Strategic human resource management

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					                         chapter two

Strategic human
                       Chapter Overview
In Chapter 1 we examined the theoretical debates on the nature and signif-
icance of the new HRM model. Chapter 2 discusses the concept of strategic
HRM (SHRM) and explores various themes associated with SHRM. It begins
with introducing the student to the traditional prescriptive strategic man-
agement model, the SWOT model. The chapter then goes on to examine
two competing SHRM models: the ‘matching’ model and the ‘resource-
based’ model, before reviewing some important dimensions associated with
SHRM: re-engineering, leadership, workplace learning, trade unions, and
organizational performance.

                      Chapter Objectives
After studying this chapter, students should be able to:

    Explain the meaning of strategic management and give an overview of
    its conceptual framework
    Describe the three levels of strategy formulation and comment on the
    links between business strategy and human resource management
    Explain the two models of strategic HRM, the matching model and the
    resource-based model
    Comment on the various strategic HRM themes of re-engineering,
    workplace learning, trade unions and leadership
    Explain the methodological difficulties of measuring the link between
    HRM practices and organizational performance
                                                 Strategic human resource management          13



         1.   The strategic planning model shows how the choices of HRM structures, policies
              and practices are determined by corporate and business level strategies, as well as
              environmental pressures
         2.   A number of important questions are addressed: How do higher level corporate
              decisions affect HRM? Do firms that adopt the new HRM model experience supe-
              rior performance compared to firms we characterize as traditional, using person-
              nel management?

         Strategic Management

         1.   Definition: strategic management refers to a pattern of managerial decisions and
              actions that determines the long-run performance of the organization
         2.   Strategic management requires constant adjustment of three interdependent
              poles [TRANSPARENCY 2.1]

         Model of Strategic Management

         1.   The prescriptive management literature describes many different strategic plan-
              ning models. Most however replicate what we have done, they reduce the basic
              idea to the SWOT model
         2.   Model reduces the strategic management process into five neatly delineated steps
              [TRANSPARENCY 2.2]

                            Lecture Enhancement
Henry Mintzberg et al.’s (1998) book on strategic management offers a scathing critique of
the traditional strategic management model (see also Chapter 3). The authors convincingly
argue that strategic management has proved in practice to be an oxymoron and go on to
discuss three fallacies:

1.   The fallacy of predetermination ‘The forecasting of discontinuities… is practically
     impossible’ p. 67
2.   The fallacy of detachment ‘Detached managers together with abstracted planners
     do not so much make bad strategies; mostly they do not make strategies at all’ p. 69
3.   The fallacy of formalization ‘the process [strategy making] requires insight,
     creativity, and synthesis, the very things that the formalization of planning
     discourages’ p. 73.
14   Human Resource Management: Theory and Practice

                    HRM in practice 2.1

                    Japanese forced into HR strategy rethink

                    This example reinforces the point we make in the chapter that strategic man-
                    agement requires constant monitoring and evaluation.

          Hierarchy of Strategy

          1.   The prescriptive model depicts different levels of strategy: corporate, business,
               and functional. Strategies must be integrated [TRANSPARENCY 2.3]

          Business-level Strategy and HRM

          1.   At functional level, HR strategy is formulated and implemented to facilitate the
               business strategy goals
          2.   Business–HRM links are classified in terms of a proactive–reactive continuum.
               Proactive – HR specialist helps formulate strategy. Reactive – HR function is fully
          3.   Some models emphasize the importance of the environment as a determinant of
               HR policies and practices [TRANSPARENCY 2.4]
          4.   Strategic decisions can be ‘upstream’ or ‘first-order’ strategic decisions. HR
               approaches are ‘third-order’ strategic decisions

          SHRM: The Matching Model

          1.   This model proposes that SHRM should be concerned with matching the ‘five Ps’
               which reinforce employee role behaviour for each generic Porterian competitive
          2.   In Devanna et al.’s model, HRM strategy and structure are linked to and influ-
               enced by environmental forces [TRANSPARENCY 2.5]
          3.   The notion of ‘fit’ is also a central tenet of Beer et al.’s model (see Figure 1.3)
          4.   Limitations of the matching model. Conceptual – predicted upon the rational view
               of strategic decision-making. Empirical – limited empirical support for the model
               (see above Lecture Enhancement note)
                                                     Strategic human resource management              15

                                Lecture Enhancement
    To provide further insight into HRM–business strategy links and to stimulate discussion,
    Mintzberg et al. (1998) offer an excellent critique of Porter’s generic competitive strate-
    gies. For instance, the authors argue that strategic specialization might cause inflexibility
    and actually narrow a firm’s vision.

                                       Teaching Tip
    Depending on the design of the business degree programme, students might not have
    been exposed to strategic management theory. It is therefore important to emphasize the
    limitations of the prescriptive models and to help students understand that HR function
    does not operate in a business vacuum. The more critical literature recognizes that strate-
    gic HRM options are constrained by business decisions, the distribution of power within
    the company, and ideological values and beliefs of senior managers.

             SHRM: The Resource-based Model

            1.   The model emphasizes the strategic value of human assets and continuous work-
                 place learning. Whereas the matching SHRM model focuses on external ‘Oppor-
                 tunities’ and ‘Threats’ (from SWOT), the resource-based SHRM model focuses on
                 the strategic significance of internal ‘Strengths’ [TRANSPARENCY 2.6]
            2.   Organizations can identify which resources are potentially strategic by using Bar-
                 ney’s (1991) criteria: (a) valuability (b) rarity (c) inimitability (d) substitutability
                 [TRANSPARENCY 2.7]
            3.   Limitations of resource-based model – conceptual: conceptual vagueness, imbal-
                 ance giving too much attention to internal resources at the expense of external
                 competition. Empirical: little evidence that many firms have adopted the ‘learning
                 organization’ or ‘soft’ SHRM model

Chapter case study
                             Air National
This case study can be used to illustrate the HRM–business strategy links. The case is based upon
Trevor Colling’s article, ‘Experiencing turbulence: competition, strategic choice and the
management of human resources in British Airways’ (see page 70 for further reference details).
16    Human Resource Management: Theory and Practice

             Dimensions of Strategic HRM

             This part of the chapter examines five important themes associated with SHRM. With
             the exception of leadership, they provide an introduction to the following chapters in
             the text.

            1.   Re-engineering – it is claimed that the process leads to flatter organizational
                 structures, redesigned work teams, use of IT, senior management commitment
            2.   Leadership – considered important in the ‘soft’ HRM model in order to develop a
                 high level of employee commitment and cooperation
            3.   Workplace learning – posited to be a central building block in the resource-based
                 SHRM model and in the ‘learning organization’
            4.   Trade unions – draws attention to the contradictions between the normative
                 HRM model and trade unions and introduces the debate on ‘partnership’ between
                 management and unions
            5.   Organizational performance – examines an aspect of the ‘second wave’ of cri-
                 tiques of HRM, the HRM–firm performance link and introduces students to some
                 of the methodological challenges of measuring the impact of HRM

                                Lecture Enhancement
     Mark Huselid’s recent study can be introduced at this point to provide further broad evi-
     dence to support the hypothesis that high performance HRM practices impact positively
     on firm performance. His study of a wide range of industries and firm sizes found that
     investment in such high performance HRM practices are associated with lower employee
     turnover, increased productivity, and greater financial performance. See Mabey et al. (eds)
     (1998a) pp. 104–27 for further information.

                                  Reflective question
     Is the resource-based SHRM model distinctive? How does this model relate to the
     debate on ‘hard’ and ‘soft’ variants of HRM?

     This question requires you to explain the two strategic HRM models: the matching
     and the resource-based. A comprehensive answer would define strategy and explain
     HRM–business strategy links. One way to explain the difference between the two
     SHRM models is to use the SWOT approach. The matching model emphasizes exter-
     nal ‘Opportunities’ and ‘Threats’ facing the firm, whereas the resource-based model
     draws attention to internal ‘Strengths’. Barney’s (1991) four criteria for identifying
                                               Strategic human resource management           17

potential strategic resources should be discussed: (a) valuability (b) rarity (c) inim-
itability (d) substitutability. A focus on external forces mirrors the ‘hard’ HRM model.
The resource-based approach, with its focus on ‘knowledge capital’ and learning,
reflects many of the features contained in the ‘soft’ version of HRM.

                                     Study Tip
You should be aware of an important strand of what Mabey et al. refer to as the ‘second
wave’ critiques in the quantifying of the HRM–organizational performance link. To make
you a more critical ‘consumer’ of the growing literature on aspects of the debate, you
should read pages 61–2 in the textbook and also Casey Ichniowski et al.’s (1996) article,
which discusses in more detail the challenges scholars face when addressing this aspect of
the HRM discourse.