Module - 02

Strategic Human Resource Management

Strategic Fit: A Conceptual Framework
•Organizations are often confronted with a dilemma
•Should they adopt business strategies that fit the available
competencies and capabilities in the firm
•Should they first decide their business strategy and then
stretch and modify their competencies and capabilities to fit
the business strategy?
•The strategic fit proposes that if an organization seeks to
maximize its competitive advantage
•Must match its internal resources and skills(organizational
competencies)with the opportunities in external environment
 Strategic Human Resource Management
Strategic Fit: A Conceptual Framework

•When Organization attempts to implement new strategies

with outmoded or inappropriate HR strategies it can face
problems
•Strategic human resource management is largely about
integration
•Guest (1989) emphasized that it is important to ensure that
HRM is fully integrated to strategic planning
•In 1997Guest identified the following five types of fit:
 Strategic Human Resource Management
Types of Fit between HR and Business Strategy

Fit as
Fit as strategic
bundles(confi interaction
guration best fit
approach) approach
Fit
perspective

Fit as
gestalt
Fit as an Fit as
ideal set contingency
of
practices
 Strategic Human Resource Management
Strategic Fit: A Conceptual Framework
1.Fit as strategic interaction(best fit approach)-HR practices
linkage with external context

2.Fit as (Future event )contingency-HR approaches to ensure

that internal practices of the organization respond to external
factors such as the nature of the market, skill availability

3.Fit as an ideal set of practices(best practice approach )-there

are best practices which all firm can adopt
 Strategic Human Resource Management
4.Fit as gestalt-emphasizes the importance of finding an
appropriate combination of practices

5.Fit as bundles (the configuration approach)-suggests a search

for distinct configuration or bundles of HR practices that
complement each other in order to determine which bundle is
likely to be most effective
 Business Strategy
• How it intends to succeed in its chosen market place and
mainly focuses on competitive advantage
• Business Strategy of an organization must reflect the
intentions of managers about what they expect to achieve
over a stated period of time.
• Beating competitors in meeting customers‟ needs, but this
does not mean that a Business Strategy is the same thing as a
marketing strategy
• Take into account the changing needs and critical resources
needed to carry out the strategic aims
 What are HR strategies?
• HR strategies set out what the organization intends
to do about its human resource management
policies and practices and how they should be
integrated with the business strategy and with each
other. Key elements:
– Strategic objectives
– Plan of action
• „There is no great strategy only great execution”
(Gratton 2000)
 A good HR strategy:
• Satisfy business needs
• Is founded on detailed analysis
• Can be turned into actionable programmes
• Is coherent (Consistent , logical )and
integrated
• Takes account of the needs of line managers,
employees and other stakeholders
 Strategic Human Resource Management
Three of the five types of fit provide the following possible
approaches to SHRM:

•The best fit approach

•The HR bundles or configuration approach
•The best practice approach
 Strategic Human Resource Management
The Best Fit Approach
The focus of the best fit approach is on the linkage of HR
strategies with business strategies
Also referred to as external fit or vertical integration
Best fit also means that HR strategies match the stages of
development of the firm
⮚Start-up
⮚Maturity
⮚Decline/degeneration
⮚Regeneration or transformation
Business strategies and HR strategies will differ between green
field firm and one that is in the transformation stage
 Strategic Human Resource Management
The Best Fit Approach contd
Bases of classification of HR Strategies:
Beaumont (1992) three bases of classification of HR strategies:
Different types of business strategies-
Example-organization chooses strategy of low cost producer it
adopts different HR approaches to compensation as compared
to an organization which adopts a product innovation strategy
Porter(1985) different business strategies will result in variation
in HR practices
 Strategic Human Resource Management
The Best Fit Approach contd
2.Stages in the business or product cycle
HR practices are related to variations in the life cycle stages of a
business-startup-growth-maturity-decline
✔In the growth stage an organization recruits an adequate
number and mix of qualified people

✔In the maturity stage encourages sufficient turnover to

minimize layoffs and facilitate reorganization

✔Decline stage-plans and implements workforce reductions

and reallocation
 Strategic Human Resource Management
HR practices Corresponding to the stages of an Organizations
life cycle
Life Cycle Stages HR Practices

Start up Flexible patterns of work

Recruitment of highly motivated and
committed employees
Little formality
No unions

Growth More sophisticated recruitment and

selection
Training and development
Performance management processes
Reward systems
Focus on high commitment
Developing stable employee relations
Control compensation
by Prof. Mary Bodra
 Strategic Human Resource Management
HR practices Corresponding to the stages of an Organizations
life cycle
Life Cycle Stages HR Practices

Maturity Attention to the control of labor costs

Focus on increasing productivity
Strained employee relations
Control compensation

Decline Emphasis on rationalization of workforce

and downsizing
Abandoning some longstanding practices
to cut costs
Trade unions have a marginalized role
Retaining and career consulting services
 Strategic Human Resource Management
The Best Fit Approach contd
3.Types and numbers of products-Fombrun et al.
(1984)suggested that the strategy aimed at achieving variations
in product focus
-Single product strategy having a functional structure is likely to
be subjective in selection/appraisal/rewards

•Organization that follows strategy of growth –acquisition of

unrelated business-criteria of selection will differ
-performance appraisals and rewards are impersonal and based
on ROI and profitability
-Development is cross functional not cross business
 Strategic Human Resource Management
Three types of business strategy that may be adopted by an
organization
•Cost leadership
•Differentiation
•Focus

•According to Porter an organization may adopt any one of the

three business strategies in order to compete successfully in a
particular market and gain and sustain superior performance as
well as an advantage over its competitors
 Strategic Human Resource Management
HR strategy classification
After discussing the bases of classification of HR strategy the most
popular approach is the type of business strategy and adoption of
complementary HR strategies
Schuler and Jackson focused on Porter ‘s classification of the three
generic business strategies
✔Cost Leadership
✔Differentiation
✔Focus
They argued that the HR practices should be designed to reinforce
the behavioural implication of these strategies
 Strategic Human Resource Management
Miles and Snow’s Classification of Business Strategy and HR
Strategy
Dominant Culture of the organization HR Strategy
(Business Strategy)
Defenders Build HR
Find change threatening Likely to emphasize training programmes and
internal promotion

Prospectors Creative and flexible management style

Thrive on change Have high quality HR Redeployment
Favour strategies of product/market Acquire HR
development Emphasize recruitment, selection,
performance based compensation

Analyzers Low levels of monitoring and coordination

Seek to match new ventures with the present Buy and make Key HR
business set up Emphasize HR planning
Ventures not new to the market only new to
the firm
 Linking HR Strategy to Business Strategy
Linking HR Strategy to Business Strategy gives HR professionals
the deeper knowledge required to connect HR practices and
programs to organizational success:

a) Understanding Business Strategy

b) Mapping a Strategy
c) Practices that Drive Results
d) Let’s Talk Business
 Strategic Human Resource Management
Linking Business Strategy and HR Strategy(O’Riordon)
Business Strategy HR Strategy

Cost Leadership Utilization HR Strategy

Suitable for repetitive and predictable HR Strategy focussed on short term
behaviour performance measures –results or outcomes
Concerned with short term focus and Hierarchical pay ,few incentives
quantities Narrow career path ,limited training
Result oriented

Differentiation Facilitation HR strategy

Long term focus Broad career paths
Creative job behaviour Extensive training
Moderate concern for quality and quantity Equal and fair pay/many incentives for
creativity

Focus Accumulation HR Strategy

High concern for quality Equal and fair pay with many incentives
Moderate concern for quality Hiring employees belonging to the new target
Long /medium term focus market/High employee participation
by Prof. Mary Bodra
a) Understanding Business Strategy You’ll enhance your
knowledge of key business drivers and core elements
of business models that impact business results. We’ll
discuss market segmentation, product and service
design, and how organizations create value. We’ll also
explain the dynamic interplay between revenues, costs
and risk, and demonstrate how strong HR practices
contribute to profitability.
b) Mapping a Strategy Learn how to create a well-
designed and professionally executed HR strategy
using key elements and best practices that ensure
alignment with business goals. We’ll discuss how
various stakeholder perspectives impact your plan and
work with you to develop a strong framework that
directly applies to your work environment.
c) Practices that Drive Results HR disciplines can impact business
strategy, but your leadership is crucial to success. We’ll show
you how to leverage your training, development and
performance management programs for organizational
success, and how to fully engage your talent to keep them
focused on business goals. You’ll also learn how to assess
customer satisfaction and measure the effectiveness of your
programs in relation to business goals.

d) Let’s Talk Business You’ll need to learn the language of

numbers to successfully communicate and contribute to
strategic discussions within your organization. We’ll show you
how to design and measure programs that build loyalty and
deliver value, and how to develop tactical approaches to
partnerships that maximize your efforts.
 Miles & Snow’s Classification of
Business Strategy with HR strategy
Dominant culture of organization HR strategy
(Business Strategy)
Defenders ▪ Bureaucratic approach
▪ Find change threatening ▪ Planned & regularly maintained
▪Favour strategies which policies
encourage continuity & security ▪ Build human resource
Prospectors ▪ Creative & flexible management
▪ Thrive on change style
▪ Favour strategies of product or ▪ Have high quality human resource
market development ▪ Little opportunity for long term HR
planning.
▪ Emphasize on recruitment,selection
& performance based compensation
Analyzers ▪ Low level of monitoring &
▪ Seek to match new ventures with coordination
the present business set-up ▪ ‘Buy’ as well as ‘Make’ key human
▪ These firms are followers- the resources
ventures are not new to the ▪ Emphasize on HR planning
market,only new to the firm
 HR Practices corresponding to the stages of an
organization’s life cycle
Life Cycle Stages HR Practices
Start-up • Flexible patterns of work
• Recruitment of highly motivated &
committed employees.
• Competitive pay
•Little formality
Growth • More sophisticated recruitment &
selection
• Training & development
• Performance Mgmt process
• Reward systems
• Developing stable employee
relations
Maturity • Attention to the control of labour cost
• Focus on increasing productivity
• Control compensation
Decline • Emphasis on rationalization of
workforce & downsizing
• Retraining & career consulting
 ‘HR Bundles’ Approach
• In general terms the bundles approach is also termed as
internal fit or horizontal integration. The purpose of bundling
is to bring about coherence(logical) b/w practices.
• Coherence exist when a mutually reinforcing set of HR
practices is developed to contribute to the strategic objectives
of the organizations so that these practices ensure the
matching of resources to the needs of organization & bring
about the performance quality.
 Strategic Human Resource Management
The HR Bundles Approach
•Bundling refers to the development and implementation of
several HR practices together so that they are interrelated and
internally consistent
•Each HR practice complements and reinforces the other
•Flexible production techniques need to be supported by
bundles of high commitment HR practices such as:
✔Performance –contingent pay
✔Employment security etc
-High involvement HR practice that is complementary to other
HR practices is introduced in a firm
-The new practice produces improvement in performance
-Also has drawbacks
 Best Practice Approach
• This approach focus on the view that organizations should
adopt best practice irrespective of the context. According to
this view, superior management practices are readily
identifiable & are transferable across organizations.
It contains-
• Employment security
• Selective hiring
• Team working
• High pay contingent
• Extensive training
• Reduction of status differences
• Information sharing
 Strategic Human Resource Management
The best Practice Approach
Superior management practices are readily identifiable and are
transferable across organizations
An organization should therefore identify any organization with
reputation for excellence in some function and copy its
practices in order to perform well
Pleffer’s (1994) list of seven practices
1.Employment security
2.Selective hiring
3.Teamworking
4.High pay contingent on company performance
5.Extensive training/6.reduction of status
differences/7.information sharing
Business Strategy
2. A DEFINITION OF BUSINESS STRATEGY

A business strategy is a business plan that takes place long-term in order to

help achieve a specific goal or objective.
Rapid Business Intelligence Success
 Understanding HRM-Performance
Linkages
• Scholars have often assumed two perspectives
• Systems view considers overall configuration or
aggregation of HRM practices
• Strategic perspective examines “fit” between various
HRM practices & organization’s competitive strategy
• Overall set of HRM practices generally associated
with firm performance & competitive advantage
 Understanding HRM-Performance
Linkages
• Psychological climate:
– Experiential-based perception of what people
“see” & report happening to them as they make
sense of their environment
• Climate:
– Critical mediating construct in exploring multilevel
relationships between HRM & organizational
performance
 Understanding HRM-Performance
Linkages
• Two interrelated features of HRM
system:
– Content
– Process
– Must be integrated effectively
 Understanding HRM-Performance
Linkages
• Content
– Set of practices adopted
– Ideally driven by strategic goals & values
– No single most appropriate set of practices for
particular strategic objective
– Different sets of practices may be equally effective so
long as they allow particular type of climate around
some strategic objective to develop
• Process
– How HRM system can be designed & administered
effectively by defining meta-features of overall HRM
system
 Understanding HRM-Performance
Linkages
• To create strong situations with unambiguous
messages about appropriate behavior, HRM
systems should have:
– Distinctiveness
– Consistency
– Consensus
 Understanding HRM-Performance
Linkages
• Distinctiveness
– Visibility
• Degree to which practices are salient & readily observable
– Understandability
• Lack of ambiguity & ease of comprehension of practice
content
– Legitimacy of authority
• Leads individuals to submit to performance expectations as
formally sanctioned behaviors
– Relevance
• Whether situation is defined so that individuals see it as
relevant to important goal
 Understanding HRM-Performance
Linkages
• Consistency
– Instrumentality
• Unambiguous perceived cause-effect relationship between
system’s desired content-focused behaviors & associated
employee consequences
– Validity
• HRM practices must display consistency between what they
purport to do & what they actually do
 Understanding HRM-Performance
Linkages
• Consensus
– Agreement among message senders
– Fairness
• Composite of employees’ perceptions of whether
practices adhere to three dimensions of justice:
distributive, procedural, & interactional
 Measuring Human Resource
Performance
1. Human Resource Audit
2. Benchmarking and Best Practices
3. Strategic Measures
4. Transformational
 HR Standards Assessment Audit
• Human capital strategies and workforce planning
• Business partnership role and alignment with business units
• Policies and procedures
• Job analysis, job description, and job evaluation documentation
• Recruitment, selection and other staffing practices
• Performance management and appraisal
• Training and development assessments, plans and programs;
evaluation of impact and learning transfer
• Compensation, reward and benefits programs (including
promotions and increases)
• Discipline and grievance handling
• Organization structure, process, people and design
• Employee relations and communication
• Employee services
• Succession planning, career development and talent management
• Records management, HRIS processes and confidentially
 Benchmarking and Best Practices
1. Use valid and reliable methodology
2. Ideally, have a large sample population
3. Gather comparative data from a broad cross-
section of industries
4. Ensure “performance leaders” are prepared
to share
 Strategic Measures
• 1. Balanced Scorecard
• 2. Strategy Map
 Transformational Measures
1. Customer Effort Score
2. RATER
3. Capacity Measurement
4. Collaboration Inventory
5. Alliance Metrics
 Achieving competitive advantage through
strategic human resource management.
Fottler MD, Phillips RL, Blair JD, Duran CA.
• The framework presented how manage human resources
strategically as an integral part of the strategic planning
process. Executives should consciously formulate human
resource strategies and practices that are linked to and
reinforce the broader strategic posture of the organization.
• The framework consist
– (1) determining and focusing on desired strategic outcomes,
– (2) identifying and implementing essential human resource
management actions, and
– (3) maintaining or enhancing competitive advantage.
 Achieving competitive advantage through
strategic human resource management.
• The strategic approach to human resource management
includes:
– assessing the organization's environment and mission;
– formulating the organization's business strategy; assessing the
human resources requirements based on the intended strategy;
– comparing the current inventory of human resources in terms of
numbers, characteristics, and human resource management
practices with respect to the strategic requirements of the
organization and its services or product lines;
– formulating the human resource strategy based on the
differences between the assessed requirements and the current
inventory; and implementing the appropriate human resource
practices to reinforce the strategy and attain competitive
advantage.