Strategic Human Resource Management:Concept, Importance, Model and Linking HR Processes to Business Strategy
Strategic Human Resource Management
Here we are going to learn what is strategic Human Resource Management? What is Human resource Planning? and also what is Strategic Human Resource Planning?
First of all we are going to discuss what is strategy?
Strategy
“A strategy is a way of doing something. It includes formulation of a goal & set of action plans for accomplishment of that goal.”
It originated from the Greek word ‘Strategia’. That, means an art or science of being a general.
Strategic Management:
“Strategic management may be defined as the process of formulating, implementing and evaluating business strategies to achieve organizational objectives and goals”
Strategic management involves four steps as given bellow:-
- Analyses the opportunities and threats or constrains that exist in external environment.
- Formulate strategies that will match organization’s strengths and weaknesses with the environmental threats & opportunities.
- Implement the strategies.
- Evaluate & control activities to ensure that the organization’s objectives are achieved.
Strategy formulation/types:
Strategies are formulated at three levels:
(1) Corporate level strategies: are focused on overall strategy for the company & it’s business & interests.
(2) Business level strategies: Many organizations operate several businesses under the same or different names. Each of the businesses within the organization might have its own strategy.
(3) Functional level strategies: Each business unit will consists of several departments, such as manufacturing, sales, finance, and HR. Functional level strategies identify the basic courses of action that each of the department must pursue in order to help the business unit to attain its goals.
Strategic HRM
“ Strategic HRM is a set of distinct but interrelated practices, policies, and philosophies who’s goal is to enable & facilitate achievement of organizational strategy.
Ideally these practices, policies, and philosophies form a system that attracts, motivates, and trains employees who ensures the effective functioning and survival of the organization and its members.”
Human Capital
“it refers to the collective sum of the attributes, experience, knowledge, and commitment that employees choose to invest in their work
This intangible asset comprises of knowledge, education, vocational qualifications, professional certifications, work related experience, and competence of organizational employee”
Strategic Human Resource Planning
Strategic planning requires thinking about the future. In a
perfect world, the strategic planner would establish an objective for five to
ten years and then formulate plans for achieving the goals.
● Strategy:
Strategy
the formulation of organizational mission, goals, and objectives, as well as
action plans (for achievement that explicitly recognize the competition and the
impact of outside environment). Strategy
is the plan for how the organization intends to achieve its goals. The means it
will use, the courses of action it will take, and how it will generally operate
and compete constitute the organization’s strategy.
We consider
strategy an intended course of action a firm has selected to deal with a
situation. This perspective views strategy as a rational process in which end
are defined in measurable terms & resources are allocated to achieving
those ends. In this context organizations would set objectives as “achieve 25%
of market share by 2013”. or “ be a best health care facility in the country”.
The organization then develops plans, which include HRM programmes, to achieve
those goals.
●
Strategy planning: The systematic determination of goals & the plans to achieve
them.
● Strategy plan: a written statement that that
outlines the future goals of an organization, including long term performance
goals.
● Strategy formulation: The entire process of
conceptualizing the mission of an organization, identifying the strategy, and
developing long-range performance goals.
● Strategy implementation : Those
activities that employees and managers of an organization undertake to enact
the strategic plan, to achieve the performance goals. Senior management
typically sets the goals and has them approved by the board. Top management
team determines those objectives through a process of environmental analysis
& discussions.
● Execution
of Strategy: Strategy formulation and implementation achieve the following:
1. Define the
vision, thus provide the organization with a sense of purpose, a mission, and a
clear direction.
2. Convert this
vision into measurable objectives and performance targets.
3. Determine the
plan to achieve the strategy.
4. Implement the
plan in ways that are both effective And efficient.
5. Measure the
result against goals and revise plans in light of actual experience, changing
conditions, new ideas, and new opportunities.
● Strategic types : Basic s
Strategies can be classified into -
(1) Corporate Strategies and
(2) Business
Strategies.
(1) Corporate Strategies – are focused
on overall strategy for the company and its business & interests. Grouped
within corporate strategies are three options: restructuring, growth and
maintenance.
● Restructuring
Strategies: This option includes –
▪Turnaround,
▪Divestiture,
▪Liquidation, and
▪bankruptcies.
● Growth Strategies:
Growth
can be achieved in several ways-
▪Incremental Growth
▪International growth
▪Mergers and acquisitions
● Maintenance
Strategies: - For many reasons some executives wish to maintain the statuesque. They do not wish to see their
companies grow. The executive team is content to keep market share, doing what
it has always been doing . HRM practice remain
constant.
(2) Business Strategies –Strategy seems to imply that only corporate-wide plans are made and these are used to manage and control the
various units that exist within an organization. But many organizations operate
several businesses under the same or
different names. each of the businesses within the organization might have its
own strategy. For example, Alcan Aluminum operates two “divisions” or
businesses, one that focuses on primary
metal and the other on fabrication. Each has a different business strategy,
although the overall corporate strategy is survival & growth & Business
strategy focuses on one line of strategy (in a diversified company), this
strategy is the action plan for managing a single line of business. Business
level strategy focus on the best ways to compete in a particular sector.
Concept of aligning HR practices, policies, And philosophies with organizational Strategy
Many organization had adopted a strategy but
faced problems with HRM implications. In most cases unless the HRM strategy is
appropriately formulated and skillfully implemented the success of the
organizational strategy is at risk. What is needed to be done is the proper
alignment of human resources policies with organizational strategies. Managers
now understands the importance of matching the HRM practices with
organizational goals. The strategic management of people within organizations
affect important organizational outcome such as survival, profitability,
customer satisfaction level, and employee performance. It is important that HR
professionals appreciate the role of strategic planning in their organizations and understand the
language and terminologies of strategic planning and business. HR managers have to use
strategy terms to show how their HR policies & practices support organizational strategies. HR professionals
can work with other executives to implement HR practices that enable strategy.
Definition of Strategic HRM:
“Strategic HRM is a set of distinct but interrelated practices, policies, and philosophies who’s goal is to enable & facilitate achievement of the organizational strategy.Ideally these practices, policies, and philosophies form a system that attracts, motivates, and train employees who ensures the effective functioning and survival of the organization and its members.”
While managers recognize implicitly that
marketing strategy must support the business strategy, there is not the same
sense among managers that HR programmes can be aligned to support the
organizational strategy. but human capital issues are at the top of the CEO
agenda. They are also emphasizing on priorities like attraction, retention,
innovation, needing HR input. Achieving organizational excellence must be the
work of HR.
Human capital:
“It refers to the collective sum of the attributes, experience, knowledge,
and commitment that employees choose to invest in their work.
Work force management issues are often cited
as a threat to an organization’s ability to execute strategy. HRM strategy so
must match the business strategy. There is a profound need to align all HR
functional practices with corporate strategy, not only solving the problems of
labour surpluses and shortages or labour demand & supply forecasting,
compensation management. Management of organizations are now suggesting an
approach to HR strategy that calls for tailoring human resource policies and
practices to the organizational needs of the future. The proliferation of
bankruptcies, mergers, and restructuring has affected our views of employees in
a profound way and highlighted the the need for the input HR professionals in
formulating policy.
The importance of Strategic HRM Planning
There are two reasons why Strategic HR planning is so important-
·
Employees help an organization achieve
success because they are strategic resources. And
·
The
planning process itself results in improved goal attainment.
1) Employees as Strategic
Resources:
● An organizations employees can provide a firm with a competitive
advantage
● HR programmes represent an investment in
human capital & this capital is difficult to duplicate or imitate.
●HR can deteriorate like other resources
& skill and knowledge can become obsolete, so human capital has to be
replenished through education & training.
●The value of employees as a resource must be
placed within strategic frame work. A strategy itself can become obsolete,
making current employee skills obsolete, so employees need to change change/develop
job behaviors to match new organization strategy.
●Human assets must be managed & matched to the organizational strategy.
2) Improved goal attainment:
A second advantage of managing human resources well is that the possibility
of achieving organizational goals is increased.
Strategic HRM can improve an organization’s
performance. The goals of these HRM strategies are to shape employee behavior
so that it is consistent with the direction the organization identifies in its
strategic plans. Clear strategies provide direction to employees, provide
them mission & goals to accomplice.
It can increase motivation & performance,
lowered absenteeism and turnover And provide stability, satisfaction &
involvement.
Linking HR Processes to Strategy
Strategic HRM must facilitate the formulation
and implementation of corporate and business-level strategies. Senior managers
must focus on issues such as: What are the HR implications of adopting a
strategy. The basic premise is that every HR policy and practice must directly
support the organization’s strategy and objectives. HR plans are developed as
an afterthought and separately from organizational strategy. They are not
relevant to the business and are seen as important only by the HR people. No
other unit or level is committed to these plans.
It has long been recognized that HR policies
and practices must be linked to the firm’s overall strategy.
Aligning HR strategy with business
strategy can be done in one of these ways:
· Start with organizational strategy and then create HR strategy.
· Start with HR competencies and then craft corporate strategies based on
these competencies.
· Do a combination of both in a form of reciprocal relationship.
● Corporate Strategy Leads to HR Strategy:
A traditional perspective of HR planning
views HRM programs as following from corporate strategy. Corporate strategy
drives HR strategy. In other words, personnel needs are based on corporate
plans. If a firm decides to compete on the basis of offering low-cost products,
HR policies and practices must align and be based on low labour costs.
Employees are considered means to an end, not part of the strategy formulation
equation.
But another perspective reverses this view,
suggesting that employee competencies determine the business strategy.
● HR Competencies Lead to Business
Strategy:
A competing view states that an organization
cannot implement a strategy if it does not have the human resources necessary.
In the late 1990s, companies were scrambling to find high-tech workers in order
to enable them to launch web-based services and products.
The critical question is, is it easier to
change HR to fit the strategy or should you change the strategy to fit the
human resource pool? Small businesses seem to choose the latter course. The
owners of very small businesses quickly recognize that, if an employee has a
certain capability, it can be exploited to develop new products or services.
Diversity management efforts are currently building on this theme.
But this “skills determine strategy” outlook relies
too heavily on employee capabilities and not enough on environmental analysis.
The reality is closer to the concept of
reciprocal inter-dependencies.
● HR Strategy and Corporate Strategy:
An emerging perspective sees HR strategy as
contributing to business-level strategy, and vice versa. Increasingly, in large
firms, senior HR vice-presidents are asked not only to review business plans to
ensure consistency with HR strategy, but also to provide input to this strategy
based on HR strengths and weakness.
In this context, an organization chooses a
business strategy, such as being a leader in innovative products, based on its
in-house, highly educated, trained employees who have been socialized to value
creativity. Simply phrased, an organization develops its employees and then
capitalizes on their skills; the employees then learn new skills, and so it
continues. In many ways, HR strategy generates the business strategy, and
business strategy determines HR strategy. This concept of reciprocal interdependence
is widely accepted in the HR strategy literature.
● HR becomes a Business Partner:
The key point here is the concept of concurrent
strategy formulation. Strategy development, based on environmental
analysis, is conducted at the same time that HRM issues are considered. HR
issues do not solely determine strategy, nor does strategy unilaterally
determine HR practices. The HR senior management team moves from outsider
status to insider status. HR managers must understand the numbers language of
business or the outcome expectations of nonprofit organizations. They must be
able to understand analyses presented by marketing, financial, and operational
managers. Cost-benefit assessments of options within the HR domain. For
example, if the low-cost strategy depends on hiring personnel at minimum wage,
HR managers have to develop strategies to deal with rapid training and high
turnover rates. This option will have to be compared with outsourcing, use of
robots, or even increasing wages to reduce the costs of turnover. The HR
manager has become a partner and problem solver. Linkages between the HR
manager and other managers, both formal and informal, ensure that this
partnership role is enacted.
● Strategic Partnering:
Human resource professional recognize the
need to play a more strategic role within the organization. HR managers defined
their new role as one blending their HR technical skills with an in-depth
understanding of the business and its goals.
Why do executives ignore HR’s contribution to
strategy? Some argue that it is because management is not satisfied with HR
services in general; that “people” issues belong only to HR, These attitudes
are changing, however, as organizations realize the impact that HRM strategy
can have on organizational effectiveness and as HR managers develop the
internal relationships to ensure that the strategy is effective. Nevertheless,
only one-third of HR managers stated that they played a major role in strategic
planning.
Ways to become involved in the Strategic Planning Process
In order to involve HR in the strategic
planning process, ensure that the person responsible for HRM is included as
part of the executive team, occupying a position at the vice-presidential
level. Most large organizations now position the most senior HR person at the
executive vice-president level. More importantly, studies in the United Kingdom
and Australia show that companies who included the HR director on the executive
team experienced twice the growth in earnings per share compared to those who
did not.
● Review/React Linkage:
However, this control or veto option is too
passive. Linkages have to be made at earlier stages. HR managers should be
supplying information about employee capabilities, be part of the strategic
planning committee, and be documenting implications of strategic thrusts.
● Integrative Linkage:
In a truly integrative linkage, as exhibited
in some companies, the interaction between the members of the executive
committee and the HR director are frequent, and the HR director is involved in
strategic decisions, even when the HR implications are not readily apparent. In
some cases, the credibility of the HR department is so high that the CEO,
vice-chair, and other top officials have all held the position of HR director
as part of their career development.
Organizations are more responsive to
integrative linkages when the environment is turbulent (increased competition,
rapid technological change, and changing labour market demographics), resulting
in difficulties recruiting the right kinds of people. Organizations with
multiple divisions demanding different types of strategies, and therefore
different HR practices for each division, also tend to elevate the role of HR.
A culture or CEO with a strong belief in the asset value of employees will also
result in more attempts at linking HR strategies with corporate strategies. The
credibility of the HR director also influences the probability of a linkage. HR
managers who were able to deliver information about labour supply, or critical
personnel capabilities, in a quantifiable way were deemed more credible.
To illustrate how HR is aligned with
strategies in real companies, Box 2.7 describes how United Parcel Service
aligns its HR strategy with its low-cost-provider business goal, and box 2.8
illustrates HR alignment with a differentiation strategy at Frost.
Characteristics of an Effective HRM Strategy
It appears that effective HRM strategies
include the following: external and internal fit, and a focus on results.
● External and Internal Fit:
▪ External Fit:
HR programs must align with or fit the
overall strategy of the organization. If the business strategy is to
differentiate the organization from its competitors based on superior service,
then selection and training programs should be developed to hire and train
people in the skills and attitudes necessary to deliver superior service. Fit
with other functional strategies is as important as fit with corporate
strategies. HR senior management must be included in strategy discussions to be
sure this happens.
▪ Internal Fit:
We look at two types of internal fit: a fit
with other functional areas, such as marketing, and a fit among all HR
programs. Fit with other functional areas is important. If the marketing
department is developing an advertising plan that promises 24-hour access to
customer service representatives but the HR plan does not include compensation
differentials for shift work, the overall marketing strategy might fail.
As HR programs must fit with other functional
areas, so too do they have to be consistent with each other. That is, training,
selection, and appraisal must work together to support a strategy. If the
training department decides to teach employees to use the Internet to handle
customer service, the staffing department must hire people who either are
computer literate or who have the kinds of intelligence that enable them to
learn computer skills rapidly.
● Focus on Results: The hard work of deciding on strategy is not its formulation but its
implementation and the tracking of results. Many HR managers do not have the
resources or skills to measure results to see if the goals have been achieved.
Unless the strategy contains performance measures – that is, is results
oriented – it will be difficult to know how successfully the strategy was
implemented.
The Strategic HR Planning Model
The model we are using is based on generic
corporate and business strategies linked with complex bundled HR policies and
practices. (Most of the requests we receive from CEOs and executive
vice-presidents of HR are of this nature:
“Our organization is merging with another. How will this affect HR? What
changes in our HR policies and practices do we need to make?”
The steps in the strategic model are the following:
· Monitor, identify, and analyze external environmental factors influencing
issues for the organization in order to develop strategies. Included in this
are those factors that influence an organization’s human resource capabilities
· Develop a tentative corporate or business strategy.
· Assess the relative strengths and weaknesses of the organization’s human
resources, using forecasting and analysis techniques. Determine the KSAs of an
organization and the capacity to learn and change. Identify the competitive
advantages of the HR department.
· Develop strategic plans for each division that are consistent with the
overall strategic thrust and that ensure a fit with related components across
functional areas.
· Identify HR policies and practices that will increase the likelihood of achieving
the strategy and implement them.
· Measure results and modify plans as necessary.
Thus, at the most senior levels of the
corporation, HR professionals move from a policing role to the role of
strategic partner. They will understand strategies and business needs and
create the kind of human resource competencies that build competitive
advantage.
Thank You
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