Strategic-Human Resources Management - Literature review Example

2-05-2007 Strategic-HRM Introduction: Human resources (HR) have always been central to organizations. Today they have acquired an even more central role in building sustainable competitive advantage for the corporations. It is increasingly being realized now by organizations that as the world moves towards borderless economics, and as business become global, one of the most important aspects of a successful business is to understand and manage its human resources strategically and completely. As a result of these developments, HRM has become a major thrust area where the focus is on synergizing and propelling organizations to seamlessly integrate with the macro environment. The field of HRM can become a greater strategic contributor to organizational performance and success (Mathis and Jackson, 2003). Recently, the strategic role of the HR field and linkages between business and Hr strategy have been the subject of extensive discussion. Jim walker (1980), with his classic book on Human resource planning, was the first writer to suggest considering the corporate business strategy while developing and executing HR plans. Since then, in just over a greater of a century, a plethora of research, theory and cases examining research on aligning HR policies and practices with business strategies has become the focus of management studies (Wright et al 2005). Strategic HRM: The field of HRM has under gone significant changes in scope, functions and activities over the years, with the rise in professional maturity in the field; Personnel management has become HRM, which in recent years has become strategic HRM. Strategic HRM is the explicit link HRM has with the strategic management process of the organization. Strategic HRM is viewed as strategic as it involves the managerial personnel of the organization and regards: People as the single most important asset of the organization" (Poole & Jenkins, 1990). It is proactive in its approach to people. It seeks to enhance organizational performance, employee needs and societal well being. The key difference therefore between traditional and strategic concepts with extent to which management of HR is integrated into the strategic decision making processes that direct organizational efforts towards coping with the environment (Guest, 1990). Strategic HRM practitioners are now considering human resources to be a major source of competitive advantage and a growing body of research supports this view (Arthur 1994; Guest, 1997; Tyson, 1997; Wright et al. 2005; Youndt et al. 1996). SHRM theory is based upon the recognition that organizations can become more effective, if their human resources are managed with HR policies and practices, which can help the right number of people, acquire the appropriate behaviors, the needed HR competencies and the feasible levels of work motivation. The relevant external and internal environment or components of the organizations and the relevant stakeholders are thus important to the practice of strategic HRM (Schuler & Jackson 1999). The 1980's and the 1990's have witnessed a great deal of emphasis being placed on a strategic implementation of the HRM policies and practices all over the world. Shift in strategic HRM perspective have changes the orientation of HR managers world over. The last two decades saw major shift in people management approaches and practices as SHRM becomes more proactive in approach, people oriented, and people as investment, key player in competitive advantage and integrated role in company's goals and planning. The fields of HRM, HRD and organizational development (OD) have converged into the new strategic HRM. As Ruona and Gibson (2004) remarked "Twenty-first-century strategic HRM lay more emphasis on increased centrality of people for organizational success, importance of whole systems and integrated solutions in strategic alignment and impact and lastly, has a tremendous capacity for change". The concept of HRM has generated a lot of attention from researchers since it first emerged in the 1980's. The concept and practice of HRM and SHRM have evolved out of the area of personnel administration (Mahoney and Deckop, 1986). The concept of HRM has replaced personnel management. In HRM, there is emphasis on integrating HR planning with the strategy of the organization. The term "Personnel Management" and "HRM" are both ways of characterizing the broad organizational activity of employment management. Drucker (1997) gave an assessment of PM under descriptive-behavioral model. According to him, personnel administration is largely a collection of incidental techniques without much internal cohesion. PM is seen as non-strategic, reactive, short term and constrained by a limited definition its role in dealing with unionized and lower level employees (Miller, 1989). PM gives way to more appropriate term HRM. HRM is seen as long term practice aimed at the maximum utilization of HR. it is more proactive and emphasizes commitment integration with strategy, self control, Unitarist approaches, individuals high trust, organic and flexible roles for the employees. HRM first emerged as a concept in the mid 1980's when American researchers produced two models. Boxall (1992) addressed them as the matching model and the Harvard framework. The matching model by Fombrun et al. (1984) asserted that HRM system and the organizational structure should be managed in a way that is congruent with organizational strategy Beer et al (1984) defined HRM as that which maximizes organizational integration, employee commitment, flexibility and quality of work. They emphasized a need for coherence, in HRM po9licies and the role of line managers. It is the Harvard model, which has exerted considerable influence over the theory and practice of HRM and strategic HRM. HRM is a people oriented concept with emphasis on the maximization of individuals' skills and motivation. But this focus on individual rather than collective relations initiated debate among practitioners. Beardwell & Holden (1997) said that HRM is no more renaming basic personnel function. But Guest (1987, 1989, 1990 & 1991) has taken Harvard model and developed it further by defining four policy goals. He argues that HRM involves the goal of integration, commitment, quality, flexibility and adaptability (1987). Guest (1991) pointed out two dimensions of HRM. The first is the soft hard dimension, which focuses primarily on human resources with its softer connections of McGregor's theory. The second popular approach emphasizes on strategic HRM. This is a loose tight dimension. Many approaches have contributed to management thinking during different periods and have influenced the development of HRM (Price, 1997). He classified HRM under two heads, the hard approach which includes scientific management and strategic management. The soft approach included human relations where people matter. Legge (1995 a, 1995b) identified four different models: the normative, the descriptive-functional, the critical-evaluative and the descriptive-behavioral. Two normative models of HRM were christened by Boxall (1992) as the matching model or the Harvard framework - the soft or developmental humanism model of the Harvard school (Beer et al. 1984; Walton, 1985) - and the 'Hard' or utilitarian-instrumentalism model of the Michigam School (Fombrun et al 1984). Normative theories are more prescriptive in nature and Guest (1984) suggested that an integrated set of HRM practices be applied with a view to achieving the normative goals of high commitment, flexibility and high quality for high performance. HRM was heavily normative providing diagnosis and solutions from the beginning. The descriptive theories are represented by the two best-known models presented by Beer et al (1984) from Harvard University and Kochan et al. (1986) from MIT in a comprehensive way. HRM's model reflects a utilitarian instrumentalism and the soft model reflects a developmental humanism (Hendry & Pettigrew, 1990). The hard model of HRM focuses on the crucial importance of the close integration of HR policies, systems and activities with business strategy on HR systems to achieve the strategic objectives of the organization. According to Guest (1987) the soft developmental humanism model emphasizes on the importance of integrating HR policies with business objectives involving and treating employees as valued assets and as a source of competitive advantages through their commitment, adaptability and high quality of skill and performance. HRM as a distinctive approach to managing labour elaborates upon the original "7S-framework" consisting of strategy, structure, systems, staff, skills, style and super ordinate goals. Most of the strategic models typically lean towards rational planning assumptions in their conception of corporate strategy and HR strategy. The strength of the linkage between competitive performance and HRM and the degree of integration between business strategy and HRM have forced a majority of firms to achieve high degree of integration between business strategy and HRM. Guest (1989) focused on the goal of integration in his model of HRM. The model has emphasized three aspects: the integration or fit of HR policies with business strategy; the integration or complementarily and consistency of mutually; employment policies aimed at generating employees commitment, flexibility and quality; and the internalization of the importance of HR on the part of line managers. Miller (1989) suggests that the key to effective HR strategy is the concept of fit, that is, the fit of HRM with the strategic thrust of organization, and the development of operational linkages and the HRM processes to promote a confluence between the quality of goods and employees. A close fit between business strategy and HR strategy is taken to be synonymous with the strength of the HRM contribution to business success, without HR strategies and policies linked into strategic business objectives, high levels of organizational performance are not likely (Huselid, 1995). Miles and Snow (1994) felt that the overall HR system ensures integration between HR policies and processes. However until recently, one of the criticisms that were levied against strategic HRM was that it lacked a strong theoretical framework. Dyers (1985b) review of strategic HRM research pointed out that the field lacked a strong theoretical foundation and with regards to the independent variables of strategic HRM research, it would be useful to have fully articulated theory of personnel and HRM on which to draw. Kochan & Dyer (1992) argues that the strategic models of the 1980's were too limited because they depended heavily on the value, strategy and support of top executives. A model capable of achieving sustained competitive advantage and transformation will therefore needs to incorporate more active roles of other stakeholders in the employment relationship, including government employees, union representatives as well as line managers. Various theories and models related to SHRM are discussed below: - The Harvard Model: One of the most popular formulations of SHRM has been the Harvard model (Beer et al. 1984). Their model suggests that there is in effect one set of HR policy choices that is superior to the rest. Guest (1987) has termed the Harvard model as an implicit theory. He elaborates the underlying interconnections between a particular set of policy choices and a desired set of goals such as commitment, adaptability and quality. Contingency models: These are the models that suggest the need to manage strategically in a contingent fashion. They emphasize the variability of SHRM policy choices under different business conditions the three main types of contingent models are: Strategy Structure linkage: This suggests strategy/structure linkage. The business strategy and structure are very closely intertwined matching HR/IR with business strategy. This theory concerning HR/IR links policy choices with different types of business strategy. The link between business strategy and HR strategy goes on to identify the HRM policy choices, which will be needed in order to evoke and maintain the requisite behavioral patterns. Business life cycle stages model: The approach essentially seeks to link appropriate HR policies to different life cycle stages from business start up, through early growth, maturity and eventually to business decline. Kochan & Osterman (1994) link four different life cycle stages and appropriate HR policies in the spheres of resourcing, compensation, employee training and development and lab our relations. In this model, the strategic theories of HRM are: the resource based view of the firm the behavioral perspective, the cybernetic system and the agency-transaction cost theory. The non-strategic theories of HRM are resource dependence and institutional theories. Resourced-based theory of the firm: This approach of SHRM links strategy and internal resources of the firm. Resource based framework is a useful way of identifying and analyzing sources of HR advantage in firms but today many are of the view that the resource-based view fails to account for the particular nature of either individuals or human resource management fully and therefore that this approach may not constitute the most appropriate framework for advancing theory in the field of HRM. Behavioral perspective: It emphasizes on employees behavior as the mediator between strategy and firm performance. The linkage of HRM practices with competitive strategies is the basis for the behavioral perspective. Cybernetic model: It is s system theory and varies in its treatment of HRM practices. In this model, the various HRM practices can be combined into three types of control systems: behavioral control, output control and input control. Agency/Transaction cost theory: It focuses on contracts between parties whose delegates work for another. The agency theory suggests several conditions under which contracts are more likely to monitor behavior. Transaction cost theory assumes that a business enterprises can choose governance structures that economize associated transaction costs by establishing monitoring evaluating and enforcing agreed upon exchange theory helps in understanding the use of HRM practices in governance structure for managing contracts between employees and employer. Human capital theory: Organization can use HRM in a variety of ways to increase their human capital. In human capital the contextual factors such as market conditions, union, business strategies and technology are important. Non-strategic models: Resource dependence and power models: this approach is based on the premise that an organization is unable to generate all the resources necessary to maintain it and therefore it is dependent on other actors. Wright and McMahan (1992) feel that power and politics approach demonstrates the potential for the SHRM function to increase its role as a strategic partner in the firm. Institutional theory: Wright & Mc Mohan (1992) view organizations as serial entities that seek approval for their performances in socially constructed environments. The basic thesis of institutional approaches is that many structure, programmes and practices in organizations attain legitimacy through social construction of reality. Many HRM practices might be the result of a social construction process and cannot be explained through the strategic decision making process. Universalistic perspective: It emphasizes on the best practices approach to SHRM (Pfeffer, 1994). They noted that some HR practices are always better than others and that all organizations should adopt these best practices. The identified practices have been addressed as high performance work practices for instance innovative work practices such as team, job rotation, quality circles and TQM (Osterman, 1994) participation and empowerment, incentive pay, employment security, promotions training, and skill development: using the best practices approach results in high productivity and profits: Contingency perspective: It argues that in order to be effective, organizations HR policies must be consistent with different strategic position and firm performance. Configurational approach: It is guided by holistic principle of enquiry and explicitly adopts the system for achieving organizational goals. It is concerned with the pattern of planned HRD and activities intended to enable an organization to achieve its goals. Armstrong (2000) came up with a model for developing HR strategic process. Strategic fit model: Walker (1992) argues that in HRM terms, strategic fit means on the one hand developing HR strategies that are integrated with and support the business strategy (Vertical integration or fit) and on other, the use of an integrated approach to the development of HR practices such as resourcing and rewarding, employee development and employee relations so that they can complement one another (Horizontal integration or fit). The model depicts the strategy based HRM practices that will fit with strategic goals and objectives of the organization and desire, intended and actual flexibility on HRM practices for developing capabilities to respond to a variety of competitive needs required by strategic and non-strategic considerations. High performance Management model: This approach aims to make an impact on the performance of the firm through its people in the areas of productivity, quality, customer services, profit and the delivery of increased shareholder value. High performances management practices involve rigorous recruitment and selection, extensive training, career planning, incentive pay systems and performance management processes. The model also indicates that the firms' performance itself gives rise to a change in HRM practices (Paauwe 1996). High commitment management model: Beer et al. (1984) and Walton (1985a, 1985b) emphasizes a number of factors like career growth and tram ability at all levels in the organization a high level of functional flexibility, the reduction of hierarchies and status difference within the managerial cadres, and lastly reliance on team structure for communication and problem solving. High involvement management model: This approach involves treating employees as partners in the enterprises whose interests are respected and whose interests are respected and whose voice matter in decision- making. It is concerned with communication and involvement. So it has been evident that all the models and theories related to SHRM put human factors moved to center stage in the organizational arena. The contribution that HR may make towards organizational success is gaining momentum. The need to convert the HR of an organization into a competitive advantage implies that HRM must be an equal partner in both formulation and implementation of organizational competitive strategy. The HRM system must be attuned to the demands of business strategy. Organisations tend to build their new strategies on HR-based organizational capabilities for competitive advantage. The HRM practices of any organization are an important source of competitive advantage because they can enhance a firm's competitive advantage by creating both cost leadership and product differentiation. There is a need to integrate HR practices in the formulation stages of a firm's strategy. The companies must focus on its HR practices to create and sustain competitive advantage. Many of the strategies used to gain a competitive advantage are difficult to sustain because they can be easily imitated. SHRM however is less susceptible to imitation. Thus the advantage achieved through HRM practices is likely to be more sustainable than that achieved by other means. HRM practices are more visible to competitors, even when visible. Use of progressive HR practices to build employee commitment and morale will result in employee providing excellent customer service. The field of HR is increasingly shifting their focus from inside organization to organizations. Increasing recognition that people and knowledge capital is key to organizational success will influence the role of SHRM. In general the term SHRM is concerned with systematic link of people with performance of the firm. In the beginning the concept saw some situations where HR managers could not operationalize the goal of being strategic partners. SHRM has witnessed transformation since then. Evans (1986) outlines four strategic outcomes for HRM, each focusing on the different problematic facet of organization environment relationship equity and human relations competitive performance, innovation and flexibility and inter-unit integration. While these outcomes are incompatible, some organizations have developed HR capabilities in these strategic areas. HRM is too important to be left to HR specialists. HR must be laid out in non-specialist terms to understand basic economic, social psychological and legal forces that impinge on employment. HR policies are part of the system and capital investment and not the cost only. In future variety of organizations needs new philosophy, HR policies, planning, practices, expectation, investment and trust. Reference: 1. Armstrong, M. 2000. Strategic Human Resource Management, London: Kogan Page. 2. Arthur, J. 1994. Effects of Human Resource systems on Manufacturing performance and turnover, Academy of management journal, 37:67-87. 3. 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