Bradford Centre

for International
Development

2007/08

Human Resource Management and Development

What do you understand by Strategic HRM and how this can create the
‘competitive edge’ in a private sector organisation?

UB:
07014568

By
Aboubaker Suleiman A. BADI

Word count: 4,287

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Introduction:

To accomplish work, organisations need different resources. They need human

financial, material resources and time. Perhaps the most important and difficult to

manage is the human resources. After all it is the human that can manage other

resources and enable organisations function and survive. Thus, Analoui (1998)

points out “People constitute the most important ingredient of the work organisation”.

(1998, p.3)

Over the decade, many researchers have advocated that HR in a strategic role can

greatly add value and exert tremendous influence over the ability to attract, retain

and motivate its human resources, which could in turn, have a huge impact on

growing the business and achieving major organizational goals. HR strategies help

to strengthen the underlying culture and the way an organization operates; they are

important determinants of the quality of an organization’s workforce and the

infrastructure which helps to train, develop, motivate employees as well as focus

employees in the right direction to achieve the company’s targets.

In recent times, HRM has assumed new prominence because of continuing concerns

about global competition, the internationalisation of technology and the productivity

of labour (Bratton & Gold, 2003). It is argued that these market imperatives require

managers to change the way in which they manage the employment relationship in

order to allow for the most effective utilisation of human resource (HR).

Managers and academics argue that the traditional approaches to managing workers

are inappropriate and can no longer deliver the goods (Betcherman et al., 1994, p.2).

Harnessing worker’s full potential and producing the attitudes and behaviour

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considered necessary for a competitive advantage require three aspects of

managerial control to change: organizational design, culture, and HR policies and

practices (Bratton and Gold, 2003).

The aim of this essay is to discuss the Strategic Human Resource Management

(SHRM) impact on organization competitiveness. The essay will begin by analysing

the following concepts : Human Resource Management (HRM), resource-based

View on Strategic Human Resource Management. Then, it will examine the impact of

SHRM on organization competitiveness. Finally, the essay will attempt to assess the

Future Challenge of SHRM.

The first thing that needs to be done is to provide an actual definition and

analysis to what it actually means to be SHRM. In order to define this concept, it is

first important to actually explain what is meant by human resources in general.

Appleby & Mavin (2000) explain that

“Human resources are the efforts, skills, and capabilities that people

contribute to an employing organization which enable it to continue

in existence. Although difficult to define, SHRM is generally

perceived as a distinctive approach to managing people which seeks

to achieve competitive advantage through the strategic development

of a highly committed and capable workforce” (p.555).

The definition that is provided here explains that human resources is really

about the skills that the people of an organization bring together in order to keep it

alive. In addition, the authors explain that moving into the realm of SHRM is about

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managing the human capital of an organization in such a way as to achieve some

type of competitive edge. Having not only a committed workforce, but also having a

workforce that is highly trained for the job that must be performed achieves the

competitive edge. Moving in this direction is where human resources becomes

SHRM.

Van Donk (2001) explaining where in the planning process of a company the

human resource management role must fit in order to make it strategic in nature. He

also explains how this role has evolved in the past twenty years or so:

“From the 80s onward there have been pleas for integrating human

resource management and corporate strategy. A number of authors

have been working on approaches to the achievement of what is called

Strategic Human Resource Management. These approaches place the

human resource management policy formulation at the strategic level.

In these approaches to Strategic Human Resource Management it is

claimed that: (1) human resource problems are problems solved by

linking HRM and strategy formulation at an early stage; and (2)

problems with strategy implementation are solved by early adjustment

of the HRM to these strategies” (p299).

He adds to the definition of SHRM is that human resources cannot be called in

at the last minute to fix a hiring problem. Instead, human resources must be

involved from the very early planning stages in terms of the type of human resources

that are needed. This early involvement allows human resources to understand

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exactly what is needed. It also allows human resources to be able to adjust so that

the decisions that are made about the people that are needed can be adjusted

immediately to fit new or changed strategies for the company.

Despite the widespread use of the term, the concept of HRM remains elusive

and varied (Thomson, 1991; Brewster and Larsen, 1992). According to Storey’s

(2001) discussion on the definition of HRM best summarizes the various meanings

given to HRM. He points out that there are four meanings frequently attached to

HRM. The first is that HRM is simply just another word for personnel management

and is also used to cover other concepts such as employee relations and people

management. The second meaning refers to the use of specific personnel

management techniques in an integrated manner. In this definition, HRM is seen as

the integrated and coherent use of policies and techniques such as selection,

performance appraisal, reward and training to enhance organisational performance

(Storey and Sission, 1993).

The third meaning emphasises on the importance of a business-oriented and

business- integrated approach in the management of employees. This definition

emphasizes that the way an organisation manages its workforce should match the

strategy it pursues. The term “strategic HRM” is often used to refer to this

strategically oriented HRM practice. The fourth definition given by (Thomson, 1991)

goes a step further; besides the importance of integration with strategy, it also

emphasises the use of employee management techniques which seek to develop

employee commitment to certain desired outcomes. This emphasis on the

integration of HRM practices and policies with strategy has been described as a

paradigm shift from a tactical to a strategic orientation (Thomson, 1991).

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 In the perspective of Strategic HRM applies in Resource-Based View, much

attention has been given to human resource management yet often its varied roles

within the organisation have been the subject of neglect (Analoui, 1998). One of the

major problems is identifying what differentiates HRM from strategic HRM, or makes

strategic HRM more strategic than HRM (Karami and Analoui, 1999).

One of the key differences between traditional conceptions of human resource

management and strategic human resource management is the extent to which

human resource management is integrated with the strategic decision making

processes that tend to direct organisational efforts to cope with the environment

(Guest, 2000). Competition, globalisation and continuous change in market and

technology are principal reasons for the transformation of human resource

management (Beer, 1997). Based on the condition of competitive and global market

the new strategic roles for human resource management have been defined.

Traditional human resource ideas emphasise solely on physical skills; training

covering only specific tasks; functional and sub-functional specialisation; and

concern for individual efficiency (Beer, 1997). The traditional perspective did not

place the emphasis on ‘people’ and therefore paid more attention to ‘task’ at the

expense of people and their development (Analoui, 1998). However, the emerging

strategic human resource management ideas emphasise the total contribution on the

firm; innovative and creative behavior; overall effectiveness and cross-functional

integration.

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 Pfeffer (1994) describes how changing market conditions have rendered many

of the traditional sources of competitive advantage, such as patents, economies of

scales and access to capital and market regulations, less important than they have

been in the recent past (Karami et al., 2004). Unlike conventional assets, strategic

human resources as an intellectual or organisational capital are largely invisible and,

therefore, do not appear on the firms balance sheet (Karami, 1999). They are found

in a skilled, committed and adaptable workforce, and in the HRM system that

develops and sustains it. As intellectual capital has come to represent an increasing

fraction of many firms’ total assets, the strategic role of the HRM system has also

become more important. Karami (1999) points to such an HRM system as the source

of organisational capabilities which allows firms to learn and capitalise on new

opportunities.

The HRM system that develops and maintains a firm’s strategic infrastructure

should be considered an investment. It is an essential element of the infrastructure

that supports this value creation process and a potential strategic lever for the

organization (Karami et al., 2004). The system level is considerable in the new role

of SHRM. This system level focus is consistent with the conceptual rationale for the

process of a strategic impact and referred to as a high performance work system

(Karami et al., 2004). SHRM system produces employee behaviors that are focused

on key business priorities, which in turn drive profits, growth and ultimately market

value (Becker & Gerhart, B., 1996). Becker and Gerhart (1996) emphasised that HR

not only must focus on business level outcomes rather than HR level inputs but also

it must become a strategic core competency. They focused on strategic

competencies instead of functional competencies. Their study indicated that the

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most important missing element in the HR functional expertise is a system

perspective.

Finally, as a result of reduced transportation and information costs and the

removal of social and political barriers the globalisation of business is proceeding at

unprecedented and unexpected rates (Karami et al., 2004). Both the criteria and

intensive competition are changing as a result of globalisation (Karami et al., 2004).

This approach emphasises the integration of human resources with the rest of

business and its environment. According to Miller (1991) ‘Strategic human resource

management encompasses those decisions and actions which concern the

management of employees at all levels in the business and which are directed

towards creating and sustaining competitive advantage’. (Miller, 1991, p.114).

Human resources act as differentiating asset solely when wisely managed,

when the strength of enterprise’s HR system is unquestionable, in other words, when

an enterprise has a high-performing HRM. Accordingly, the value of human

resources in an enterprise can rise, maintain the same level or decline depending on

the way in which those human resources are managed.

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 FIGURE 1: A model of human resources as a source of sustained competitive advantage.

Human
Resources
Practices

Human Human Sustained

Capital Resource Competitive
Pool Behavior Advantage

Source: Wright, Patrick M.; McMahan, Gary C.; McWilliams, Abagail.(1994) “Human
resources and sustained competitive advantage: a resource-based perspective,”
------------------------------------------------------------------------------------------

As Figure 1 shows, HRM does not only influence human resources behavior in

an enterprise, but is crucial for development of human resources as a source of

competitive advantage. Evidently, HRM proves to be the key factor for increasing

employees’ productivity, meaning that HR practices turn employees into resource of

development, as well as into source of competitiveness. Explicitly, HRM ensures

presence of competent employees that enable an enterprise to build its

competitiveness, motivates those employees, concerns of their development, etc.

Furthermore, a competitive advantage is not only based upon the sum of people and

talents one enterprise owns, but also upon positive climate and culture of an

enterprise, which is a direct output of high-quality HRM. Namely, only encouraging

work climate and culture assemble individuals, conjoin their personal goals with the

ones of an enterprise, create synergy, and ensure that all members of a team

perform with excellent results which ultimately lead to organizational success

(Wright, et al. 1994).

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SHRM impact on organization competitiveness in the context of resource based view:

Traditional sources of competitiveness, such as production capacities, financial

resources, raw materials, distribution channels etc., are considered necessary, but

no longer sufficient for organizational success. Human resources, their knowledge,

skills and competencies as well as synergy among them, become the most valuable

asset, the new source of wealth, and the key ingredient of competitive advantage.

Consequently, the human resources function, which deals with recruiting,

developing, and keeping the best people, now has the opportunity to move out of the

background into the mainstream of organizational strategy and management. In

other words, in a world in which all work is knowledge work and intellectual capital is

crucial for economic success, it is logical that the ability to attract, retain, and use the

talents of people provides a competitive edge.

When a firm is implementing a value creating strategy not simultaneously being

implemented by any current or potential competitors, then we can say the firm has a

competitive advantage. And when a firm is implementing a value creating strategy

not simultaneously being implemented by any current or potential competitors and

when these other firms are unable to duplicate the benefits of this strategy, then we

can say the firm has a sustained competitive advantage (Barney 1991). The struggle

to gain competitive advantage in markets that grow more fiercely contested day to

day has radically altered the complexion of many businesses. The HRM theorists

start arguing that HRM should be recognised as a source of competitive advantage.

The field of strategic human resource management has grown up alongside the field

of strategic management in recent years. It represents attempts by HRM researchers

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to relate the worlds of HRM and strategic management to each other (Wright &

McMaham 1992).

Only recently, organisational theorists have come to acknowledge the

importance of HR competencies, capabilities, and skills as the sources of

sustainable competitive advantage (Mabey et al., 1998). Researchers like Wright, et

al. (2005) hold that HRM capability is a source of competitive advantage as it is

embedded in the collective knowledge of the firm members, which is developed over

a period of time, and valuable as the firm’s routines for managing people can direct

employees: Talent and behaviors to meet objectives and create value. The concept

of achieving competitive advantage through HRM is based on the rationale that

competitive advantage is the essence of competitive strategy (Mabey et al., 1998). It

encompasses HR capabilities, resource, relationship and decisions that permit an

organisation to capitalise on opportunities in the market place and to avoid threats to

its desired positions.

The resource-based approach emphasises the ability of the organisation for

managing the “appropriability” of employees’ skills and knowledge. Appropriability

refers to the different capacity of the organisations to benefit from the utilisation of

their resources and capabilities (Mabey et al., 1998). It includes attracting and

retaining relevant personnel; building and developing their expertise through

development and learning systems and relationship; rewarding and sharing

expertise; and learning (Richard and Johnson, 2001).

Bernardin and Russell (1998) maintain that an organisational ability to sustain

competitive advantage depends on its ability to attract and retain those individuals

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with skills needed to give the organisations the competitive edge. Attracting and

retaining individuals with the skills related to the core competencies of the

organisation are key HR activities directly relevant to organisational capability

(Mabey et al., 1998).

A lot of interest is being generated in performance measurement of human

resource management capability. Unlike conventional assets, human resource

management capabilities as an intellectual or organisational capital, is largely

invisible, and cannot appear on the firm’s balance sheet (Analoui, 1998). According

to a recent study by (Boxall, 1992; and Wright & McMaham, 1992) have shows two

models of strategic human resource management; which explained as follows:

• The Matching Model or behavioural perspective:

According to the study the matching model of strategic HRM is linked to the

product market oriented views of strategy advocated by Michael Porter 1985, the

model asserts that organisational effectiveness depends on a ‘tight - fit’ between

HRM strategy and business strategy. The essential idea of this model is that HR

practices should be matched to the firm’s desired competitive position; this is seen to

make the organisation more effective. In other words, management should work out

what behaviours are required by the choice of a particular business position and

adopt those HR practices, which reinforce them.

Referring to Boxall, shows several weak points in this model such as; what is

strategy; the typological problem; the issue of strategy - making, and the dynamism

issue.

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 • The Capabilities Model:

The second model is linked to the resource-based view of the firm. According

to Barney (1991) HRM can be valued not only for its role in implementing a given

competitive scenario but for its role in generating strategic capability for its potential

to create firms which are more intelligent and flexible than their competitors over the

long haul firms which exhibit superior levels of co-operation and operation. By hiring

and developing talented staff and their contribution within the resource bundle of the

firm, HRM may lay the basis for sustained competitive advantage. In order to get

more complete model of strategic HRM, it should be linked to the employment

relationship.(Wright, et al 1994)

The resource-based view of the firm, quite clearly, provides a basis for asserting that

key human resources are sources of competitive advantage. It helps to lay the

intellectual basis for a ‘capabilities’ model of strategic HRM. Such a model builds on

the obvious point that learning is something that people do. Applying learning in a

company involves people with skills who want to act together, who co-operate in

powerful ways.

Future Challenge of SHRM

SHRM has considerably grown in the last 15 years. Schuler et al. (2001)

described the evolution of SHRM from personnel management in terms of a two

phased transformation, first, from personnel management to traditional human

resource management and then to SHRM. To improve firm performance and create

firm competitive advantage, firm HR must focus on a new set of priorities these new

priorities are more business and strategic oriented and less oriented towards

traditional HR functions such as staffing, training, appraisals and compensation.

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Strategic priorities include team based job designs, flexible work forces, quality

improvement practices, employee empowerment and incentive compensation

(Schuler et al., 2001). SHRM was designed to diagnose firm strategic needs and

planned talent development which is required to implement a competitive strategy

and achieve operational goals (Huselid, et al., 1997).

The contemporary nature of the HR function is not especially well documented.

In light of the fact that the profession itself is changing with a growth and expansion

of the HR role being matched by a progressively increasing emphasis on

“professionalization”, so too may the function be changing in parallel taking on

different structural configurations, taking advantage of new technologies and

embracing new agendas. What appears to be emerging from these and various

other developments is an increasing proliferation of HR approaches at enterprise

level with no apparent convergence to any single model of HR types. This of course

is not surprising and the proliferation of enterprise level models in response to

changing contexts and circumstances has a long pedigree in the academic and

practitioner literature. From a US perspective, Conner and Ulrich (1996) link the

development of the personnel function to the history of business in the US.

However, a study by Harrison and Kessels (2004) have reviewed the body of

research undertaken since the mid-1990s and have identified the fundamental

challenges presently faced by organisationally based HRD. It is stated that the four

following themes emerged consistently:

• Achieving strategic thrust through integration of HRD strategies with

current business and HR strategies, coupled with a focus on building future

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 organisational capacity for superior speed, flexibility and knowledge

creation.

• Facilitating culture change and building a knowledge-productive learning

culture.

• Promoting high-quality workplace learning processes that will enhance the

value of social as well as human capital.

• Helping to develop managerial and leadership capability that will aid

processes of strategising, organising and HRD, especially in newer

organisational forms.

Harrison and Kessels (2004) speculate on the likely future challenges for HRD

and explore the major implications for the HRD process and its practitioners. They

conclude that HRD in knowledge-based organisations differs significantly from that of

HRD in more traditional contexts. They recognise that this has particular significance

and implications for the education and career development of HRD practitioners.

The current literature suggests that the role of the HRD practitioner is changing.

There is a large body of research which examines the nature of these changes and

the development implications for the HRD practitioner. The literature reveals the

skills that HRD practitioners will need to develop and possess in order to perform the

emergent role. There are some suggestions as to the type of intervention, activities

and tasks that the HRD practitioner will need to undertake. There is a paucity of

information as to how the HRD practitioner might actually acquire and develop the

skills required to perform the emergent role. Most significantly, perhaps, the literature

reveals an apparent discrepancy between the theory and the practice of HRD.

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Conclusion

This paper has been discussed the SHRM impact on organization

competitiveness. It has been addressed through an examination of the concepts of

HRM, and has followed by analyzing a resource-based View on Strategic Human

Resource Management. Finally, this essay concludes with a review of the Future

Challenge of SHRM.

Organisations that adopt best HR practices can generate greater returns. Such

practices include profit sharing, results oriented appraisals, and greater employment

security.

Different studies hold that human resource managers must align some key

organisational HR practices with business strategy.

To conclude from the empirical and theoretical evidence HR can be a source of

sustained competitive advantage and becomes a core competency which makes it

difficult for the competitors to imitate.

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