MODULE I

UNIT 3: STRATEGIC HUMAN RESOURCE

Strategic HRM is in some ways an attitude of mind that expresses a way of doing
things.

Strategic HRM defines the organization’s intentions and plans on how its business
goals should be achieved through people. It is based on three propositions:

1. that human capital is a major source of competitive advantage;

2. that it is people who implement the strategic plan; and
3. that a systematic approach should be adopted to define where the
organization wants to go and how it should get there.

Strategic HRM is a process that involves the use of overarching approaches to the
development of HR strategies, which are integrated vertically with the business
strategy and horizontally with one another. These strategies define intentions and
plans related to overall organizational considerations, such as organizational
effectiveness, and to more specific aspects of people management, such as
resourcing, learning and development, reward, and employee relations.

Human Capital as a Scarce Resource

According to Peter Drucker, ‘The ultimate goal of the corporation is

survival,’ and it remains the ultimate legacy for every present and future
organization. Every organization has to manage changes like increasing
competitiveness, rapid technological changes, globalization, and information
revolutions which have brought about uncertainty and instability.

The knowledge worker has become the real capital. The skills and the
cumulative experience of the employees are the most important asset in any
organization. Unlike other resources, human resources cannot be replicated and
attracting and retaining the right kind of people for the right job is always a
difficult proposition.

Increasingly, corporations are realizing that managing human relations is

the most important criterion, and rapid change in the advancement of
technology has traversed the knowledge of managing human resources from
‘Scientific Management theory’ to ‘Situational theory of Management.’
Employees are now the key persons responsible for increasing the performance
of the organizations thus giving a competitive edge to the organizations. This is
only possible when new strategies are human-centric rather than capital-centric.
The organization must invest in developing new skills among the employees so
they can be partners in the future and newer technologies.

Driving Business Orientations

Increasing competition and technological changes have made

organizations respond very quickly to the changing needs and expectations of
the customers. The effectiveness and efficiency of the organization depend upon
how fast it reaches the customer before the competitor. The challenge of every
HR practitioner is how to align its human resources, and various processes of HR in
relation to business plans and meeting customer requirements.

Every employee must be inducted appropriately with the business plan of

the company. The orientation and attitude of each employee varies and may
differ from time to time. The role of HR is to ensure the employees’ development
of their competencies in business orientation. Indeed, one of the most important
concerns that organizations face is the improvement of the productivity of every
employee and in turn the organizational productivity.

Human resources is the only source where all the other resources are being
converted into products and services. Hence, getting the right kind of resources
is a must, and HR policies need to be impact-oriented rather than activity-
oriented.

HR Strategy and Linking Business Strategy

The strategy of HR is to design and integrate systems, processes, and

resources to suit the business strategy. It helps in ensuring the goals and
accomplishing the objectives of an organization. The ability of the employees to
provide high-quality service and value to the customer depends upon the policies
and practices that enable them to foster bondage with the customers.

The HR strategy for the organization must comprise of what is being required
and what would enable the company to derive the strategy to bring in the
synergy between the systems, practices, and activities in line with the business
objectives. Organizations must realize that a dynamic and creative workforce
can only bring in sustained competitive advantage.

Aims of Strategic Human Resource Management

The rationale for strategic HRM is the perceived advantage of having an

agreed and understood basis for developing approaches to people
management in the longer term. It has been suggested by Lengnick-Hall and
Lengnick-Hall (1990) that underlying this rationale in a business is the concept of
achieving competitive advantage through HRM. Strategic HRM supplies a
perspective on the way in which critical issues or success factors related to people
can be addressed, and strategic decisions are made that have a major and long-
term impact on the behavior and success of the organization.

The fundamental aim of strategic HRM is to generate strategic capability

by ensuring that the organization has the skilled, committed, and well-motivated
employees it needs to achieve sustained competitive advantage. Its objective is
to provide a sense of direction in an often-turbulent environment so that the
business needs of the organization, and the individual and collective needs of its
employees can be met by the development and implementation of coherent
and practical HR policies and programs. As Dyer and Holder (1988) remark,
strategic HRM should provide ‘unifying frameworks which are at once broad,
contingency-based and integrative’.

When considering the aims of strategic HRM it is

necessary to consider how HR strategies will consider
the interests of all the stakeholders in the organization:
employees in general as well as owners and
management. In Storey’s (1989) terms, ‘soft strategic
HRM’ will place greater emphasis on the human
relations aspect of people management, stressing
continuous development, communication,
involvement, security of employment, the quality of working life, and work–life
balance. Ethical considerations will be important. ‘Hard strategic HRM’ on the
other hand will emphasize the yield to be obtained by investing in human
resources in the interests of the business.

Strategic HRM should attempt to achieve a proper balance between the

hard and soft elements. All organizations exist to achieve a purpose and they must
ensure that they have the resources required to do so and that they use them
effectively. But they should also consider the human considerations contained in
the concept of soft strategic HRM. In the words of Quinn Mills (1983), they should
plan with people in mind, considering the needs and aspirations of all the
members of the organization. The problem is that hard considerations in many
businesses will come first, leaving soft ones some way behind.

Approaches to Strategic Human Resource Management

There are five approaches to strategic HRM. These consist of resource-

based strategy, achieving strategic fit, high-performance management, high
commitment management, and high-involvement management, as described
below.

1. The resource-based approach

A fundamental aim of resource-based HR strategy, as Barney (1991) indicates, is
to develop strategic capability – achieving strategic fit between resources and
opportunities and obtaining added value from the effective deployment of
resources. A resource-based approach will address methods of increasing the
firm’s strategic capability by the development of managers and other staff who
can think and plan strategically and who understand the key strategic issues.

The resource-based approach is founded on the belief that competitive

advantage is obtained if a firm can obtain and develop human resources that
enable it to learn faster and apply its learning more effectively than its rivals
(Hamel and Prahalad, 1989). In the resource-based view, the firm is seen as a
bundle of tangible and intangible resources and capabilities required for
product/market competition.

In line with human capital theory, resource-based theory emphasizes that

investment in people adds to their value in the firm. The strategic goal will be to
create firms that are more intelligent and flexible than their competitors (Boxall,
1996) by hiring and developing more talented staff and extending their skill base.
Resource-based strategy is therefore concerned with the enhancement of the
human or intellectual capital of the firm.

2. Strategic fit
The HR strategy should be aligned with the business strategy (vertical fit). Better
still, HR strategy should be an integral part of the business strategy, contributing to
the business planning process as it happens. Vertical integration is necessary to
provide congruence between business and human resource strategy so that the
latter supports the accomplishment of the former and, indeed, helps to define it.
Horizontal integration with other aspects of the HR strategy is required so that its
different elements fit together. The aim is to achieve a coherent approach to
managing people in which the various practices are mutually supportive.

3. High-performance management
High-performance management (a.k.a high-performance work systems or
practices) aims to make an impact on the performance of the firm through its
people in such areas as productivity, quality, levels of customer service, growth,
profits, and, ultimately, the delivery of increased shareholder value. High-
performance management practices include rigorous recruitment and selection
procedures, extensive and relevant training and management development
activities, incentive pay systems, and performance management processes.
4. High-commitment management
One of the defining characteristics of HRM is its emphasis on the importance of
enhancing mutual commitment (Walton, 1985). High-commitment management
has been described by Wood (1996) as: ‘A form of management which is aimed
at eliciting a commitment so that behaviour is primarily self-regulated rather than
controlled by sanctions and pressures external to the individual, and relations
within the organization are based on high levels of trust.’

5. High-involvement management
This approach involves treating employees as partners in the enterprise whose
interests are respected and who have a voice on matters that concern them. It is
concerned with communication and involvement. The aim is to create a climate
in which a continuing dialogue between managers and the members of their
teams takes place in order to define expectations and share information on the
organization’s mission, values, and objectives. This establishes a mutual
understanding of what is to be achieved and a framework for managing and
developing people to ensure that it will be achieved.

Limitations to the Concept of Strategic HRM

The concept of strategic HRM appears to be based on the belief that the
formulation of strategy is a rational and linear process. This indicates that the
overall HR strategy flows from the business strategy and generates specific HR
strategies in key areas.
The process takes place by reference to systematic reviews of the internal and
external environment of the organization, which identify the business,
organizational, and HR issues that need to be dealt with. But strategic HRM in real
life does not usually take the form of a formal, well-articulated, and linear process
that flows logically from the business strategy.

Strategic Role of Human Resource Management

• The days of HR as the “personnel
department” – performing recordkeeping,
paper pushing, file maintenance, and
other largely clerical functions – are over.
Any organization that continues to utilize its
HR function solely to perform administrative
duties does not understand the
contributions that HR can make to an
organization’s performance.
 • In the most financially successful organizations, HR is increasingly being seen
as a critical strategic partner and assuming far-reaching and
transformational roles and responsibilities.
• Strategic HR management involves making the function of managing the
people the most important priority in the organization and integrating all HR
programs and policies within the framework of a company’s strategy.
• Strategic HR management:
➢ Development of a consistent aligned collection of practices, programs,
and policies to facilitate the achievement of the organization’s strategic
objectives.
➢ Considers the implications of corporate strategy for all HR systems within an
organization by translating company objectives into specific people
management systems.

Strategic HR versus Traditional HR

Dave Ulrich’s HR Functions