Introduction

Definition-
⚫ strategic human resource management is the
integration of human resource management and
strategic management process.
⚫ In other words we can say that it is the
alignment of Human Resource Management
with the organization’s mission.
HUMAN RESOURCE MANAGEMENT
STRATEGIC HUMAN RESOURCE MANAGEMENT
 Objectives of SHRM: -

⚫ Assess how well human resources management is

linked to agency mission accomplishment.
⚫ Explore the role played by the HR staff in agency
strategic planning.
⚫ Determine how the HR service providers work with
line managers to carry out agency strategic goals.
⚫ Identify best practices aligning HRM with the agency
strategic plan and goals.
Theoretical frame work of SHRM

Firm strategy Institutional /

Political forces

Resource dependence
Resource institutional
based view
of the firm HRM Practices
Behavioral
Cybernetics
approach
Agency/transaction costs
Firm level outcomes
HR Capital pool HR behaviors (performance,
satisfaction,
(Skills, abilities) absenteeism etc)
Theoretical frame work of SHRM

Strategy driven
Resource based view
Competitive advantage based on unique allocation of resources {selection /Compensation package}
(TCS)
Behavioral view
Control and influence the behaviors of individuals (Infosys)
Cybernetics systems
Adoption or abandonment of practices based on feedback on contributions to strategy (Bosch –
MICO)
Agency/transactions cost view
Use of control systems, performance evaluation and reward systems etc
(In the absence of performance evaluation strategy may not be pursued)

Non-Strategy driven
Resource dependence and power theories
Power and politics= legislation, unionization, control of resources, expectations of social responsibility.
Institutional theory
In appropriate performance evaluation dimensions (inertia / rational decision making.appraisal
 HUMAN RESOURCE ACTIVITY TYPOLOGY

High Performance enhancement

Consulting
Staffing planning
Employee relations
Benefits of planning Labour negotiations
Retirement planning Executive compensation
Employee development
Compliance
Management development
Recruitment interviewing
Strategic value of
activity
Payroll
Benefits administration
Recruitmentinformation processing
Retirement administration
Employee records Employee assistance programs
Relocation administration
Recruitment information processing

Low
< IMPORTANT TO EMPLOYEES >

Transactional Type of HR activity Relationship

 STRATEGIC THEORIES

⚫ 1.) Resource – Based View of the Firm

⚫ 2.) Behavioral Perspective

⚫ 3.) Cybernetic Systems

⚫ 4.) Agency / Transaction Cost Theory

 Resource – Based View of the Firm
⚫ Theory contends that the possession of strategic resources
provides an organization with a golden opportunity to develop
competitive advantages over its rivals

⚫ Defines Competitive Advantage as “ When a firm is

implementing a value creating strategy not
simultaneously being implemented by any current or
potential competitors ”
⚫Assumptions
Firm Resource Heterogeneity
Firm Resource Immobility
⚫
Sustained Competitive Advantage exists only after efforts
to replicate that advantage have ceased
⚫ Add positive value
⚫ Unique or Rare
⚫ Inimitable
⚫ Non – Substitutable
A strategic resource is an asset that is
valuable, rare, difficult to imitate, and non substitutable

Strategic resources that are valuable or rare are valuable simply due to
the relatively high cost of acquiring them (e.g., an airplane) or scarcity
(e.g., diamonds).

Competitors have a hard time replicating resources that are difficult to

imitate Certain resources can be and are protected by various legal
means, including trademarks, patents, and copyrights, which ensures
they are difficult for the competition to imitate. Other resources are hard
to copy because they evolve over time and reflect unique aspects of the
firm

A resource is non substitutable when competitors cannot find alternative

ways to gain the benefits that a resource provides
 Tangible resources : can be readily seen, touched, and quantified, such
as physical assets, property, plant, equipment, and cash.

Intangible resources : that are difficult to see, touch, or quantify, such

as the knowledge and skills of employees, a firm’s reputation, and a
firm’s culture.

In comparing the two types of resources, intangible resources are more

likely to meet the criteria for strategic resources (i.e., valuable, rare,
difficult to imitate, and non substitutable) than are tangible resources.

Executives who wish to achieve long-term competitive advantages should

therefore place a premium on trying to nurture and develop their firms’
intangible resources
MANAGERIAL ECONOMICS
 HR as Sustained
Competitive Advantage
⚫ Provide Value to the Firm

⚫ Heterogeneous Demand for Labor

⚫ Heterogeneous Supply of Labor

⚫ Rarity

⚫ HR with high ability levels are rare

⚫ Valid Selection Programs

⚫ Attractive Reward Systems

⚫ Unique Historical conditions

⚫ Causal Ambiguity:
⚫ is in decision making and strategy formation the situation where it is hard or even impossible
to relate the consequences or effects of a phenomenon to its initial states or causes.
It is the uncertainty due to the quality of being open to more than one interpretation of the
relationship between 2 phenomena, like for example between the resources a company has
available and its competitive advantage

⚫ Causal ambiguity describes a lack of understanding of cause-and-effect interactions between

resources and competitive advantage. As a central construct in strategic management, causal
ambiguity constrains a firm’s ability to replicate valuable capabilities internally, yet,
simultaneously, offers a means of protecting those capabilities from imitation by external
agents.

⚫ Social Complexity
⚫ No Substitutes
⚫ Substitutable Technology
⚫ Non substitutable HR

⚫ This theory demonstrates that Strategies are not

universally implementable , but are contingent on
having the human resourcebase necessary to
implement them .
From Resources to Capabilities
Capabilities are what the organization can do based on the resources it possesses, another key
concept within resource-based theory.
Resources refer to what an organization owns,
capabilities refer to what the organization can do

Capabilities tend to arise or expand over time as a firm takes actions that build on its strategic
resources. Capabilities are important in part because they are how organizations capture the
potential value that resources offer

capabilities are needed to bundle, manage, and otherwise exploit resources in a manner that
provides value added to customers and creates advantages over competitors

a firm that enjoys a dynamic capability is skilled at continually adjusting its array of capabilities to
keep pace with changes in its environment
Behavioral Perspective
⚫ the behavioural perspective of HRM has been developed as a
framework for analysing how management policies and
practices should be designed to maximize organizational
effectiveness, given an organization’s specific and unique
environmental context and internal organizational conditions

⚫ Focus on Employee Behavior as the mediator

between Strategy and Firm performance .
⚫ Assumes that the purpose of various Employment
practices is to elicit and control Employee Attitudes
&Behaviors.
A) Focus Is On Desired Employee Behaviours

B)Different Organizations Need Different Employee Behaviours

The behavioural perspective of HRM argues that “different strategies require different role
behaviours from employees in order for those strategies to be implemented successfully”.

Role behaviours that are believed to contribute to organizational effectiveness are referred to as
“desired” (also referred to as “needed”) employee behaviours

Included among this broader set of desired behaviors are

• activities such as completing tasks that are officially the responsibility of another employee as
needed,
• being adaptive and willing to learn and change as needed, and generally behaving in ways that
are consistent with the organization’s stated goals and values

Thus, the behavioral perspective of HRM assumes that management policies and practices
influence not only what work gets done in an organization, but also how work gets done.
C) Organizational Effectiveness Improves When Employees Behave as Needed
The behavioral perspective of HRM assumes that the behaviors of employees are
one of the major determinants of organizational effectiveness

The behavioral perspective recognizes that other factors (e.g., the actions of competitors,
economic conditions, industry dynamics) also influence organizational effectiveness, but it
focuses on employee behaviors because it is through behavior that organizational resources are
transformed into goods and services that have economic value

D) Employee Behaviours Reflect Situational Influences

According to the behavioral perspective of HRM, the desirability of specific behaviors is
influenced by a variety of contextual factors inside and outside the organization.
Internal contextual factors that influence the behaviors needed for organizational effectiveness
are aspects of the particular organization itself—its size, life cycle stage, competitive strategy,
technology, structure, and history.
External contextual factors that influence the desirability of specific behaviors are conditions
outside the organization that affect organizational functioning, including: industry dynamics,
institutional pressures, economic and political conditions, country cultures, and the action of
customers.
The behavioral perspective assumes that a comprehensive consideration of these contextual
elements is needed to fully determine which employee behaviors are desirable. Thus,
determining the desired employee behaviors for a specific organization is the first essential step
for effective human resource management.
E) Management Policies and Practices Shape Employee Behaviours:

The behavioral perspective of HRM assumes that employee behaviors are flexible—that is,
people are generally motivated to behave in ways that socially approved of by others and so
are responsive to a variety of informational cues.

Two sources of cues emphasized by the behavioral perspective are

• formal stated policies concerning how employees are to be treated

• informal daily practices or the actual ways in which employees are treated

An organization’s formal policies and informal practices for managing employees function
together as the human resource management (HRM) system
Evolution of the Behavioral
Perspective
A)From “Best” Practices to Practices that “Fit
behavioral perspective assumes HRM policies and practices should be designed to fit an
organization’s specific situation.

There is no “one best way” for managing people.

Policies and practices that are effective for one organization may not be effective in other
organizations because organizations differ in the specific employee behaviors that are needed in
order to implement the business strategy and satisfy key stakeholders.

Subsequently, alternative interpretations of this aspect of the behavioral perspective evolved

into several competing theoretical perspectives, including the contingency and configurational
perspectives
B)From HRM Activities to HRM Systems
The embracing of a systems view for understanding HRM also was a
major departure from past approaches

HRM systems in co-ordination with strategies , influences employees job-

related attitudes and behaviors.
 C) From Employee Outcomes to Organizational
Effectiveness as Criteria
A third departure from prior approaches was
broadening the criteria used to evaluate the
effectiveness of HRM policies and practices
INNOVATION as STRATEGY
⚫ High Degree of Innovative Behaviour
⚫ Long – Term Focus
⚫ High Level of Co-operative Behaviour
⚫ Moderate Degree of Concern for Quality
⚫ Moderate Concern for Quantity
⚫ Greater Degree of Risk Taking
COST REDUCTION STRATEGY
⚫ Reprtitive Behaviors
⚫ Short - Term Focus
⚫ Autonomous Activity
⚫ High concern for Quantity
⚫ Moderate Concern for Quality
⚫ Low Risk Taking
⚫ This theory is tested to Demonstrate
⚫ Different Strategies are associated with different
levels of Firm Performance
⚫ Relationship between Strategies and Firm
Performance is either mediated or moderated by
HRM practices and Employee role Behaviors.
CYBERNETIC SYSTEMS
⚫ Open Systems Model
⚫ Inputs are Competencies ( Skills , Abilities) of
Employees
⚫ Throughput Process is Behavior of Employees
in the Organization .
⚫ Outputs consist of Performance ( Productivity )
and Affective Outcomes ( Job Satisfaction )
This model is based on systems approach. It assumes that firms are either closed system or open
system. It takes into consideration the input, throughput and output.

The traditional closed system fails to take into consideration the outside influences.

However, cybernetic models focuses on open systems taking into account the external factors and
organizations into consideration described an open system model with employee competencies
as inputs, employee behaviors as throughputs and affective and performance outcomes as the
outputs.

SHRM function should have competence management and behavior management, the former
covering competence acquisition, utilization, retention, and displacement and the latter,
consisting of behavioral control, behavioral co-ordination.

Subsequently, a control theory of strategic human resource management was developed by

taking into account the whole process relating into input, behavior and output explaining the
mediating role of administrative information on the relationship between HRM control and
strategy.

Thus confirming, the idea that different strategic postures required different HRM practices for
control
⚫ SHRM consists of

⚫ Competence Management

⚫ Behavior Management
Competence Management

Competency management is the process of identifying key skills (competencies) required for
employees to help hit a business’ goals and long-term objectives. The process of competency
management has four key elements:

A) Identifying the skills needed to achieve goals

B) Identifying current skills within your workforce
C) Crafting a roadmap to develop employees from point A to point B
D) Implementing and iterating on that plan

Competency management is an administrative practice that involves defining the skills,

knowledge and expertise that an employee needs to succeed in their position at work and
contribute positively to the organization. Competencies are the values, experience and
abilities belonging to an individual or group. Management can identify the competencies of
employees, determine requirements for meeting targets within each role at the organization,
and combine both findings to optimize work operations.
For example, if a position requires individuals with advanced math skills to perform high-
level calculations, management can benefit from assigning someone with math competency
to that role.

Rather than having to provide additional time and resources toward training someone
without these skills, they can give those responsibilities to an individual that already has the
knowledge and experience necessary for meeting goals within that sector of the
organization.

This can reduce the effort necessary for training inexperienced individuals, allowing for
employees to dedicate more time to other work-related activities.
Competence Management
⚫ Competence Acquisition
⚫ Competence Utilization
⚫ Competence Retention
⚫ Competence Displacement
Behavior Management
⚫ Behavioral Control
⚫ Behavioral Coordination

⚫ This theory has potential to examine how

SHRM Practices change or need to change over
time .
Agency / Transaction Cost Theory
⚫ Transaction costs are the costs associated with
negotiating , monitoring , evaluating , and
enforcing exchanges between parties .

⚫ Agency costs are the costs associated with

establishing efficient contracts between parties
⚫ Bureaucratic costs refer to the transaction costs
associated with managing human resources in a
hierarchy ( when Authority Relationship exists )
⚫ This theory is popular for Diversification ,
Internalization , Restructuring .
Agency / Transaction Cost Theory

Whenever people work together, there are costs—transaction costs—associated with

controlling their activities. Organizations also interact just like people to get the resources
they require, and they have to control those symbiotic and competitive
interdependencies.

According to transaction cost theory, the goal of the organization is to minimize the costs
of exchanging resources in the environment and the costs of managing exchanges inside
the organization

Organizations try to find mechanisms that make inter-organizational transactions relatively

more efficient. This is achieved by trying to minimize transaction costs and bureaucratic
costs because they siphon off productive capacity
Sources of transaction cost
Transaction cost theory brings into focus the cost associated with the different linkage
mechanism. Cost associated with different linkage mechanisms reduce uncertainty and make
prediction of choosing an organization to be a trading partner.

Transaction cost theory can help managers to choose an inter-organizational strategy by enabling
them to weigh the savings in transaction costs achieved from using a particular linkage
mechanism against the bureaucratic costs of operating the linkage mechanism

Managers deciding which strategy to pursue must take the following steps:
 Know the different transaction costs and decide how high the transaction costs are likely to
be.
 Estimate the transaction cost savings from the different sources.
 Estimate the bureaucratic cost of operating the linkage mechanism.
 Choosing the linkage mechanism that is the most cost efficient.
Non Strategic Models of HRM
Non strategic means determinants of HRM practices
that are not the result of rational strategic decision
making process, but rather derive from institutional
and political forces in the firm.
Non Strategic Theory of HRM
Two theories:

a) Resource dependence Model.

b) Institutionalism.
Resource dependence theory (RDT)
Resource dependence theory (RDT) is concerned with how organizational behavior is
affected by external resources the organization utilizes, such as raw materials.

The theory is important because an organization's ability to gather, alter and exploit raw
materials faster than competitors can be fundamental to success.

RDT is underpinned by the idea that resources are key to organizational success and that
access and control over resources is a basis of power. Resources are often controlled by
organizations not in the control of the organization needing them, meaning that strategies
must be carefully considered in order to maintain open access to resources.
Organizations typically build redundancy into resource acquisition in order to reduce their
reliance on single sources e.g. by liaising with multiple suppliers.

As procuring external resources is important for the strategic and tactical management of
any company, resource dependence theory has several important implications. These
relate to: the optimal organisational structure, recruitment of board members and
employees, production strategies, contract structure, external organisational links, and
other aspects of organisational strategy.
The premise of resource dependence theory
 Organisations respond to the demands of elements in the environment that control critical
resources.
 These resources ultimately originate from an organisation’s environment.
 The environment, to a considerable extent, contains other organisations.
 The resources needed by a particular organisation are therefore often in the hands of other
organisations.
 Resources are a basis of power.
 Legally independent organisations can therefore depend on each other.
 Power and resource dependence are directly linked. For example, organisation A’s power over
organisation B is equal to organisation B’s dependence on organisation A’s resources.
 Power is relational. In other words, it concerns how different organisations are connected.
 Power is also situational. In order words, it is dependent on what is happening at a particular time.
 Power is potentially mutual, so organisations may be reliant on each other to possess it.
 Managers attempt to manage their external dependencies to ensure survival and acquire more
autonomy.
 Institutionalism:

Institutional theory is an approach to understanding organizations and management practices as

the product of social rather than economic pressures. It has become a popular perspective within
management theory because of its ability to explain organizational behaviors that defy economic
rationality.

It has been used, for example, to explain why some managerial innovations become adopted by
organizations or diffuse across organizations in spite of their inability to improve organizational
efficiency or effectiveness.

The explanation, according to institutional theory, is based on the key idea that the adoption and
retention of many organizational practices are often more dependent on social pressures for
conformity and legitimacy than on technical pressures for economic performance
Institutional influences
i. It can be imposed coercively .
ii. It can be authorized through an organization
voluntarily seeking approval of a superordinate
entity.
iii. It can be induced through outside agents providing
rewards to organization that conform with the
wishes of the agent.
iv)It can be acquired through one organizational
modeling its practices based on practices of other
organization as a means of appearing legitimate or up
to date.
v)Imprinting pocess whereby the practices adopted at
the beginning of the organization’s history remain
embedded in the organization.