Human Resource Strategy

 HRM is concerned with a holistic approach towards the

management of people working in the organization, who
contribute to the achievement of organizational
objectives.

 Financial Capital
 Processes People Goal
 Technology Utilization
STRATEGIC HR MANAGEMENT
 “Strategic HRM refers to the overall direction the
organization wishes to pursue in achieving its
objectives through people. It is argued that because
intellectual capital is a major source of competitive
advantage and in the last analysis, it is people who
implement the strategic plan, top management must
take these key considerations fully into account in
developing its corporate strategies”
 Meaning of SHRM
 It is the Process of linking human resources with the
Strategic goals and objectives in order to develop
organization that foster innovation, flexibility and
competitive advantage.
 Strategic human resource management is the proactive
management of people.
 It requires thinking ahead, and planning ways for a
company to better meet the needs of its employees,
and for the employees to better meet the needs of the
company.
This can improve everything from hiring practices and
training programs to assessment techniques and
discipline.
Components of SHRM

Human
Resources

Purposeful SHRM Activities

Patterns
and Plan
Cont….
 1. It focuses on an organization’s human resources
(people) as the primary source of competitive advantage of
the organization.
 2. The activities highlights the HR programmes, policies
and practices as the means through which the people of the
organization can be employed to gain competitive
advantage.
 3. The pattern and plan imply that there is a fit between
HR strategy and the organization’s business strategy and
between all of the HR activities.
 4. The People , practices and planned pattern are all
purposeful , that is, directed towards the achievement of
the goals of the organization.
 Definition
• SHRM is the effective way of organizing the workforce
by the adoption of a specific strategy, where
employees' performance can help to achieve the
planned organizational targets, such as increasing
revenue or improving the profit margin.
• SHRM is “HRM" carried out in a strategic way. The
human resource activities are linked to the
achievement of the organization's overall objectives.
People as strategic Assets
 To attain the Strategic goals of the organization,
employees must first understand and share the values
and objectives of the organization.
 The challenges faced are
 Integrating People with the Strategic Goals of the
organization
 Managing employees Effectively.
Features of Human Resource as an
Assets Can walk over to
other orgs with
their accumulated
knowledge , skills
and experience
Value grow with
HRs are not
the time as
owned by the
individual gains
Firm
experience

HR
Assets
Objectives of SHRM
1.To ensure that culture, Style, structure of
organization must contribute fully to the achievement
of organizational goals.
2. To ensure the availability of a skilled, committed,
and a highly motivated workforce in the organization.
3.To provide the direction to the organization so that
both the business needs and individual needs are
met efficently.
 Importance
Some companies are now convinced that their people are
the most important asset. And that without them, they
cannot achieve much. In this way, they are implementing
a SHRM approach.

1. • Employee development.
• Optimum utilization of all
resources.
• Encouraging optimal employee
Importance performance
of SHRM • Promoting a constructive work
environment.
• Good for the health of
organization.
 Benefits of SHRM
1. Identifying and analysing external opportunities and threats that may be
crucial to the company's success.
2. Provides a clear business strategy and vision for the future.
3. To supply competitive intelligence that may be useful in the strategic
planning process.
4. To recruit, retain and motivate people.
5. To develop and retain of highly competent people.
6. To ensure that people development issues are addressed systematically.
7. To supply information regarding the company's internal strengths and
weaknesses.
8. To meet the expectations of the customers effectively.
9. To ensure high productivity.
Approaches
There are five approaches to strategic HRM. These
consist of:-
1. resource-based strategy,
2. achieving strategic fit,
3. high-performance management,
4. high- commitment management and
5. high-involvement management.
 Resource-based strategy
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. 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 which are more intelligent
and flexible than their competitors’ (Boxall, 1996) by hiring
and developing more talented staff and by extending their skills
base. Resource-based strategy is therefore concerned with the
enhancement of the human or intellectual capital of the firm
Achieving strategic fit
The HR strategy should be aligned to the business
strategy(vertical fit) rather it 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.
High-performance management
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, and profits nd,
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. A well-known
definition of a high-performance work system was
produced by the US Department of Labor (1993). The
characteristics listed were: Strategic HRM: concept and
process l 33 l careful and extensive systems for
recruitment, selection and training; l formal systems for
High- commitment management
High-commitment management has been described
by Wood (1996) as: ‘A form of management which is
aimed at eliciting a commitment so that Behavior
should be 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.’. Good SHRM can be achieved only with
trust of employees.
The approaches to achieving high commitment as
described by Beer and Walton (1985) are:
the development of career ladders and emphasis on
trainability and commitment as highly valued
characteristics of employees at all levels in the
organization; l a high level of functional flexibility
with the abandonment of potentially rigid job
job design as something management consciously does
in order to provide jobs that have a considerable level
of intrinsic satisfaction; l a policy of no compulsory
lay-offs or redundancies and permanent employment
guarantees with the possible use of temporary workers
to cushion fluctuations in the demand for labour; 34 l
The framework of strategic HRM l new forms of
assessment and payment systems and, more
specifically, merit pay and profit sharing; l a high
involvement of employees in the management of
quality.
 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 mutual
understanding of what is to be achieved and a
framework for managing and developing people to
ensure that it will be achieved.
Evolution of SHRM

HRM SHRM
Personnel
Early 1970’s (1980
Management
onwards)
1930-1940 •Part of Organic
•Bureaucratic Organization(flexi •Convergence
•High ble) between HR M
centralization •Decentralized and Business
•High •Low Strategy
Formalization Formalization •Proactive HRM
•Low Flexibility •Flexible
Barriers
 Short- term mentality/focus on current performance
The 1st barrier is that most org adopt a short-term
mentality and focus on current performance. This is no
surprise since stakeholders, particularly shareholders,
expect quick rewards and executives need to live up to
these expectations. Employees expect quick rewards
based on their performance.
 Inability of HR to think strategically
The 2nd barrier relates to the inability of HR executives to
think strategically. They are unable to go beyond their
area of operation. Their knowledge about general
business functioning, their awareness about technological
advancements and their ability to convince colleagues in
other department is limited.
 Lack of appreciation of what HR can contribute
The 3rd barrier is that most senior managers
understand only the conventional HR and fail to
realize the contribution HR can make as a strategic
partner.

 Failure to understand general manager’s role as an HR

manager
A 4th barrier is that some functional managers as well
and is concerned more with technical aspects of their
areas of responsibility than the human aspects.
 Perception of human assets as higher risk investments
A 5th barrier to strategic HR is that there is a tendency
to invest less in employees than in technology and
information, which are more propriety.
 Resistance for change that might arise
Finally, strategic HR may be resisted because of the
incentives for change that might arise. Taking a
strategic approach to HR may mean making drastic
changes in the firm’s architecture. Not many
executives are prepared to accept such drastic changes.
 Difficulty in Quantifying outcomes
 Many outcomes may not be quantified.
 Traditional HRM SHRM
Responsibility for HR Staff personnel in the HR Line managers , all managers
programmes department responsible for people are
HR managers

Focus of activities Employees relations ,motivation Partnerships with internal

,productivity , compliance with and external customers
laws

Role of HR Reactive and transactional Proactive and

transformational , change
leader

Initiative for change Slow , piecemeal ,fragmented , Fast ,flexible , systematic,

not integrated with larger issues change initiatives
implemented in concert with
other HR systems
 Traditional HRM SHRM

Time horizon Short term Consider various time

frames as necessary
(short,medium,or long)

Control Bureaucratic control through Organic control through

rules ,procedures and policies flexibility as few restrictions
on employee behaviour as
possible
Job design Focus on scientific management Broad job
principles-division of design,flexibility,teams and
labour,independence and groups and cross -training
specialization
Importance investments Capital ,products,technology and People and their
finance knowledge,skills and
abilities

Accountability Cost centre Investment centre

TYPOLOGY OF HR ACTIVITIES
HR Planning

Job Analysis

Recruitment & selection

Training & Development

Compensation & benefits

Performance Appraisals & rewards

Maintaining Employee relations

Career Management
 HR Strategy and role of National
context
 HR strategy framework shows the interaction between a
firm and its environment.
 It shows the interaction between firm’s organization
response and its environment pressures.
 Steps in strategic framework are :

External
Environment Internal
scan Environment
scan
 Steps in the External Environment
Scan
 Analysis of external environment which have an impact on
functioning of organization.
 Steps are:
1. Competitor/Industry Analysis.
2. Stakeholder Analysis.
3. PEST
4. Environment situational factors.
1.Competitor/Industry Analysis
 Analysis of industry in which the firm is operating &
competing pressures the firm is facing.

 Five factors that affect structural competitiveness of any

industry are:
1. Intensity of rivalry
2. Threats of new entrants/barriers to entry.
3. Threats of substitutes.
4. Bargaining power of suppliers.
5. Bargaining power of buyers.
 Intensity of rivalry : More intense the competition, more
tactics are used like price competition, manufacture of
innovative products.HR implications for intense rivalry are :
1. Developing an innovative work culture.
2. A cost minimization approach.
 Threats of new entrants/barriers to entry :
Barriers are :
1. Inability to achieve economies of scale.
2. Another way of creating an entry barrier is through
product differentiation.
3. Employees in such firms should be flexible and are able to
change themselves.
 Threat of substitutes : The availability of substitutes
determines the demand for a product. If substitutes are
available then demand for a product will decrease. These
firms should have committed workforce who offer
extraordinary service.

 Bargaining power of suppliers : It increases when they

have patented products and hence they can change the prices
according to the buyers demand.
Sometimes buyers are forced to continue their relationship
as they have trained their workforce in that product eg
software.
 2.STAKEHOLDER ANALYSIS
 After competitor analysis firm conducts stakeholder
analysis.
 It identifies and assesses the importance of key
persons.
 It includes expectations the stakeholders have from
the company.
 HR manager should frame HR strategy that includes
expectations from all stakeholders.
 3.PEST ANALYSIS

Political
Economical

Social Technological
 4.ENVIRONMENT SITUATION
FACTORS
 Two major challenges that HR faces are :
1. Managing Diversity
2. Demographic trends.
Managing diversity : Diversity represent the variation
and difference in age, gender etc.
Reasons for diverse workforce are :
 Shift from Manufacturing to service economy
 Globalization of markets.
 Changes in Business strategies
 Mergers and acquisitions.
 Changing Labor markets.
INTERNAL CAPITAL ASSESSMENT
 It helps analyze the firm’s strengths and
weakness in terms of technology, financial and
Human resources.
 Link between HR Strategy and Business Strategy

•The concept of SHRM is the idea of strategic fit

•In order to ensure that HR strategies facilitate the

achievement of business strategies a strategic integration
between the two is necessary

•A key factor that influences the linkage is organizations

quest to attain Competitive advantage
Types of Business Characteristics Examples
Strategies

Cost Leaderships 1. The Firm increases its Retailers such as Vishal

efficiency, cut costs so Mega Mart.
that the products or
services may be priced
lower than the industry
average.

2. Assume that small

change in Price may
affect the customer
demand.

3. 3. Assume that
customers show greater
Price sensitivity than
Brand Loyalty.
Types of Business Characteristics Examples
Strategies

Differentiation 1. The Firm distinguishes Nike , Sony

its products or services
from their competitors.
2. The Firm seeks to
develop its Brand Loyalty.

Focus 1. The Firm attempts to Restaurants that target

satisfy the needs of one only families.
Particular group of
segment.
2. The Firm charge a
premium for its
services since the
market has overlooked
these market segments.
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?
 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
 Fit as Fit as
bundles(con strategic
figuration interaction
approach) (best fit
approach)

Fit
Perspective

Fit as
Fit as contingency
gestalt
Fit as an
ideal set of
practices
1.Fit as strategic interaction(best fit approach)-HR practices
linkage with external context

2.Fit as 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
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
Three of the five types of fit provide the following possible
approaches to SHRM:

The HR
The best
The best fit bundles or
practice
approach configuration
approach
approach
•It ensures that HR practices are suitable to different
circumstances of the organization, organization culture as
well as external environment.
• The focus of the best fit approach is on the linkage of HR
strategies with business strategies
• Best Fit was explored in relation to life cycle and competitive
advantage models. Also referred to as external fit.
Best fit also means that HR strategies match the stages of
development of the firm
Start-up
Maturity
Decline/degeneration
Regeneration or transformation
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
 Life Cycle Stages HR Practices

Maturity Attention to the control of labour 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

HR practices Corresponding to the stages of an Organizations life

cycle
 Bases of classification of HR Strategies:
Beaumont (1992) three bases of classification of HR
strategies:

1.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
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
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
COMPETITIVE ADVANTAGE MODELS:
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
 Drawbacks of Best fit Approach
1. The Approach is seen as failing to align employee
interests with those of organization.

2. Devising HR strategies based on typology of

competitive strategy that may not be appropriate in a
Particular context can be misleading.

3. The Approach is viewed as lacking attention to the

dynamic scenario.
•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 each others.

•MacDuffie(1995) refereed to Bundling as the use of

“Complementarities” , while Delery and Doty(1996) called it
the adoption of a “configurational mode.”

•In general terms , the Bundle Approach is termed as “

internal Fit or Horizontal Integration”.
•The Purpose of Bundling is to bring about Coherence
between HR Practices. Coherence exists when a mutually
reinforcing set of HR Practices is developed to contribute to
the strategic Objectives of the organization , so that Practices
ensure the matching of resources to the need of the
organization , and bring about improvement in Performance
and quality.
•Integration between HR Practices is more likely to take place
when an innovation in an particular HR Practice is planned
its implication on other aspects of HR polices and practices
are understood in order to work out how the innovation can
support these practices.
 3. 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.
•Based on idea that there is a set of best HRM practices which is
Pleffer(1994) model:
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
AN INVESTMENT PERSPECTIVE
OF
HUMAN RESOURCE
MANAGEMENT
The Strategic View of Human
Resources
 Employees are human assets that increase in value to
the organization and the marketplace when
investments of appropriate policies and programs are
applied.
 Effective organizations recognize that their employees
do have value, much as same as the organization’s
physical and capital assets have value.
 Employees are a valuable source of sustainable
competitive advantage.
Sources of Employee Value
 Technical Knowledge
 Markets, Processes, Customers, Environment
 Ability to Learn and Grow
 Openness to new ideas
 Acquisition of knowledge and skills
 Decision Making Capabilities
 Motivation
 Commitment
 Teamwork
 Interpersonal skills, Leadership ability

1–60
Valuation of Human Assets
 Implications for Individuals and Organizations
 Determination of compensation
 Internal and external equity for employees in return for their
contributions to the organization.
 Organization placement of resources and returns on employee
development are aligned and well-matched.
 Advancement opportunities
 Developing current employees creates motivation and permits
promotion from within.
 Development of retention strategies
 Effective means of retaining valuable employees allows for the
recapture of the invested costs of their development.
Investment Orientation
 The Investment-Oriented
Organization
 Sees People as central to its mission/strategy.
 Has a mission statement and strategic objectives that
espouse the value of human assets in achieving goals.
 Has a management philosophy that encourages the
development and retention of human assets and does
not treat or regard human assets in the same ways as
physical assets.
Investment Orientation Factors
 Senior Management Values and Actions
 An organization’s willingness to invest in its human
resources is determined by the “investment orientation”
of its managers.
 Attitude Toward Risk
 Investment in human resources is inherently riskier due
to lack of absolute “ownership” of the asset.

1–64
Investment Orientation Factors
 Nature of Skills Needed by Employees
 The more likely that skills developed by employees are
marketable outside the firm, the more risky the firm’s
investment in the development of those skills. The high
risk employee investment requires an organization to
develop a strong retention strategy, for example: infosys
was the first Indian company to start an employee stock
option plan to retain employees.
 Availability of Outsourcing
 If cost-effective outsourcing is available, investments
will be made only in HR activities producing the highest
returns and largest sustainable competitive advantages.
Investment Orientation Factors
 Utilitarian (“Bottom Line”) Mentality
 An attempt is made to quantify employee worth to the
organization through a cost-benefit analysis.
 In cost-benefit analysis, the costs of any investment are
compared with its benefits to determine whether that
investment is profitable or not.
 The Problem with cost benefit analysis is that many
benefits of HR programmes and policies are diffcult to
quantify.
TRENDS AFFECTING
HUMAN RESOURCE
MANAGEMENT
Major Factors Affecting SHRM
Technological Demographics
Advancement and Diversity

Strategic
HRM

Globalization
Technology and HRM
Technology Challenges for HRM
Workforce Demographic Changes
 The “Graying” of the Workforce
 Negative Aspects of Older Workers
 Perceived resistance to change by older workers.
 Increased health-care costs for senior workers
 Blocking advancement opportunities for younger
workers
 Higher wage and salary costs for senior workers
 Positive Aspects of Older Workers
 As productive or more productive than younger workers
 Have more organizational loyalty than younger workers
 Possess broader industry knowledge and professional
networks

1–71
Workforce Demographic Changes
 Baby Boomers (1945–1962)
 In excess supply in middle management ranks
 HR challenge is to manage “plateaued”(restricted to no
change) workers
 Baby Busters (1963–mid-1970s)
 Who have skills in high demand are doing and will do well
 Generation “X”ers (late 1970s–early 1980s)
 Have life-long exposure to technology and constant change
 Seek self-control, independence, personal growth, creativity
 Are not focused on job security or long-term employment.
New Employee/Workplace Dynamics
 Emphasis on the Management of Professionals
 Establishment of separate career tracks
 Technical/Professional, Managerial /Administrative
 Use of project teams
 Less Employee Loyalty, More Loyal to Self
 Staying with employers for shorter periods; demanding more
meaningful work and involvement in organizational decisions
 Increased Personal and Family Dynamic Effects
 More single-parent families, dual-career couples, and
domestic partners
 Increased Nontraditional Work Relationships
 Part-time, consulting, and temporary employment flexibility
 Outsourcing and entrepreneurial opportunities
Managing Workplace Diversity
 Understanding and Appreciating Diversity
 Is critical to effectively marketing to ethnic and minority
groups
 Is promoted by having a diverse workforce at all organization
levels
 Helps ensure that hiring and promotion decisions are
unbiased by person differences
 Diversity Management Programs/Initiatives
 Must be integrated with organization’s mission and objectives
 Help key decision makers identify diversity’s benefits to the
organization
 Make critical decisions about implementing the optimal
program/initiative contingent on the organization and its
people, mission and culture.
 A Dilemma
 Failure to invest in employees causes
 Inefficiency
 Weakening of organization’s competitive position
 Human assets are risky investment
 Require extra effort to ensure that they are not
lost