The differentiated workforce strategy uses the significance of a position to your company to determine the allocation of other resources that you assign to the job. Certain positions are more important than other positions to your company's performance, so your company should spend more effort defining job duties, searching for candidates and training employees in these positions.
When a job is critical to your company, the strategy defines this job as an "A" job. An "A" job is not necessarily a managerial job. If you own a gift shop, and the cashier who works during the last shift has an important role because she is responsible for making sure that all the gifts on the shelves are organized correctly for workers on the morning shift, then the last shift cashier's job is an "A" job. "B" jobs hold some importance, and "C" jobs are not as critical.
The differentiated workforce strategy uses the overall strategy of your business to decide which jobs are critical. For example, if you own a high-end clothing store, your reputation may depend on the customer service that your employees offer. A salesman who sells suits to wealthy customers may have a more important role at your company than a bookkeeper in the office, even if the bookkeeper earns a higher salary than the salesman.
The differentiated work force strategy considers both cost centers and profit centers. A purchasing manager who saves the company $50,000 on an inventory order is just as important as a sales representative who earns the company $50,000 on the dresses that she sells to customers. An "A" position can involve a worker who improves your profitability using an indirect method, such as a manager who trains new sales representatives.
The strategy considers the potential income you gain from hiring the best possible employee to fill a position. An average sales representative may be able to earn you $20,000 by selling suits, while an expert sales representative can earn your company $100,000. If an average loss prevention agent saves you $20,000 but an expert loss prevention agent saves you $25,000, then finding an expert loss prevention agent is not as important.
The strategy also considers the results of hiring a less qualified employee to perform the job. If you hire a sales representative who is not nice to your customers, you lose future sales, even if the sales representative earns you some income on the sales he does make. You may use non-financial measures, such as customer satisfaction surveys, to determine which positions are "A" positions.
About the Author
Eric Novinson has written articles on Daily Kos, his own blog and various other websites since 2006. He holds a Bachelor of Science in business administration from Humboldt State University.
- salesman with black leather boot image by Lev Dolgatshjov from Fotolia.com
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This research paper is about the effectively linking corporate and business strategy with the human resource strategy in order to achieve competitive advantage. In this chapter, a background to the research is presented along with the objective and need of this research. In addition, certain confidentiality and ethical issues are discussed with a clear chapter plan followed by the limitations of the study.
The function of linking corporate and business strategies to human resource strategy is not a new concept. Cappille (1999) stated that McKinsey gave the concept of seven Ss that emphasized on the requirement of aligning the seven key variables of an organization namely, shared values, strategy, structure, systems, staff, style and skills. However, in today’s competitive world, the importance of the professional development of staff as a way to maximize competitive advantage has dramatically increased. Today every organization is in search of a sustainable competitive advantage. This search has significantly influenced the approach followed for the management of human resources in an organization. In addition, there has been intensification in the level of competition at domestic as well as international levels resulting in an increased emphasis on developing strategies that can ensure maximization of return on investments made on the human resources of a firm. Much research has been conducted and published on the importance of linking business strategy with the HR strategy of a firm (Bose, 2002). It has frequently been argued that leveraging the human resources of a firm can result in generating capabilities through which a firm can easily achieve success even in the toughest market conditions. However, all of us have seen that in the recent economic crisis many organizations selected the route of downsizing and other cost-cutting measures that negatively affected the employee value proposition. In this study, an attempt has been made to identify whether firms really believe and practice the concept of linking business strategy to HR strategy or whether it has just become an attractive topic limited to academicians and scholars.
In a global economy, market pressures drive business organizations and they need to include in their goals-improved quality and productivity, greater flexibility, continuous innovation and the ability to change to respond rapidly to market needs and demands. Thus, in today’s intensely competitive and global marketplace, maintaining a competitive advantage by becoming a low-cost leader or a differentiator entails having a highly committed and competent workforce. Competitive advantage lies not just in differentiating a product or service or in becoming a low-cost leader but in also being able to tap the organization’s special skills or core competencies and rapidly respond to customer’s needs and competitor’s moves. In other words, competitive advantage lies in the management’s ability to consolidate corporate wide technologies and production skills into competencies that empower individual business to adapt quickly to changing opportunities.
Organizations have been forced to reevaluate the importance of human resources due to the transition from a labor-intensive approach to a more knowledge-driven approach of the business world. As explained by Greer (2000), there is greater recognition of the fact that a competitive advantage and distinguished competency can be achieved through developing employee skills, developing unique organizational culture and developing effective management systems.
This paper targets some key multinational enterprises to get clarity over the alignment of corporate and business strategy with the human resource of the firm. Here it become important to discuss the changes brought due to globalization and key challenges that a multinational organization needs to face while considering the concept of strategic human resource management. Globalization has brought remarkable developments in the diversity and complexity of international business and multinational enterprises (MNEs). Concomitant with these developments has been increasing awareness that the management of a global workforce is a critical dimension of international business. A major aspect of multinational corporations’ (MNCs) management relates to the area of strategic international human resource management.
The field of international human resource management has been characterized by three broad approaches. Early work in this field emphasized cross-cultural management issues. A second area of research has been developed in comparative HRM research. Third, much of the research in international HRM has focused on aspect of HRM in MNEs. This later area is more widely recognized as international HRM, involving same elements as HRM within a single country, yet added complexity due to diversity of national contexts and inclusion of different national categories of workers. A major aspect of international HRM research has developed understanding of micro-level variables related to the cross-national transfer of employees and management practices. Parallel to the development of research on strategic HRM issues, international HRM researchers and practitioners have paid increasing attention to more macro-level issues, such as the strategic nature of international HRM and implications for organizational performance. This work raised awareness of the emergence of strategic international HRM, which has been defined as:
“Human resource management issues, functions, and policies and practices that results from the strategic initiatives of multinational enterprises and that impact the international concerns and goals of those enterprises” (Schuler, 1993)
Human resource management can play a vital role in environmental scanning i.e. identifying and analyzing external opportunities and threats that may be crucial to the organization’s success. Human resource management gas the unique potential to supply “competitive intelligence (CI)” that can be useful in the strategic planning process. Human resource management can supply information regarding the organization’s internal strengths and weaknesses. The strengths and weaknesses of an organization’s human resources can have a determining effect on the viability of its strategic options. Thus, achieving and maintaining competitiveness of the organization is a key element of strategic human resource management.
This paper looks into the concept of integration of corporate and business strategy with human resource strategy and investigates the issue in some key multinational corporations. In order to study the concept and best practices for ensuring an effective alignment of the two strategies, study has been conducted for three multinational firms, each belonging to a different industrial sector: namely, Information Technology (IT), Manufacturing and Retail. An analysis of these different sectors will answer the question of whether it is necessary to align business strategy and corporate strategy with human resource strategy and if so, what the benefits achieved from such a linkage are. In addition, the study will identify which approaches ensure effective linkage between corporate and human resource strategy that can result in a sustainable position in the dynamic and competitive market. Finally, a thorough study of the available literature and previous research work will give detailed information about the best practices in the field of business strategy and corporate strategy and its alignment with the human resource strategy resulting in enriched capabilities and a competitive edge for an organization. The basic aim of this paper is to examine whether the concepts of alignment between corporate strategy and human resource strategy; business strategy and human resource strategy are practically implemented by the organizations or the concept is just relevant to academic studies only. Specifically in relation to the recent economic crisis, it is to be examined whether organizations really emphasize on maintaining a interrelationship between the business and corporate strategies and human resource strategy or the concentration of companies have been on reducing the cost through measures that are not human resource friendly in nature.
1.2 Research Objectives
The purpose of this study is to investigate the role of human resource management while designing and implementing corporate as well as business level strategies in order to sustain a competitive advantage even in times of crisis and tough situations faced by the organization. In addition, an attempt will be made to understand the need of empowering the human resources of an organization and the impact of human resources impact on positioning of the firm in the dynamic business environment. The study will focus on multinational firms that face the problem of managing human resources and integrating individual goals with organizational goals in different regions. People from different regions have different background, values, beliefs, expectations, etc. Organizations often face issues associated with the diversity of the workforce. The globalization of business activities is another environmental force that pushes issues of diversity into the foreground as firms envision their strategic objectives. With the fall in trade barriers, the foreign sourcing becomes more attractive and new growth opportunities are created. In order to capture the large share of foreign markets, licensing agreements and joint ventures often become desirable. For large organizations, these alliances may require coordination of activities in more than 100 countries and for smaller organizations; the alliances may have to be managed in two or three countries only. However, in both the cases it is necessary that the organization successfully and efficiently manages the human resources involved in such alliances working at various locations so as to ensure successful survival and growth of the organization in all the countries of operation. It is necessary for a company to determine these specific elements and develop strategies to integrate individual goals with organizational goals.
The purpose of this paper is to integrate multiple perspectives on the links between corporate and business strategy and human resources strategy with the objective of giving HR professionals working within an organizational context some pointers on how they can contribute to better integration of corporate and business strategy with HR strategy. The paper will focus on gaining a better understanding of the ways through which human resource is linked with the strategy of attaining the competitive advantage. Today’s business organizations are facing several challenges that include shrunken markets, high amounts of fixed costs and tight bottom lines. Corporations were clearly seen fighting these challenges in the recent global crisis to which they responded in often adverse ways. There were several business closures, several giant business houses on life support, redundancies and indiscriminate cost cutting that resulted in an adverse impact on the employee value proposition. It is to be noted that the challenges that a firm faces surely transform into HR challenges and many times result in leveling of HR challenges. This context of business challenges makes it necessary to achieve a high level of performance within the organization that will enable it to overcome such challenges. This paper will focus on investigating these beliefs in the context of real world challenges faced by the organizations under study. Various academicians, scholars, and researchers have presented their views where the ideal management of human performance and its linkage with business strategy has been stated (Kandula, 2001). However, there has been very little evidence of any research conducted in determining the actual strategies of companies in order to make use of these views.
1.3 Confidentiality and Ethical Issues
In order to conduct the surveys, proper questionnaires have been used in the research. These questionnaires comprising of both open as well as close-ended questions were presented to HR directors and HR managers of the target companies. These questionnaires were used in face-to-face meetings as well as for the responses that were collected through e-mail. Such survey calls for maintain the confidentiality of the respondents and maintaining the ethics while presenting the collected information in the paper. Proper care has been taken to avoid presentation of the name of any respondents, name of their companies and/or any direct responses obtained from the respondents.
1.4 Some key concepts and Definitions
Before going to the actual discussion on the available literature, it is necessary to understand the meaning of some key concepts that will be frequently used in the literature review. This will help in understanding the various views presented by several renowned authors and provide clarity over the key elements related with the strategy of an organization and its alignment with human resource of the form. Some of these key concepts are discussed as follows:
1.4.1 The concept of Strategy
Strategy has traditionally been a high-stakes game that starts when a management team develops a vision of the company’s future environment. The team then makes big, hard-to-reverse decisions about where the company will focus its energies, its capital, and its people. Finally, the team hopes and prays that its vision is correct.’ (Eric D. Beinhocker)
Organizations’ strategies are its long-term plans, which will help it to achieve its objectives in a changing environment. The concept of strategy is to understand the process of strategic management. Any strategy is defines to the plan of action that how to achieve the goal of the organization. The term ‘strategy’ is derived from the Greek word ‘Strategos’, which means generalship.
1.4.2 Corporate Strategy
Corporate strategy deals with the corporation as a whole. It determines the industries or markets in which the firm is active, as well as the manner in which management coordinates its activities and transfers resources and capabilities between its product lines and business units. Corporate strategy at this level has been viewed as strategy for a “portfolio of businesses” and the “pattern of relationships” between the corporate headquarters and the different individuals businesses. Corporate strategy coordinates the activities and manages the flow of financial and non-financial resources in order to create synergies between different businesses and to maximize the overall value of the corporation. Major topics here include diversification, acquisitions, and new ventures.
1.4.3 Business Strategy
Business strategy is the second of organizational strategy. It is concerned with how a firm competes in each of its businesses in order to achieve its goals in the marketplace. A business is characterized as a market, or segment of the market, and includes all products and services that can be viewed as close substitutes or attend to similar customer needs. Consequently, business strategies also termed as competitive strategies are formulated at the level of the strategic business unit (if the firm is active in several distinct businesses that are reflects in corresponding organizational business units) or at the firm level (if the firm consists of only one business unit or if all business units have identical competitive strategies). Following the initial characterization of the strategy construct, competitive strategy requires decisions regarding both the internal and the external competitive orientation of the firm. The external aspect is referred to as the product/market perspective of competitive strategy and specifies the geographical, technological or product-oriented market segments in which the firm wishes to compete, as well as the means of differentiation that the firm uses to distinguish itself into those segments. The internal aspect of competitive strategy is referred to as the resource perspective and encompasses the decisions that specify the structure of the firm’s value-creation processes in a way that assures that both the presence and the desired differentiation in the chosen product/market segments are achieved. Due to their interdependent nature, neither the product/market perspective not the resource perspective is themselves sufficient to determine the long-term competitive development of the firm. Instead, successful operation in a specific market or product segment will always impose certain requirements on the firm’s value-creation processes and not all particularities of the firm’s value-creation processes will be beneficial to all market segments. The product/market perspective and the resource perspective thus represent two complementary elements of strategic fit, which is essential for successful operation in the chosen markets.
1.4.3 Difference between Corporate and Business Strategy
In any organization of the world, there are different types of Strategies and at different level which have their own impact on the organization, all types of strategies covers the whole organization and every activity.
Corporate strategy is related with all the activities, which are going in the organization and also related to the purpose of the organization and meet the hope of the stakeholders. Corporate strategy is related to all types of investors in the business.
Business Strategy is related to the product, production, what is the need of the customer, develop technical advantage over the competitors, exploit and grab the opportunity from the market and try to make maximum profit from the market.
Corporate strategy is the management of managing the portfolios for the long term and predetermined plans or indicators for the business strategy as business strategy are highly dynamic in nature due to internal or external environment. Corporate strategies are made to provide a stable working environment to the organization so that it can achieve goal of the organization whereas business strategy are adapted due to the change in the environment.
Corporate strategies are made on the basis of the present environment, which ensures the long-term plan in a stable environment whereas business strategy is responsive in nature as it changes with the change in the environment or according to the need of the situation.
Lawson(2002) says that the corporate strategy is at the highest level in the organization for the long term but the allocation of resources, new ventures, investment etc are made at the business unit level.
Corporate level strategy is in the multi-business that it creates strategy for all the different types of businesses and business strategy is one which is made for a single business unit. So the corporate staff at the top level make the corporate strategy. Corporate strategy defines the market and also develop the strategy of diversification in new product or in a new geographical area whereas at the business level defines how to navigate in that market and create the strategy to secure the competitive advantage over the competitor in that product or in that geographical area.
These two strategies are highly supported by the third strategy called Functional Strategy. Corporate strategy decisions are also divided into three categories called grand strategies are Business operation (Growth Strategy), decrease the scope of business operations (Retrenchment Strategy) or maintain the status quo (Stability strategy).
Michael Porter says that the strategy for product and services or at the business level strategy is overall cost leadership, differentiation or focus on a particular market niche.
1.4.4 Strategic Management
Developing corporate strategies is a management responsibility (largely involving senior managers). Strategic management decisions made by managers at the top of the organization trigger dozens or even hundreds of other decisions of lesser magnitude made by lower managers in the organization. Prasad defines strategic management as composite of actions as well as decisions aimed at formulating and implementing strategies. Such a strategy provides a competitive superior linkage to the organization with the environment-all focused on achieving the organizational objectives. This implies that a strategy is a process of management functioning which is essential for an organization to move from where it is today, to where it aims to be, in due course of given time. So, a strategy is about giving/working out a point of direction and linking it to the aims/objectives of the enterprise. Strategic management may include strategic planning, even though strategic planning involves an activity which is performed as a separate activity, away from the line management functioning. The planning activity is subject to regular review at defined periods. Strategic plans relate to short and long-term plans, which keep into view the trend line of the market forces/variables and highlight the point which the business of the enterprise plans to achieve. On the other hand, strategic management focuses on attaining, say, the competitive advantage either which can be sustained over a period of time. Strategic management decisions are in the context of long-term direction of a company. These decisions are usually aimed at achieving a given advantage for the company, say, for instance, in matter of competition with the rivals. Strategic management decisions are related to the scope of the company operations/activities and are related to matching the operations/activities of the company with the environment where it operates.
1.4.5 Human Resource Strategy
Human Resource management is the planning, organizing, directing and controlling the operative function of procurement, development, compensation and maintenance of human resource of an organization’s goal and objectives.
The human resource strategy is to utilize the employees in such a way that they can exceed the parameters of performance set by the organization and maintain the optimum utilization of resources.
Bamberger and Meshoulam (2000), defines human resource strategy depending on the basis of the organizational requirement such as proper use of the resources and also how to control the organizational system.
Mathis, Jackson, 2000 (as cited in Williams and Andrew, 2006) relates the Human resource strategy with the core competencies of the organization. Human Resource strategies play a vital role in the organization at different level.
In production the productivity of the goods plays an important role as to reduce the costs and services of the goods to lower price so that organization available the goods to the end user at low cost which not only requires updated technology but also requires skilled and quality of work to be done. Human resource strategy also improves the organizational productivity by recruiting skilled, trained and experienced work force, which enables the organization in improving the productivity.
1.4.6 The concept of Strategic HRM
By virtue of the link between HRM and corporate strategy, two problem areas that have always been handled separately in both theory and practice now come together: market-oriented, strategic corporate planning and resource-oriented personnel planning. The heavy emphasis on the environment in strategic planning and the focus on product/market combinations as the sole potential for success (strategic marketing) long prevented internal resources like human potential from being identified as strategic potential for success.
1.5 Chapter Plan
There are six chapters in this report. The first one is this-Introduction.
Chapter 2: Available literature is reviewed in this chapter. The chapter will concentrate on academic resources related with corporate strategy, business strategy, human resource strategy and the linkage between these. The need of alignment between business and HR strategy is also reviewed and the views of various academicians and scholars over the issue have been presented in the chapter. In addition, literature is also reviewed for the economic downturn and its impact on HR policies of the company.
Chapter 3: The research methodology will be discussed in this chapter, A detailed discussion of research approach, sample size, research strategy and various methods used to analyze the issue will be discussed in the chapter.
Chapter 4: This chapter will discuss the results obtained from the interviews conducted for HR managers and HR directors in order to analyze their views on the issue of alignment between corporate and/or business strategy with the human resource policies and strategies of the company.
Chapter 5: This chapter will deal with the analysis and presentation of the quantitative data obtained from questionnaires. Here quotations and econometrics have been used to present the collected data.
Chapter 6: ‘Summary and Conclusions’ discusses certain recommendations made for HR managers. Here best practices that are followed by the companies analyzed have been discussed along with a presentation of the limitations of the present research and the scope of future research.
The research will be useful for HR managers of the company in getting a clear view about the practical linkage of HR strategy with the business strategy of an organization. This will help them in knowing how some key business giants have been using the strategy to achieve competitive advantage in the competitive market conditions. Additionally, the study will throw light on the any differences that may exist between the academic impression of HR strategy and business strategy links and the actual implementation of such strategy in tough economic conditions. Thus, it will helpful not only for the HR department but the management of the organization as a whole where best practices in HR management and its use in achieving long term corporate goals will be clearly known. Such knowledge will help several organizations to implement these best practices and recommendations made under the study to achieve a competitive edge in present economic conditions.
1.7 Limitations of the Study
As in case of every other research, this research also has some limitations that may narrow down the scope of this research. These limitations are discussed as follows:
- The research is based on a single company taken from an industrial sector. This is not enough to represent the trends of the whole industry.
- Every organization has to face different set of internal and external conditions and every organization’s human resource has some unique characteristics. It is not possible to generalize the results obtained from the study of three organizations for all companies operating in today’s business environment.
- The research was carried out using questionnaire and semi structured interviews conducted for HT director level people. It may be possible that due to some confidentiality issues, respondents will not reveal the real picture of the policies related empowerment of human resource of the organization. This will affect the quality of the results obtained from the investigation.
2. Literature Review
2.1 Human Resource Management
The evolution of the human resource management (HRM) field, once called personnel, has followed the history of business in the United States. As the Industrial Revolution swept the United States in the nineteenth century, rapidly growing organizations faced three major people-related challenges: (1) managing sudden and massive increases in the size of the workforce stemming from industrialization, (2) fighting workforce unionization, and (3) integrating the huge influx of immigrant workers into U.S. workplaces (Kandula, 2001). From the dawn of the Industrial Revolution in the United States until about 1950, the personnel department’s role in most organizations centered around administrative duties. Personnel directors headed up a record-keeping function, which included such activities as disciplinary systems, recruitment, safety programs, time-and-motion studies, and union relations. Senior managers expected that these personnel activities would maintain employee morale and enhance cooperation within their organization. Form the 1940s into the 1950s, personnel departments emphasized their role in meeting employee needs to achieve economic security (Williams, 2006). During this time, unions were responsible for negotiating wages and other employee benefits such as pension plans and health insurance. Corporate Personnel departments were founded in the late 1950s to coordinate such increasingly specialized functions as benefits, wages, recruitment, and labor-relations. Further, the business and social dynamics of the 1960s and 1970s brought increased attention within the personnel department to human relations. Human relations emphasized supervisory training, which often-included role-playing and sensitivity training as well as participative management techniques such as management by objectives (MBO) and quality circles (QC) (Williams, 2006). As one consequence of focusing on human relations, personnel departments were eventually handed responsibility for training and development, reward systems, performance management systems, and succession planning programs. At the same time, personnel departments also assumed responsibilities to help their organizations met new challenges stemming from increasing government laws, rules, and regulations affecting equal opportunity, occupational safety and health, and employee benefits.
The transformation of personnel management to human resource management was affected by a parallel trend: the emergence of the human resource development (HRD) filed from the training and development field.
It is clear that the human resource management function has changed over the years and continues to change. As human resource management was becoming more important because of the increasingly complex legal environment, other changes in the world led to other pressures to manage human resources more effectively (Bamberger and Ilan, 2000). Changes in the competitive landscape, combined with rapid advances in technology and communication, made it more important than ever for organizations to use their resources wisely and to capitalize on the full value of those resources. At the same time, however, there was increasing concern over quality-of-work-life issues. While managers were becoming increasingly concerned with ways to improve productivity and competitiveness, they also began to realize that it was important for workers to feel that their jobs were that could maximize effectiveness while at the same time make work more meaningful and fulfilling.
It is already been stated that human resources are an organization’s most important resources. Hiring the right people and the equipping them with the right skilled and abilities can substantially affect the quality and quantity of whatever goods and services the organization produces (Bamberger and Ilan, 2000). Properly motivated and committed employees can add immeasurable value to an organization’s bottom line. Given the shift in competitiveness, top executives in most firms began to see that human resource management practices and policies significant affected their ability to formulate and implement strategy in any area and that other strategic decisions significantly affected the firm’s human resources as well (Kandula, 2001).
Thus, a combination of historic forces and legal pressures and the increased need to gain competitive advantage has led to our contemporary view of human resource management. Organizations that do not understand their legal environment are almost certain to encounter difficulties in almost every aspect of human resource management and may face financial and legal penalties as a result. Understanding the legal environment begins with equal employment opportunity and requires a complete understanding of protected classes in the workforce and what organizations of protected classes in the workforce and what organizations must do to ensure that members of those classes have the same chances of success in the organization as do any other employees. Numerous special legal issues regarding compensation, benefits, labor relations, working conditions, training practices, and other related areas of human resource management must also be understood and considered by all managers.
Another vital dimension of the environment of human resources is the international context in which the organization functions. Large multinationals have numerous international human resource issues to manage. But many smaller firms are also venturing into foreign markets. Even purely domestic firms may find themselves buying from, selling to, and/or competing with businesses in other countries. Thus, managers today must explore the various issues associated with managing human resources in an international company and with taking a global approach to human resource management itself.
Figure 1 : The Human Resource Management Process
Source: Bamberger, Peter& Meshoulam, Ilan (2000), Human resource strategy: formulation, implementation and impact
2.1.1 Present status of HR field
In practical situations, HRM is not a single unified concept, but a varied approach to people management. The distinction between the different schools of HRM seems to be more about the means to achieve these goals than any challenge to the primacy of the organization’s will. Yet the means are important, In the UK there has been a shift from a sense in which within personnel management efficiency and social justice could be reconciled to the HRM position that employees and employers have mutual goals. In personnel management of the 1960s and 1970s, differences between the stakeholders could be accommodated or negotiates. It was acceptable in this more pluristic model for commitment from employees to be conditional. In HRM there are no such half measures or ambiguities. The people management aspects of organizational life are combined with the organizational to deliver an integrated and strategic approach. Organizational values are in step with business needs. All are required to sign up to the shared goals. Moreover, in the more individualistic orientation of HRM, it is employees themselves who are expected to share the vision. There is less room for a collective perspective, certainly for a trade union view that subscribes to any other economic philosophy than capitalism. These differences between personnel management and HRM help both describe and explain the multifaceted nature of HR’s role within organizations. Whilst the somewhat sterile debate on the meaning of HRM has, one hopes, finished, the various views on the best way to achieve to people management. Therefore we get a wide variety of conceptions of HR’s role. It may be a permanent advisor to the line or to the organization more generally. It may be a consultant engaged to assist where a management customer identifies a need. It may be a partner sharing in the development of solutions. It may be a guardian of policies and practices. It may be a leader creating change or representative of employees’ views. The wide range of expectations of HR in part drives these roles from a variety of stakeholders-senior management, line managers. Employees-who inevitably try to influence what the function should be doing and how it should be doing it. There has been a greater tendency under HRM to give more attention to senior management’s wishes because of the imperative to align HR policies and practices to strategic business objectives. HRM thinking has affected the HR function, beyond its name, in other ways. A self-conscious move from old-style personnel to new wave HR has developed in many organizations, aiming to re-orientate the role. There is a self-conscious, modernization process that wants to see HR as playing a more strategic, business-aligned role which means it has look over longer-tem horizons and be more of a change agent.
Presently in organizations of USA, the HR function provides essential services to such stakeholders as job applicants, employees, supervisors, middle managers, and executives. However, the HR function tends to be positioned at the end of the business process chain-on the reactive side- and too often focuses on carrying out activities rather than achieving results. The HR function’s role is currently one of providing people, training, and isolated HR efforts after others have formulated organizational strategy and have initiated operational implementation. HR practitioners in recent years have been driven by events in their organizations to direct attention to such issues as downsizing, outplacement, retraining, diversity, employee rights, technology’s effects on people, and recruiting skilled talent at a time of expected labor shortages and record employment. Cost-focused management of employee benefits programs has also figured prominently in an effort to control skyrocketing expenses, Among other HR issues of interest at present are alternatives to litigation, diversity, the Employee Retirement Income Security Act, family and medical leave issues, employee handbooks, policies and procedures manuals, employee privacy, sexual harassment avoidance, use of temporary workers and workforce reductions.
Building organizational capability is a primary focus of HR organizations. Organizational capability is linked to what an organization must do to act on its strategies. Those capabilities must be identified, developed and then measured by comparing current workforce performance to business goals. The key to this performance rests in the hands of people. Never before have HR practitioners been challenged to do so much. The HR function is also required to align and integrate its efforts in relation to organizational goals. Linking HR strategy and business strategy has become a major preoccupation for HR practitioner today. The HR field has evolved from an activity-focused to a strategy-focused effort.
There are certain key trends that have influenced the business environment recently and the effect will be seen over a period of next ten to fifteen years. These trends include changing technology, increasing globalization, continuing cost containment, increasing speed in market change, growing importance of knowledge capital, and finally the increasing rate and magnitude of change. As argued by Rothwell and Prescott, 1998) the pace of change in information technology, communication technology, industry and product technology, revolutionary and evolutionary technology, human knowhow linking creativity, knowledge and ability in the other technologies has a profound impact on the way we work and live. Over the past decade, the push to capture cost advantage has continued to proper the global economy through the desire to take advantage of lower-cost wages in developing countries. The need of cost containment has translated in many cases to an increase in outsourcing, off shoring and other business models that allow for overall cost, such as taking advantage of labor arbitrage or business models that are “variable pay by the drink” (Rothwell, 1996). In recent years, cost containment efforts included reducing waste and inefficiency, increasing productivity, lowering breakeven points, offsetting labor costs with increased technology, and using nontraditional salary and expense reduction. Some other recent approaches include restructuring the organization to reduce head count, forming joint ventures and outsourcing relationships, substituting technology for people, revaluing the supply chain, refinancing capital structure, and reducing staff functions.
Rothwell (1998) argues that the speed in market change has influenced the environment as both a cause and an effect of market volatility. Influences by increase in technology and available information, especially in the service sector, the market changes rapidly, and the importance of speed in reacting to market changes has been and will continue to be one of the significant trends affecting business organizations.
Strategy exists to ensure the survival as well as the prosperity of an organization. For such stability and growth, an organization is required to earn a return on its investment that exceeds its cost. A corporate strategy refers to the way through which an organization makes decisions that include investment in diversification, vertical integration, acquisitions, and new ventures, and the allocation of resources among the different businesses of the firm.
Strategies are the means through which organizations are able to achieve the objectives that they set for themselves. Objectives are the desired results that the organization seeks to achieve. Some strategies will be successful while other will fail to deliver the desired results. Some typical decisions that management may have to look in the course of deciding the strategy may involve situations like:
- how to face the market completion
- what measure should take to become stable and move forward for divestment
- How to ensure long term survival in the market
- While making decision what are the key points which effect the strategy
- Ensure the optimum utilization of the resources such as man, machine, material, money.
By using, the right strategy at the right time is the best way to survive in the market for any organization. Strategies are not only made to maintain the market share but also for enchasing the organization’s effectiveness such as operational effectiveness, produce goods at cheaper level than the competitor, for increasing the range of the product etc. Strategies are used to outperform the rivals only if it can establish the difference it can preserve and provides greater value at reasonable cost.
In modern organization, the strategy is used to protect the organization from the external threat such as market share and maintain the competition in the market. In present organization the strategy is changed time to time because of the competitor’s strategy so as to survive in the market the only way is to keep innovative. Strategy plays an important role in any organization for the survival and also for maintaining the cost effectiveness.
Strategy is a highly complex concept and attempts to define it adequately within the compass of a sentence or two are almost certainly going to miss out some key elements. Among many definitions in the literature can be found a number of words and phrases that are all linked in some way with the notion of strategy:
- Purpose or mission
- Defining what business the company is in
- Defining what kind of company is
- Strengths and weaknesses
- Objectives and goals
- Opportunities and threats
- Key success factors
- Key decisions
- Capabilities and competencies
Therefore, it is clear that strategy is a complex process of determining the actions that need to be carried out in order to achieve the organization’s purpose. It is focused on the medium-to long-term future rather than on current operations. The choice of actions will inevitably depend on how the organization defines its purpose or mission.
Strategy competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. When choosing a strategy, firms make choices among competing alternatives. In this sense, the chosen strategy indicates what the firm intends to do, as well as what it does not intend to do. A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate. An organization can be confident that its strategy has resulted in one or more useful competitive advantages only after competitors’ efforts to duplicate its strategy have ceased or failed. In addition, firms must understand that no competitive advantage is permanent. The speed with which competitors are able to acquire the skills needed to duplicate the benefits of a firm’s value-creating strategy determines how long the competitive advantage will last. The strategic management process is the full set of commitments, decisions, ad actions required for a firm to achieve strategic competitiveness and earn above-average returns The firm’s first step in the process is to analyze its external and internal environments to determine its resources, capabilities and core competencies-the sources of its “strategic inputs”. With this information, the firm develops its vision and mission and formulates its strategy. To implement this strategy, the firm takes actions towards achieving strategic competitiveness and above-average returns, Effective strategic actions that take place in the context of carefully integrated strategy formulation and implementation actions result in desired strategic outcomes, It is a dynamic process, as ever-changing markets and competitive structures are coordinated with a firm’s continuously evolving strategic inputs.
There is a difference between corporate strategy and business strategy. Corporate strategy is more concerned with the decisions related to which businesses the firm should enter, what businesses should be retained in the portfolio and which should be dropped, etc. However, business strategy is typically associated with the achievement of competitive advantage. There are four important building blocks of attaining a competitive advantage: namely, superior efficiency, superior quality, superior customer responsiveness and superior innovation. These drivers of competitive advantage can be achieved by creating some distinguished competencies. Such distinguished competencies are developed through building the resources and capabilities of the organization. Along with development of various tangible resources, it is of utmost importance to develop the capabilities of a firm’s human resources to achieve a distinctive position in the competitive world.
According to Dransfield (2001), Involving the complete of the organization / business /firm which includes the major long-term plans. Strategies are made based on the desired objectives, which are set by organization after studying the external and internal environment factors. When strategies are made the management focus on the objective that what are the desired result and where will they stand in future. Corporate strategies are at the topmost level –for the company as a whole. They are basically about the direction the company intends to pursue in order to achieve objectives.
Corporate level strategies deals with the major issues like:
- Allocation of resources among the different business of the company
- Selecting, managing and planning of the different portfolio of the management.
- Transferring the resources from one set of business to the others
- Effective enhancement of the technology
- Maintain management information system up to date regarding the competitors strategy
According to Hill, Jones(2009), Corporate level strategies is to identify the present situation of the market that in which business or a particular segment the organization must compete in it, what type of activities organization must perform to survive in that business, what kind of planning ,resources and technology is required so that they can reap the maximum profit and at what time to enter in that business.
The managers must make such a strategy, which can run in a long time and also keeps an eye on the changes take place. Here the main responsibility is to monitored and take corrective steps so that the strategy can achieve the desired goal of the organization.
Before going further into the discussion of an alignment of human resource strategy with corporate strategy and business strategy, it is necessary to understand the concept of human resource alignment in detail. The alignment of human resource management refers to the integration of decisions related to people with the decisions related to the results that an organization strives to achieve through its operations and functioning in the business world (Grant, 2005). Traditionally, the role of HR has been focused on ensuring compliance with laws, rules and regulations. However, human resource management involves several other important functions apart from these elements. Human resource management involves hiring the right people and then equipping them with the right skills and abilities that substantially affect the quality and quantity of whatever goods or services the organization produces. Properly motivated and committed workforce can add immeasurable value to an organization’s bottom line. In today’s competitive environment, human resource management practices and policies significantly affect the ability of various executives to formulate and implement strategy in any area and that other strategic decisions significantly affected the firm’s human resources as well. Human resource management involves various activities right from the recruitment of right personnel, performance management of employees, training and development, managing diverse workforce, managing new employment relationships, managing labor relations, managing the work environment and effective an deficient human resource practices. Several recent studies have confirmed that along with providing a competitive advantage, an efficient management and alignment of human resource management with overall corporate strategy results in better quality and innovation of HR practices and have a significant impact on business results. Various studies have been able to define that there is a correlation between increased quality of HR practices and increased business success. In addition, an alignment of HR management with corporate and business strategy results in an increased ability to anticipate customer needs and preferences and increased ability for successful implementation of strategies to attain business goals.
Today more and more organizations understand the importance of their human resources for the efficient working and stability of an organization. It is necessary to align business strategy as well as corporate strategy with the human resource strategy of the firm. HR has the ability to significantly contribute towards the corporate reputations and branding by influencing the lived experience of employees, the quality of their individual employment relationships, and through these, organizational identity, governance and leadership. Corporate brands depends upon the corporate reputation (s) that results from the levels of confidence that people place in the ability of an organization to deliver high levels of what they value about its corporate image and the support they give to its products and/or services. As argued by Whetten and Mackey (2002) reputations represent the degree of alignment between the beliefs and feelings held by a group about an organization’s overall projected image and its values. This needs to be achieved through positive interactions between organizational identity and individual identification with their organizations, together with organizational governance and effective leadership. It is the responsibility of HR function to develop and maintain such positive interactions. Strategic human resource management and the HR function are related to three leading corporate level indicators: corporate strategy, senior leaders’ vision and governance, and corporate identity, increasingly through a CSR agenda, to influence reputations and brands. As explained by Wright and McMahan (1991) there are several groups of theories that deal with the content of integration between corporate strategy and human resource management. As explained by brown and Grundy (2003) HR strategy is often seen as a key means to achieving competitive advantage and is viewed as a route to superior business performance. Where HR strategy is successfully linked to both corporate and business strategy, it becomes easy to implement the latter. Implementing strategic changes is also a theme that has become increasingly prominent in relating HR strategy and corporate strategy particularly in last few years.
Some of the key theories directing the issue are ‘behavioral theories’, ‘resource-based theories’ and ‘interactive theories’. Behavioral theories explain that there is need of some specific behavior from employees that ensures realization of a certain corporate strategy. Employee behavior can act as a bridge between corporate goals and human resource management. Resource-based theories are based on the assumption that an organization can achieve competitive advantage when it possesses certain specific resources that are relatively immobile. Generally, the other theories of strategic management are based upon factors external to a firm. However, a resource-based view focuses upon the relationship between the internal resources and corporate strategy. These identified resources have the capability of achieving competitive advantage. This is the concept that is best suited to the organizations that are termed as knowledge-intensive and dependent upon the efficient transfer of knowledge and information throughout the organization. The resource-based model of strategic management suggests that organization behavior is a rich source of findings and theories concerning rare, non-imitable, and exploitable resources in firms. Indeed, a resource-based model of sustained competitive advantage anticipates a more intimate integration of the organizational and the economic factors as a way to study sustained competitive advantage. Thus, behavioral theory is linked with the resource-based theory both directing a firm’s efforts towards identification of resources that are capable of being helping the organization attain a sustainable competitive advantage.
Now coming to interactive theories, it can be said that both behavioral as well as resource based theories are less linear in nature, however, it is to be noted that in practical terms it is not possible to integrate business strategy with the human resource management so easily in a linear way. The interactive theories were developed and suggested by Lengnick-Hall and represented a growth readiness matrix as depicted in the following figure:
Growth Readiness Matrix
Source: Grundy, Tony and Brown, Laura (2003), Value based Human Resource Strategy
The framework represented both internal as well as external factors that are important in choosing a certain strategy that is required for the sustainability of the organization. An interaction between conditions of the environment and the choice of the organization results in the change from one cell to another. For instance, if we consider the ‘development cell’, Lengnick-Hall and Lengnick-Hall suggested two alternative choices- (1) human capital investment and (2) change in strategy in accordance with the restricted readiness, and (3) operational goals changed through capitalization of skills and available resources. In order to select a correct strategy, it is necessary to conduct various different types of analysis that will include the analysis of the reasons of restricted readiness as well as the chances of long-term investments. Huselid and Barney (1995) argued that the critical differentiating factor associated with the competitive advantage of the organization is its employees and the way they work.
It is to be noted that there are some industrial sectors that are dependent on a highly skilled workforce and/or need to be highly adaptable. Whether it is the requirement of highly skilled people or an adaptability feature, both these dependencies result in constant changes in the regular day-to-day working of the employees. This calls for intensive structures and procedures related to the human resources of the organization both at the hard-fact as well as soft-fact level.
Concept of strategic planning
There can be three different stages of development as discussed below:
Stage 1: Conventional corporate strategy oriented to the product/market concept; personnel management is derived from it.
Stage 2: Corporate strategy that takes personnel into consideration; product/market strategies are adapted to the human resources in the company
Stage 3: Personnel management as an integral part of corporate strategy; personnel management contributes to the shaping of product/market strategies.
In the first stage of development, personnel strategy results from corporate strategy. The strategically appropriate deployment of human resources is a means for meeting corporate objectives. Personnel strategy is shaped on the basis of strategic business units, for personnel demands can vary considerably from one functional activity to another. Personnel strategies are typical strategies of functional areas and can be broken down, for example into recruitment, personnel development, and evaluation strategies.
With the personnel-planning concept of personnel being adapted to strategy, it is assumed that the human potential needed for the successful implementation of strategy can be procured, at least in the short term. However, in practice, this assumption has proven to be unrealistic, because precisely it is the resource of personnel that requires long-term attention. It is also one of the causes for the failure of ambitious strategies.
Accordingly, an interactive development of strategy and personnel is sought in the second and third stages. Initial strategic considerations are confronted directly with existing personnel resources or examined in terms of their implications for the employees. This is true particularly for strategic investment analyses intended to synchronize investment planning and personnel planning. Every investment is analyzed as early as possible for its impact on work systems, jobs, and the skills they require so that appropriate personnel planning measures.
As argued by Williams (2006) one of the most important demands placed on modern strategic human resource management is the increased emphasis on integration between human resource management and business strategy. Today most of the firms believe that deploying the human resource in a strategic manner and managing the workforce in strategically can go a long way ensuring the continuity of business. It has also been acknowledged that human resource of the organization can be seen as a basis of organization’s competitive advantage. Along with recognizing and acknowledging this importance of human resource of the company, it is also being believed that it is necessary to have a perfect alignment between the management of the organization, its strategic plans and human resources of the company. Despite of such positive and strong point favoring the concept of linking human resources with the business and corporate strategy, it has been experienced that the practical implementation of the concept proves to be extremely challenging for most of the organizations. There are only a small number of success stories available in the literature. The available literature provides several normative models of strategic human resource models that needs to be implemented by firms in order to achieve a competitive advantage through alignment between human resource and strategies of the firm. However, there is very little evidence available about the practical experience of such models. Additionally, most of the literature explains the concept of strategic human resource management while lacking on the point of ways to implement the same.
Here it becomes necessary to discuss the some key aspects associated with integration of business strategy and human resource management. The first of these aspects is the relational aspect that explains the position of human resource management in relation to other elements that are internal to an organization. These elements may take the form of economic factors, technological and financial factors. The second aspect explains the content of human resource management and that of strategy describing in detail the connection between a particular human resource management strategy and a particular business strategy on the other hand.
2.3 Strategic Human Resource Management (SHRM)
As we are dealing with the alignment of HR with business and corporate strategy, it is important to discuss and understand the concept of strategic human resource management before we move towards actual research. This part of paper provides a definition of strategic human resource management along with examining the way through which HR department can actually be considered as strategic in nature.
The very first thing towards understanding the role of HRM in strategic decision making is to understand the concept and definition of strategic human resource management (SHRM). Appleby and Mavin (2000), explain that strategic HRM is a distinctive approach towards management of people where a competitive advantage is achieved through developing a workforce that is highly committed and capable. Thus, it is clear that strategic HRM refers to management of employees in the organization in such a manner that they can be helpful in achieving a competitive edge in the marketplace. However, along with commitment it is also necessary that the workforce is well trained and motivated to perform the job in most competitive manner. A movement towards this direction confirms human resources becoming SHRM in an organization.
Strategic human resource management seeks to link human resource management issues to the overall strategy of the organization to integrate such policies in corporate strategies and to reinforce or change an organization’s culture. Integration is needed in two sense-integrating human resource management issues into an organization’s strategic plans and securing the acceptance and inclusion of a human resource management view into an organization’s strategic plans and securing the acceptance and inclusion of a human resource management view in the strategic decision making process of the organization (Deb, 2008). Thus, strategic human resource management is the managerial process requiring human resource policies and practices to be linked with the strategic objectives of the organization. Human resource management is now gradually being changed to Strategic Human Resource Management because of the problems with traditional human resource management. These problems includes primarily staff consultative function of HRM, the non-involvement of the human resource function in the business planning process of the organization, difficulties in gaining competitive advantage through effective alignment, pressure from increasing human resource cost and non-accountability of human resource function in the event of failure in implementation of corporate/business strategies (Williams and Reilly, 2006).
The link between strategic management and SHRM
In the strategic management framework, HRM becomes one of the ways in which organizations realize their strategic objectives. The resource based views as proposed by Hamel and Prahalad (1990) is helpful in seeing how this works. It suggests that organizations are differentiates by their resources and the way they manage them. Successful organizations have superior resources and manage them well. Those resources can take various forms: the firm could have a very effective distribution network for its products, for example. But crucially, the organization’s staff can also be seen as one of its resources-hence the phrase ‘human resource’, which turns out to be something more than meaningless management jargon. Strategic human resource management is thus a way for the organization to realize its strategic objectives through managing its staff effectively. That is the essence of the SHRM model.
Defining the power of SHRM
SHRM is a system of knowing and understanding the organization, the environment and the individual employee (and crucially the relationships between these three). It is therefore a basis for the redesign of organizations; it supplies assumption, classification systems, technologies, and ways of talking and thinking about organization and employees, which reflect and support this knowledge, and which are important for their effects on individuals. One key idea in the SHRM literature is its analysis and treatment of causality and responsibility-of the nature of relationships between key elements or levels of the approach: environment, organization, individual. SHRM locates organizational responsibility with newly liberated, empowered, autonomous individual employees. The responsibility of managers is to ensure that the organizational environment and structure are ‘enabling’. Once this is achieved, the employees must rely on their competence and crucially, their enterprise, to ensure that individual performance meets the demands of the myriad of customers by whom employees are now surrounded and whom they supply. Thus, the metaphor of the market becomes the organizational reality by which employees and their work are judged, and how they judge themselves.
Major concepts connecting strategy and SHRM
There are three major concepts namely core competencies, dynamic capabilities and knowledge as bridge constructs connecting the fields of strategy and SHRM. Competencies and capabilities refer to organizational processes, engaged in by people, resulting in superior products, and generally, these must endure over time as employees flow in, through and out of the firm. Many researchers have recognized the inseparability of the competence and the skills of the employees who comprise the competence. In addition, some researchers have specially recognized the behavioral aspect of these employees and the supportive nature of people management systems to the development/maintenance of the competency. However, they then sometimes become more generic and ambiguous as they delve into the more specific people-related concepts such as knowledge, skills, abilities, and HR practices. This illustrates the potential synergy that might result from deeper integration of the strategy and strategic HRM literatures.
Furthermore, knowledge-centered strategy research inevitably confronts a number of HR issues. Knowledge management requires that firms define knowledge, identify existing knowledge bases, and provide mechanisms to promote the creation, protection and transfer of knowledge. While information systems provide a technological repository of knowledge, increasingly firms recognize that the key to successful knowledge management requires attending to the social and cultural systems of the organization. The major distinction between the strategy and HR literatures with regard to knowledge has to do with the focus of the knowledge and its level. While the HR literature has focused on job related knowledge, the strategy literature has focused on more market-relevant knowledge relevant to the creation of new products. In addition, while HR literature tends to treat knowledge as an individual phenomenon, the strategy and organizational literatures view it more broadly as organizationally shared, accessible, and transferable. These distinction represents something of a departure for HR researchers. However, the processes of creation, transfer, and exploitation of knowledge provide common ground across the two fields, again highlighting their potential convergence within the resource-based view paradigm.
Why is strategic HRM so crucial in today’s business world? One reason is that, with the shift from a manufacturing to a knowledge-based economy, many companies’ competitive advantages now stem more from their human assets (skills, knowledge, behavior, and attitudes) that from their physical assets (such as manufacturing plants, equipment, and land). Still, even in most automated factory, skilled, motivated employees are needed to operate machinery. Nowadays, the assets embodied in an enterprise’s workforce can make or break that organization’s ability to fulfill its mission-whether the mission entails innovating profitable new products and services or fulfilling a social mandate. Skillfully implemented, strategic HRM translates human assets into shareholder value, profitability, and value for an organization’s customers. It gets everyone in the organization working toward the same high-level objectives and understanding how their everyday efforts contribute to their company’s future success.
Another reason that strategic HRM is important has to do with the benefits it generates for both a company’s workforce and its HR team. When people understand what their company is trying to do and how their work contributes to their efforts, their dedication, focus, and job satisfaction increases. In addition, when HR professionals adopt a strategic mind-set and serve as strategic partners, their standing in the company improves. This is so because they begin building a track record of measurable results for their organization-demonstrating that they can help the company create significant value. In an age when many companies are outsourcing some or all of their HR function, those human resource practitioners who can help their companies define and carry out high-level strategy will be much more likely to keep their jobs earn handsome salaries, and win the trust and appreciation of their bosses and colleagues.
Finally, strategic HRM creates a competitive advantage that is difficult for your company’s rivals to copy. Unlike a new product feature, the ways in which an organization managed its human capital are difficult for competitors to discern. Thus, it is much harder for rivals to co-opt your HR strategy for their own advantage.
HR’s roles as a strategic business partner
In serving as a strategic business partner, one might be involved in formulating and executing strategy at numerous levels in the organization. These levels go significantly beyond the activities that historically, handling daily HR transactions such as a new hires and benefits, an creating and maintaining HR policies. In increasingly strategic important, these strategic-business partner levels can be thought of in the following terms:
Enhancing workforce productivity: At this level, one develop initiatives that increases the dollar value of employee output while maintaining or reducing the average labor cost per unit of your company’s products or services. To enhance workforce productivity, one need to know what behaviors lead to productivity, which metrics will enable the managers to measure changes in productivity, and which resources are required to support continual boosting of productivity. Additional productivity-related HR activities include retention of key employees, redeployment of employees from areas of low business impact to high, nonmonetary motivation and recognition, and the spread of best practices within the organization.
Boosting the company’s people management competitive advantage: At this level, managers compare key HR program and service within their organization directly to those of rival firms. They thus shift the strategic focus of the organization from inside to outside of the enterprise. Moreover, rather than merely tracking what the company’s rivals are doing, there is an identification of their weaknesses and ways are suggested to exploit them-all with an aim of ensuring that the company’s productivity exceeds that of competitors’.
Attracting strategic business problems and opportunities: At this level-which we can think of as the holy grail of strategic HRM-helps the company to address its most strategic problems. These problems might be related to product development, quality, customer service, or business-unit performance-or some combination of any of these. To operate at this level, one needs to know how to assemble business-unit or problem-product turnaround teams, enhance speed and innovation in product development, build a companywide culture that emphasizes performance, identify merger and acquisition targets based on the talent housed by those entities, and help the company get the best price for any divested units.
Clearly, serving as a strategic business partner differs markedly from providing the more transaction-related offerings traditionally associated with HR.
Integrating strategy and SHRM within the resource based view (RBV)
As discussed in the above section three major concepts act as connecting bridge between strategy and SHRM. It is proposed by several researchers that both fields could benefit greatly from sharing respective areas of expertise. In fact, at the risk of oversimplification, the strategy literature has generated significant amounts of knowledge regarding who (i.e. employees/executives or groups of employees/executives) provides sources of competitive advantage and why. However, absent from that literature are specific techniques for attracting, developing, motivating, maintaining, or retaining these people. SHRM, on the other hand has generated knowledge regarding the attraction, development, motivation, maintenance, and retention of people. However, it has not been particularly successful yet at identifying who the focus of these systems should be on and why. The strategy literature has also highlighted the importance of the stock and flow of knowledge for competitive advantage. However. It has not explored in great detail the role that individuals as well as their interactions with others contribute to this. Conversely, SHRM has missed much of the organizational view of knowledge, but can provide significant guidance regarding the role that individuals play. This state of affairs calls for greater integration between these two fields.
2.4 Changing Business Environment
In order to examine the issues associated with alignment of corporate and business strategies with human resource strategy of a firm it is necessary to understand the nature of new business environment. A detailed description of modern business environment and the position of various organizations in such an environment is presented in following paragraph.
Managing change is probably the single-most important issue for all those who have undertaken the difficult task of managing organizations. Present-day changes are taking place at a rapid pace that cannot be handled by traditional management concepts, organizational structures and systems because the society is no longer stable, predictable and certain. As long as society is relatively stable and unchanging, the problems it poses to its members tend to be routine and predictable. Nevertheless, when there is accelerated change, more ad more novel and first time problems arise, and traditional forms of organizations prove inadequate to manage in the new conditions.
The fundamental nature of competition in many of the world’s industries is changing, The pace of this change is relentless and is increasing. Even determining the boundaries of an industry has become challenging. Consider, for example, how advances in interactive computer networks and telecommunications have blurred the boundaries of the entertainment industry. Today, not only do cable companies and satellite networks compete for entertainment revenue from television, but also telecommunication companies are moving into the entertainment business through significant improvements in fiber-optic lines with speeds up to 50 times faster than traditional broadband and cable and DSL download speeds. Other characteristics of the current competitive landscape are noteworthy. Conventional sources of competitive advantage such as economies of scale and huge advertising budgets are not as effective as they once were. Moreover, the traditional managerial mindset is unlikely to lead a firm to strategic competitiveness. Managers are required to develop new mindset that values flexibility, speed, innovation, integration and the challenges that evolve from the constantly changing conditions. However, developing and implementing strategy remains an important element of success in this environment, It allows for strategic actions to be planned and to emerge when the environmental conditions are appropriate. It also helps in coordinate the strategies developed by business units in which the responsibility to compete in specific markets is decentralized.
Rangarajan (1994) says that the extent to which a firm is able to attain its corporate objectives critically depends on its ability to understand the opportunities presented to it and the constraints imposed by its environment. Organizations that do not conform to environmental requirements are selected out. Hammer and Champy (1993) believe that firms are increasingly required to cope with scoring pace of change. Changes taking place in the environment that affect business organizations can be understood by examining four key constitutes of the change, namely globalization, liberalization, market changes, and technological changes. There is a dynamic relationship between these constituents. Any change in one constituent alters the position of the other (Figure 1).
Figure 1 : Changing environment of organizations: Principal Constituents
Source: Kandula, Srinivas R. (2006), Strategic Human Resource Development
A Global Economy-era of Globalization
A global economy is one in which goods, people, skills, and ideas move freely across geographic boarders. Relatively unfetters by artificial constraints, such as tariffs, the global economy significantly and complicates a firm’s competitive environment. Interesting opportunities and challenges are associated with the emergence of the global economy. In the past, China was considered as a low-competition market and a low-cost land. Today, China is an extremely competitive market in which local market-seeking MNCs must fiercely compete against other MNCs and against those local companies that are more cost effective and faster in product development. The statistics detailing the nature of the global economy reflect the realities of a hypercompetitive business environment, and challenge individual firms to think seriously about the markets in which they will compete.
Globalization is one of the most powerful and pervasive influences on nations businesses, work places, communities and lives at the end of the 20th century. It involves a wide range of political, sociological, environmental, and economic trends. In fact, as a concept, today it covers under its fold, many phenomenon like globalization of finances and capital ownership, markets and strategies, technology and knowledge, consumption patterns and culture, regulatory capabilities and governance, political unification and perception and consciousness.
The traditional concept if economic sovereignty, which so very recently seemed to have achieved its ultimate triumph in Keynesian economies, is fast becoming a mockery, and the world has become integrated and interdependent. Reich (1991) asserts that we live in a world of global capital in which borders have become ever more meaningless in economic terms. Narayan (1993) says the term globalization assumes increasing importance in today’s techno-economic parlance. As the 20th century comes to a close, the modern system of independent states is being transformed. National Governments are gradually losing control over domestic economic and political affairs. Separate national economies are being replaced by a single, integrated global economy and basic political functions, which have traditionally been the province of national authorities, are being delegated to international including transnational corporations.
The major force behind the changing economical environment is the global economy. It is the force that is reshaping business environment since last couple of years. The phenomenon of global economy has a serious impact on culture, political and social changes that every business leader must be aware of. It is true that global economy has opened up new avenues of exciting opportunities through widening up the markets. There has been a remarkable reduction in trade barriers that facilitates easy flow of goods and services across national borders. Companies can now access global customer as well as global suppliers. However, some serious threats have also materialized along with these opportunities. Companies compete for and take advantage of cheaper resources and cheaper skilled labor all over the world. Outsourcing has increased dramatically and has become a phenomenon of its own, profoundly affecting both developed and underdeveloped countries. There is an increase in competition as several players are growing in every market sector and there are no protections available through trade barriers. Additionally, technological revolution has a serious impact on the way of designing and delivering the products and services that requires to be updated continuously so as to remain competitive in the global market. Another result of a global economy is the easy access to global products and services because of which customers have access to more choices with better quality and faster services. This have raised peoples’ appetites and have made the process of acquiring and satisfying customers more complex, thereby requiring more effort. Customer satisfaction is driven by company’s efficiency, which is performance and quality of meeting customer expectations. Furthermore, development of computers and the Internet has opened a new era of how business create, share, transmit and acquire information. The technology is providing new ways to manage the exponentially growing volume of data transferred throughout the Internet. Today companies are learning to cope with this phenomenon. The ability of an organization to access and manage data will determine how effectively it can respond to changing technology and business conditions, to modify their product/services and their delivery (Plenkiewiez, 2010). The new system and environment of business is characterized with cultural changes that have significantly changed employee-employer relationships. The command and control styles, that is still popular in certain environments has become increasingly ineffective. Management and decision makers are required to recognize the trends in order to avoid any risk of losing their valuable employees and missing the opportunity to use creative forces. Finally, the new realities of business are forcing organizations to develop based on their competencies so that their capital and resources can be allocated on the things that they can do best. Companies are required to identify and then take decision related with internalizing, outsourcing or getting into partnerships so as to find the best way to achieve organizational goals in a highly competitive environment (Plenkiewiez, 2010).
Many countries around the world, including developing nations, have liberalized their economies, particularly in the form of deregulation of industries and tariff reductions, to enhance the efficiency of their economies. Some countries even have followed deregulation with privatization; Industrial policies of many countries are in a flux. From passive to protective countries like Japan, South Korea, and Singapore are taking aggressive postures to stimulate industry in carefully selected sectors (Porter, 1980 as cited in ). The new industrial policy is giving firms in such countries the support to make bold moves that will catapult industries to the position of global giants.
The pace of technological change continues to challenge all organizational strategies and affects all individual lives. The change in technology has resulted in decreasing the period between the introduction of a new product in the market and its withdrawal. One of the key characteristic of the new industrial environment is that several generic technological fields are emerging with a high potential o radically transform the things produced and the ways in which they are produced. Over the last few decades, advances in three broad technological areas have been radically altering the economic systems in the north and contributing significantly to the ongoing process of globalization of national economies. These new generic technologies are in the realms of information and communication, biotechnology and raw materials.
As explained by Day (1990) the rate of change in the market has clearly outstripped the speed to which a conventionally managed organization can respond. There is a qualitative shift taking place in the way companies compete and businesses are conducted. The once dominating mass markets are becoming more and more fragmented and traditional market boundaries are blurring. Previously self-contained markets are now being transformed into linked global markets. Competitive advantages are getting harder to sustain as Product life cycles shorten, and global competitors contest for more markets. More and more markets are maturing and supply gluts further intensity competitive presence by giving customers more bargaining power. Customer relationships are changing as customers reduce the number of suppliers, and information technologies permit closer links. New market opportunities are being created from demographic, life style and technological changes.
In short, the changing environment of organizations, particularly globalization, liberalization, technological changes and market changes are forcing organizations to redefine their structures, systems, ad processes. Organizations sensing the turbulence in environment have been precipitating the changes internally in order to survive and succeed. These internal changes include three broad dimensions namely Portfolio, Process and Structure related programmes. At operational level, these changes consists of mergers, acquisitions, strategic alliances, quality strategies, benchmarking processes, core competency building, flat structures, etc. These strategic responses are discussed in following section.
2.5 Strategic Responses of organizations to changing environment
The changes taking place in technology, demographics, markets, consumers and their preferences, and in economies have a significant impact on an organization. Organizations are clearly not self-contained entities. They achieve their purposes by engaging in transactions of various kinds with the outside world. They import capital from shareholders, labour from community, materials, equipment, and services of all kinds from other organizations and, in turn, they export goods and services. Therefore, organizations are susceptible to external environment and make strategic moves to respond to the environmental changes. In recent years, organizations have experimented with several measures such as customer focus programme, quality improvement strategy, benchmarking, building core competency, acquisitions, mergers etc. in order to cope with the environmental changes. The responses made by organizations to changes in the environment are broadly in the nature of changing the portfolios, or improving organizational processes, systems and structures. Changes in the business environment of organizations and various strategic responses made by the organizations to cope with such changes are presented in figure 2.
Figure 2 : Environmental change and strategic responses of organizations
Source: Kandula, Srinivas R. (2006), Strategic Human Resource Development
Portfolio Related Strategic Responses
Various organizations are witnessing a changed business environment around the globe. In order to meet the challenges that have been posed by these changes, several firms responded by changing their portfolios: of businesses, products, markets, capital, and even business units. Some companies have entered into strategic alliances or collaborations with others to gain access to new technology, new products, and new markets. Some others have merged with other companies while some have acquired or taken over others to increase their market share. Acquisitions or takeover is different from merger. Acquisition implies that accompany unilaterally relinquishes its independence and adapts to another firm’s plans, while in mergers, all combining firms relinquish their independence and cooperate resulting in the establishment of a common corporation. Many companies have formed joint ventures with others to enter into new businesses and exploit the emerging opportunities. Some companies have diversified into other areas while some divested their business units. Also, some bought their shares back while governments have resorted to divestments in state-owned PSEs.
Process related Strategic responses
Various organizations have responded to the changes by bringing about some changes in their internal functioning that includes process related responses. These comprise of project co-ordination and scheduling techniques, project executions planning techniques, project monitoring and progressing techniques, project cost and productivity control techniques, etc. Several others have responded in a way where quality strategies have been developed and implemented along with emphasizing on building the core competencies of the organization. Several others have preferred to implement latest technology and marketing strategies as a response to the changes being experiences in the environment.
Structure Related Strategic Responses
Many organizations are in the midst of fundamental changes in organizational design. Pioneering and traditional companies alike are experimenting with novel organizational structures in order to accommodate the fast pace of technological change, global companies, and the emergence of knowledge-based economy. These developments are collectively precipitating a move away from monolithic and rigid organizational designs, which are geared for respective transactions and routine activities. The resulting impetus is towards flexible and agile organizational forms that can accommodate novelty, innovation and change. The responses include creation of strategic business units, creation of profit centers, changing from functional structure to divisional structure, and decentralization of decision- making.
2.6 Alignment between Strategic Responses of Organizations and strategic HRM
Now we will discuss the alignment between each of the strategic responses discussed above and the strategic concept of human resource management, which is the basic idea of this research paper. Such alignment is discussed under three major sections as follows:
Portfolio related strategic responses and SHRM system
Kanter (1991) showed just how pervasive portfolio restructuring has been throughout the world. The success of any merged depends upon human resource management issues including culture followed by the human resource of the organization, changes in organizational structure, human resource policies, and employee reactions, importance of formal internal communications about a merger or acquisition, and employees reaction after the announcement of an intent of merger. The success of any merger hinges on human resource system, not in business strategies and most corporate leaders possess highly developed skills in managing the legal, technical and financial aspects of mergers and acquisitions. Yet, the success depends on human resource system rather than on products, services and marketing strategies. Therefore, if mergers and acquisitions are to fully succeed, they must depend to a large extent on the people.
Process related strategic responses and SHRM system
Any process to be introduced or implemented requires a collaboration from the human resource of the organization along with a proper mindset to adopt the new techniques and technology along with the adaptation towards new working environment. It is clear that the success of any process related strategic response purely depends upon its acceptance by the human resource of the organization and the effort put in by the employees to adopt the new technology or new method of working.
Structure of any organization and its success depends upon the human resource of the organization. People form the basis of any structure and their communication patters, adaptation to the structure, level of comfort experienced in the structure, etc. all affect their efficiencies and productivity of the organization as a whole. The success of this type of strategic response depends upon its acceptance by the human resource and the level of adaptation it is able to achieve in any kind of structure.
Thus, it is clear that there is a clear alignment between strategic responses of business organizations and the strategic human resource management systems. This shows that the success of an organization depends not on the strategies it adopts but the integration of these strategies with the human resource of the organization, which is responsible to carry forward these strategies in a successful manner.
2.7 From Personnel Administration to Human Resource Management
In US, ever since the personnel function emerged as an independent functional area in companies at the end of the nineteenth century, it has undergone many changes. Its treatment in the academic sphere has shifted too. Traditionally, the task of the personnel function has been to adapt personnel to preexisting structures-the work organization-conceived independently to personnel dimensions. The individual departments of the firm communicate their employee needs, and the job of the personnel firm communicate their employee needs, and the job of the personnel department is to meet those requirements in the desired quantity and quality at the proper time and at the proper place. The needed personnel is recruited, screened, and after being hired is managed and attended too.
Reviewing recent literature on the personnel function, personnel management, and labor relations , one finds a drastic change in perspective. Until the early 1980s personnel management was treated as one operational task among others like procurement, production, and marketing. Meanwhile, there has been a reorientation to an integrative, proactive, and strategic way of looking at personnel in the firm., Personnel management is not reduces merely to the competent use of managerial techniques like manpower planning, labor deployment, personnel development or dismissals by highly specialized employees in the personnel department. Rather, it is a genuine managerial responsibility. All actions or decisions pertaining to personnel are planned and integrated as human resource activities and harmonized with corporate strategy.