strategic HRM by ifzalahmad

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									Introduction: Nowadays, it is a common belief in both the business and the academic world that the human resources of an organisation can be a source of competitive advantage, provided that the policies for managing people are integrated with strategic business planning and organisational culture (Beer, Spector, Lawrence, Quinn, Mills, & Walton, 1985). Anyone who is familiar with the major organisations in their area probably has observed firsthand how dramatically the business environment has changed in recent years. These changes have had significant impact on organisational efforts to be successful (Sims 2002). “Since the mid 1990s, CIPD and others have been generating evidence for the impact of people management practices on business performance. Much emphasis has been put on the importance of ‘fit’. In other words it is argued that HR strategies much fit both with each other and with other organizational strategies for maximum impact. The main areas of practice which all the researchers agreed have an impact on performance are around job design and skills development” [Online] from In particular, most of the companies have identified and implemented such factor which has an impact on the performance and success of the organisation. “One factor that seems to be receiving more attention than any other is the people who work for the organisations” (Sims 2002). “However, CIPD work found that practices alone do not create business performance. They can create ‘human capital’ or a set of individuals who are highly skilled, highly motivated and have the opportunity to participate in organizational life by being given jobs to do. However, this will only feed through into higher levels of business performance if these individuals have positive management relationships with their superiors in a supportive environment with strong values. All these factors will promote ‘discretionary behaviour’, the willingness of the individual to perform above the minimum or give extra effort. It is this discretionary behaviour that makes the difference to organizational performance” [Online] from “Critiques (often backed by the more academically orientated research findings) have suggested that some HR policies (e.g. performance-related-pay) may be ideologically flawed, difficult to implement and with negative outcomes for various reasons. However, the drawback in relating ‘HRM and performance’ both in theory and in practice is by no means because the assumption of using HRM to improve organisational performance per se is flawed. Rather, the problem lies in the simplistic 1

perception of the link, which is often discussed without contemplating the organisational context" (Cooke, 2000, p2). The report is about the critical analysis of strategic HRM and its effect on the performance of the organisation to give them competitive advantage. Initially I will give some theory underpinning in favour of the SHRM and Performance and also its critics. The conclusion of the report will be based on that literature which states that the Strategic HRM has a positive impact on the performance of the organization and gives a competitive advantage over the competitors.

Strategic HRM and Performance: Various authors have tried to established a link between a link between SHRM and Performance and stresses on the strategic fit of both the policies of SHRM and business straegy of the organisaion. “One of the most important lessons of the twentieth century has been that economic progress doesn't necessarily translate into human development. Indeed progress, at least in the short term, has often been made to the detriment of humans and the environments in which they live. However, during the last decade it has become apparent that intellectual understanding, knowledge and the ability to apply that knowledge is the fuel for global competitiveness and growth” [Online] from In the 1990s, the term ‘high-performance management’ (HPM) became increasingly popular. It has been used to incorporate what Wood and Albanese (1995) and Wood and de Menezes (1998) describe as ‘high-commitment management’ (HCM), or what Hueslid (1995) describes as ‘high-performance work practices’, and what others describe as high-involvement management, transformed workplaces, flexible production systems (Wood, 1999a). All these terms have been used to describe ‘the organisational form frequently held to be most appropriate for modern competitive conditions’ in contrast to the Tayloristic form of organisations (Wood, 1999a, p391).

A key focus within human resource management research in the 1990s has been on the multivariate analysis of large-scale quantitative data sets to test the relationship between HRM policies and performance (Cooke, 2000). Many of these studies were carried out in the manufacturing sectors or across the whole economy (Hoque, 1999), deploying different conceptual approaches. Guest (1997) and Wood (1999b) have


respectively provided a good summary of the theoretical perspectives and empirical studies that have emerged in the field thus far (Cooke, 2000). A number of developments have been done within the last two decades regarding the literature of the management of people. ‘Significant attention has been directed towards human resource management (HRM), which many have seen as representing a distinct approach to managing people’ (Guest, 1997). Interestingly, although researchers have highlighted the holistic nature of HRM, much of the initial research into the concept focused on a limited range of issues and has been criticized as ‘micro analytic’ (Delery and Doty, 1996). However, in the last decade, researchers have sought to show the importance of HRM in influencing organizational performance and it is from this premise that the current interest in SHRM has developed (Gennard; Lado and Cappelli). Moving on, it is becoming clearer that for getting competitive advantage on other organisation, effective management of the organisations’ human resource is becoming more important. And According to some authors this may even be the single most determinant of an organisation’s performance over the long term. Robert Reich suggests that “in the future, the organisation’s ability to attract, develop and retain talented workforce will be a critical factor in developing high performance organisation” (Reich 1998). Recent research has focused on the links between human resource management and performance (Guest 2003, 2004; Purcell 2002, 2004), and much of the growing body of international literature in the field is built upon the premise that human resource management is linked closely to the emergent strategies, especially of large organisations, both public and private (David Worland & Karen Manning, 2005). ‘The aims of the HR strategy process are typically concerned with devising ways of managing people which will assist in the achievement of organizational objectives. In addition, one can hope to see within the strategy-formation process the ‘official’ version of how senior management believes these policies, practices and philosophies will contribute to organisational performance’ (Salaman, 1992; Tyson, 1997). Dr. Fang Lee Cooke (2000) in his research paper argues that ‘Job satisfaction, employee commitment and motivation have often been regarded as important HR dimensions to organisational performance.’ Moreover, Guest (1987) argues that ‘Employees should


be treated as valued assets, a source of competitive advantage through their commitment, adaptability and high quality of skills, performance and so on.

Guest et al. (2003) undertook a study of 366 companies using objective and subjective performance measures and cross-sectional and longitudinal data. The study confirms an association between HRM and performance but fails to show a causal relationship between HRM and performance (David Worland & Karen Manning, 2005). Interestingly, the burgeoning interest in SHRM has not been matched by the development of appropriate theoretical constructs for the concept (Guest, 1997). Indeed, researchers have criticized the underpinning theoretical foundations of SHRM and many have called for the formulation of a theory of SHRM (Dyer and Bacharach). ‘Two major reasons account for this criticism. The first is that the concept of HRM, from which SHRM originated, has itself been subjected to extensive criticisms for its poor theoretical framework (see for instance, Keenoy; Noon and Legge). The second, and perhaps more important reason, is that researchers have approached the field of SHRM from a variety of perspectives with little acknowledgement of the differences within them and no attempt has been made to identify the common threads in the perspectives’ (Delery and Doty, 1996).

Similarly Purcell (2004) conducted a study fro three years to find out the relation of HRM and performance. He found that some of the companies have showed a relationship between HRM and Performance but it was hard to explain that the exact situation or occurrence of the policy because of which this happened. He gave this the name of ‘Black Box’.

Harper and Vilkinas (2005) consider performance management systems (PMS) from key stakeholders, managers’ and employees’ perspectives. This research notes that differing evaluations of impact will arise according to the perspective from which the impact is being observed. Royal and O’Donnell (2005) argue qualitative human capital analysis would assist in predicting the sustainability of organisations and their future financial performance.

Gollan (2005) outlines a number of issues for organisations to consider when pursuing sustainable high performance workplace outcomes through high involvement 4

management (HIM). He similarly notes corporate profitability and corporate survival as a component but also includes in the equation those that satisfy employee aspiration and needs in the workplace. Golan (2005) notes critical assessment of the high performance literature and research by John Godard (2004). In short these criticisms note while some practices may increase performance, it is likely that proponents not only overestimate the positive effects but also underestimate the costs (David Worland & Karen Manning, 2005).

According to the critics of HRM, SHRM and its link with the performance say that there is a lot of literature available which proves the link between HRM, SHRM and Performance yet ‘there is little empirical evaluation of this and the theoretical foundations upon which these links are based have been described as inadequate’ (Wright; Kochan; Koch and Guest).

Fang Lee Cooke in his research paper (2000) says that the problem is that firms do not always introduce HRM techniques in an institutionally supported and coherent package which constitutes part of an overarching policy or strategy, but in an ad hoc fashion and piecemeal manner (F.L. Cooke, 2000). Tyson (1995) linked business strategy to competitive advantage e.g. through the generic strategies of cost leadership, or differentiation Porter (1980). Although the issue of strategic fit and its link to firm performance has been extensively examined, as Panayotopoulou, Bourantas and Papalexandris (2003, p. 682) state "research has failed to consistently support the efficacy of fit". Kelly and Kelly’s (1991) evaluated a range of employee involvement initiatives which indicates that employees ‘trust in management has not increased radically in that ‘there is little or no evidence to suggest that these practices have altered workers’ mainly negative views of management in general’. Furthermore, studies from SAWGs and QCs outlines that ‘although employees took pleasure in the new work practices and connected responsibilities, there was no lasting change in employees’ attitudes or commitment to the organisation’. Marchington (1995) observed that ‘in spite of the appeal of employee involvement in general terms, the evidence put forward that it has only a limited impact upon employee attitudes and commitment’.


There are a number of factors which can influence the company’s performance e.g. product and labour market, companies’ market share and the environment in which it operates as well as the company’s internal factors such as organisational culture, management styles and human resource management practice. ‘Labour-market effects have an impact on virtually all aspects of the HRM role’ (Tyson, 1997, p284-5) ‘Firms may prefer conceptually simple, more direct, more immediate and more quantifiable measures rather than the academically-preferred complex, long-term, less quantifiable measures, a category into which HR measures often fall’ (F.L.Cooke, 2000). Furthermore Lloyd C. Harris, and Emmanuel Ogbonna in their research paper (Strategic human resource management, market orientation, and organizational performance, 2001) concludes that ‘HRM has been developed into SHRM by researchers seeking to highlight the importance of the concept to the effective functioning of organizations. To this end, many authors have claimed that SHRM is directly linked to organizational performance and there is a forming of consensus that high-performing work organizations pay attention to adopting particular HRM policies and linking these to the strategies of their organizations. However, despite the increasing popularity of SHRM, there has been very few systematic evaluations of the claims that it is linked to performance and doubts remain as to its theoretical foundations’. ‘Strategic HRM emphasizes the need for Human Resource (HR) plans and strategies to be formulated within the context of overall organisational strategies and objectives, and to be responsive to the changing nature of the organisation’s external environment. It is a model, which, like all models, requires interpretation and adaptation by practitioners to ensure the most suitable fit between HR and business strategies and plans. Thus the overall themes of Strategic Human Resource Management (SHRM) are the integration of all HRM functions, adherence to broad organisational goals and responsiveness to the external environment’ (K. Manning, D Worland, 2005). The main aim of the Strategic HRM is to make a strategic fit between SHRM policies and the strategy of the organisation. This includes the evaluation of both the external


and internal environment, the long term goal of the organisation and the ways the SHRM policies are adopted to achieve those long term organisational goals. The empirical evidence of strategic HRM within the private sector is quite limited and almost non-existent in the public sector. Some research, although by no means exhaustive nor conclusive, has been conducted into the application of SHRM theory to organisational HR practice in the United States, the United Kingdom, Europe and, more recently, in Australia, New Zealand and Asia. Most studies have been relatively small and, arguably, unrepresentative of industry as a whole in these regions. Martell and Caroll (1995), among others, have researched SHRM in the United States; Purcell (2002, 2004), Storey (1995), Legge (1995) in the United Kingdom, Australia and Asia have conducted surveys to determine whether organisations have actually converted the ‘rhetoric’ of SHRM into operational practice. Overall the results are not greatly encouraging (K. Manning, D Worland, 2005). Tebbel (2000) and Kramar (2000) conclude that, ‘while advances have been made toward the alignment of HR and business plans and the alignment of all HRM processes and integration of HRM within organisations, HR managers still have to demonstrate their credibility and the contribution they can make to the business’.

Conclusion: After looking into the point of view of different authors, it seems clear that as long as the HRM policies are used on the adhoc basis then it is difficult to find a link between HRM and Performance. Therefore researchers emphasise on the well fitted HRM policies with the business strategy of the organisation. Similarly (Cooke 2000) states that “Most of the British firms have not implemented the HRM policies as a whole package but they use it as on adhoc basis in a patchy, pragmatic, and incoherent in places and with inconsistent outcomes at times which is not necessarily in the best interest of their employees and/or organisational performance in the long-term”. My own point of view is that although critics says that there is little evidence about link of SHRM and Performance but looking in details will make it clear that these SHRM policies are not used consistently and are used whenever they need it as a reactive approach. Therefore we can say that the SHRM is important for competitiveness but for that the policy should be well fitted and consistent manner rather then adhoc system. ‘The logic behind this proposition is that firm performance will be enhanced by systems of practices (bundled HR practices) that support each 7

other and that have a mutually reinforcing effect on employee contributions to company performance. For example, the effectiveness of a comprehensive training programme may be increased when combined with appraisals to assess employee performance and target development needs’ (Cooke, 2000).

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