects.

2) Decision-focused Approach: Tichy et al defines that there are three management

levels namely: strategic (long-term), managerial (medium-term) and operational

(short-term). The author views that the HR functions performed at the strategic

management level are SHRM. The managerial and operational level HR functions do

not come under SHRM and would rather be considered as functional HRM activities.

3) Content-focused Approach: Torrington & Hall identifies that in the model of HRM

process there are always some elements and in every such elements there are some

strategic aspects that are referred to as SHRM. According to this approach the

functional aspects of HRM elements can also be included with the organization’s

strategy leading to the emergence of SHRM.

4) Implementation-focused Approach: Miles & Snow view that organizations do have

some competitive objectives that are achieved through some business strategies. In

order to formulate and implement such strategies appropriate HRM systems are

necessary, and those HR systems are strategic in nature so called SHRM.


Essential elements of SHRM:

The above-discussed theoretical perspectives have six key elements necessary in

developing SHRM within the firm.

1) Internally transforming HR staff and structure:

In creating a strategic HRM philosophy within a firm, concern must be focused on

the following areas:

a) Transforming HR staff:

There exists a significant difference in the skills needed by HR staff in the

traditional and strategic orientations to HRM. In traditional HRM staff had to be

specialized in certain functional areas like training or recruitment interviewing. The

strategic HRM role played by HR professional is “ change management”, involving

strategic planning, team building and having global perspective. Most HR units will

face a significant transformation in order to manage human resources with a new

strategic view.

b) Transforming the organizational structure:.

In transforming the HR structure from traditional to SHRM, it is common for the

organizational unit to restructure. The major issue in designing a new strategic

HRM unit is to determine whether to centralize or decentralize HR function. The

relevant structure for the HR function depends on the nature of the firm’s business,

size of the firm and firm’s overall business strategy. In some organizations

centralized structure for HR unit would be appropriate and in some highly

decentralized HRM may be necessary. Regardless of which particular structure is

used the key element in successful transformation from traditional HR function to


SHRM is to find a structure that meets the pressing needs of business strategy and

allow the HR unit provide services designed to help the firm achieve strategic

objectives.

2) Enhancing administrative efficiency:

Dave Ulrich suggested that one of the key roles of HR staff is to be “administrative

experts”. As administrative experts, HR staff members must take an active role in

reengineering administrative and other processes within the firm and find ways to share

services more effectively throughout the organization. The objective is to increase HR

service efficiency and save money. Several processes are needed to enhance the

administrative expertise of HR units. The first focuses on:

a) Improving administrative efficiency by targeting current processes for

improvement, by examining the gaps between the “as is” process and what the

system “ needs to be.”

b) Administrative efficiency can also be enhanced by the development of

centralized HR services that are shared throughout an organization.

c) The ultimate process involves HR staff to rethink how they create value to the

firm in terms of value perceived by the customers rather than perceived by the

provider of the program.

3) Integrating HR into the strategic planning process:

The strategic integration of HR requires strategic planning process and the

involvement of HR managers in that process. The development of strategic plan

involves top management, with the help of outside consultants, to go through and

analyze the current and future condition of the organization. To achieve full


integration, HR managers should not only have the ability to influence the

development and selection of information used in decision making but should also

have the ability to influence decision making.

4) Linking HR practices to business strategy and to one another:

This issue of fitting HR practices to business strategy is becoming increasingly

important and relevant HR issue for HR staff and line managers. HR fit involves making

sure HR activities make sense and help the organization achieve its goals and objectives.

The three aspects of HR fit are:

a) Vertical fit: This aspect of vertical fit concerns the coincidence between HR

practices and overall business strategy.

b) Horizontal fit: This relates to the extent to which HR activities are mutually

consistent. Consistency ensures that HR practices reinforce one another.

c) External fit: The third aspect concerns how well HR activities match the

demands of the external environment.

Ensuring these aspects of fit requires HR practice choices. The challenge is to develop

internally consistent configurations of HR practice choices that help implement the firm’s

strategy and enhance its competitiveness. There is a need for strategic flexibility along

with strategic fit for the long-term competitive advantage of the firm. Fit is defined as

temporary state in an organization, whereas flexibility is defined as the firm’s ability to

meet the demands of dynamic environment. The two types of flexibility identified are:

d) Resource Flexibility: is the extent to which a firm can apply its resources to a

variety of purposes. It also involves the cost, difficulty, and time needed to

switch resources from one use to another.


e) Coordination flexibility: concerns the extent to which an organization has

decision-making and other systems that allow it to move resources fastly from

one use to another. This task is accomplished by having an effective partnership

between HR managers and line managers.

5) Developing a partnership with line management:

Major changes are required to link the human resource function to the user

organization. Most personnel functions are linked to the operational business activities.

With the addition of new managerial and strategic activities, new linking mechanisms

will be required as follows:

i. Step 1. Provide the business with good human resource databases. These

include environmental scanning of labor markets and social and economic

issues that impact the long-term human resource context of the organization.

ii. Step 2. Alter the senior management role when it comes to human resource

management issues so that these concerns receive quality attention. The

managers need to be committed to weighing human resource issues with the

same level of attention as that of other functions, such as finance, marketing,

accounting, and production.

iii. Step 3. The line organization must alter its incentive and control systems so

that the overall human resource function is managed. It will also be

necessary for the organization to have ways of measuring the overall

performance of the human resource function at the strategic, managerial,

and operational levels. This will entail ongoing audits of the human resource

function to determine how well it is doing in providing services to its clients.


Also adjustments must be make in budgeting for human resource services, as some of

these adjustments will require new sources of corporate funding. (Tichy, N; Fombrun, M;

Charles D; Mary A 2002)

6) Focusing on the bottom-line impact of HR and measurement of that impact:

In order to show how HR contributes to overall business success, the first

requirement is to identify the means of measuring HR’s performance. Most of

suggested typologies relate to four basic approaches about HRM:

a) Customer/stake holder approach to measure the HRM effectiveness involves

identifying managers, unions, customers, and employees even the suppliers and

company shareholders, that are direct users of HR products.

b) HR impact: To evaluate the impact of HR programs, human resource units must

develop a strategic framework for assessing the effectiveness of their services.

The strategic objectives should be identified for functional units along with

human resource activities needed to accomplish those objectives.

c) Dollar value of HR programs: The third issue relates to the monetary costs and

benefits of HR activities. Various dollar-value indices like: benefits as % of total

compensation, return on HR investment, HR cost per sales dollar are used to

asses HR.

d) Benchmarking HR practices: This fourth aspect is important as it determines the

true competitive advantage of HR, by assessing against the HR practices of key

competitors and firms that demonstrate HR excellence. The benchmarking could

be different types like” Internal Benchmarking” that deals with the firm

comparing practices in one part of the organization against those in the internal


units. “Competitive benchmarking” is conducted with external competitors in the

same market. “Generic HR benchmarking” involves the comparison of HR

processes that are same, regardless of the type of industry.

Vital Role of Strategic Human Resource Management:

Strategic Human Resource Management (SHRM) idea is that human resources

management is used to gain competitive advantage. SHRM practice is coupled with

business strategy. SHRM elevates human resources management from micro level

(individual personal level) to the macro level (business strategy level). SHRM includes

analysis of business and socio-political environment. HR professionals must be aware of

global business and social trends and should be able to perform environmental scanning.

SHRM also includes internal human resource analysis. HR professionals must analyze

human resources against current and future business strategies and identify the gaps

between them.

SHRM is also intended to assist management in the best use of internal labor

market. Hence an absolute requirement for analysis would be effective use of computer-

based human resource information systems. SHRM includes organizational analysis and

design. Hence HR professionals had to provide management not only with analysis, but

also organization-design recommendations. Benchmarking against successful internal and

external organizations is useful tool that helps in this process.

SHRM is part of the business plan. Strategic HR considerations are more

important than the traditional planning elements. The strategic HR considerations are as

follows:

a) Is the organizational culture supporting the long-term business strategy?


b) Is the organization’s structure consistent with the business strategy?

c) Is management’s executive staffing adequate? Are skills adequate?

d) Are the management-performance systems properly focused?

Implementing Strategic Human resource management:

Strategic human resource management is relatively a new concept both in the

field of human resource management and in the field of strategic management. The

concept is based mainly on the human resource, which is considered as human capital in

achieving the long-term objective(s) of the company. Hence human resource

management is a major force in driving organizational performance. Hence the

management development process, appraisal process, reward process should be related to

the organizational long-term and short-term goals.

Chase Manhattan Bank targeted on the use of management development program

to support the company’s first formal strategic planning process. The program involved

all the senior officials, chairman in strongly reinforcing the importance of new strategic

planning process. This had become a successful key in turning around the troubled bank

to success between 1975 and 1980.

General Motors Company has an equally strong tradition of management

development tradition. Thus there should be greater emphasis in carefully developing

managers. Many companies have been very strategic in developing managers. The

appraisal system should also be effective at the strategic level for the evaluation of

executive talent. The reward system should encourage set of desired strategic behaviors

from managers. Hence every organization must develop its own strategic position in

terms of human resources.


Conclusion:

Human Resource management has a major impact on individual and so on

productivity and organizational performance. Effective strategic management requires

effective human resource management. Strategic Human Resource Management implies

the ways in which HRM is crucial to organizational effectiveness. Hence organizations

have to carefully design strategies and relate to human resources for effective utilization

in achieving greater competitive performance. The human capital, practice, which

includes the kind of Strategy Company, has to follow in terms of greater performance and

the pattern should be taken care in maintaining Strategic Human Resource Management.


References

Fish, C; Schoenfeldt L; Shaw, J (2003) Human Resource Management (5th ed.) Boston:

Houghton Mifflin

Irene Keng-Howe, C; Keng-Howe, C; Irene Chong, P (1999) Effects of strategic human

resource management on strategic vision. International Journal of Human

Resource Management; Vol.10 Issue6

Kazmi, A; Ahmad, F (2002) Differening Approach to Strategic Human Resource

Management Journal of Management Research Issue 3 p133, 8p

Khatri, N (1999) Emerging issues in strategic HRM in Singapore International Journal of

Manpower; Vol. 20 Issue 8, p516, 14p

Tichy, N; Fombrun, M; Charles D; Mary A (1982) Strategic Human Resource

Management. Sloan Management Review Winter82 Issue 2 p47 2 diagrams

Tokesky; George C; Kornides; Joanne F (1994) Strategic HR management is vital

Personnel Journal Vol.73 Issue 12, P115

Wright; Patrick, M (1998) Introduction: Strategic human resource management research

in the 21st century Human resource Management Review Vol.8 Issue 3, P187,

5p

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