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Strategic Human Resource Management: Exploring the Key Drivers

2011 Employment Relations Record, Vol 11 No 2 Page 18

STRATEGIC HUMAN RESOURCE MANAGEMENT: EXPLORING THE KEY DRIVERS

Chandan Kumar Sahoo

National Institute of Technology, Rourkela, India

Sitaram Das North Orissa University, India

Bijaya Kumar Sundaray

Regional College of Management (Autonomous), India

ABSTRACT Strategic human resource management (SHRM) involves productive use of people in achieving organisation’s strategic business objectives, and fulfilment of individual employee needs. The framework for aligning HR and business strategies is provided by the competitive strategy approach. Proper alignment of HR strategies with business strategy will enable a firm to develop a win-win situation both for employees and employers and helps for achievement of targeted goals. The basic purpose of this study is to explore the various issues and initiatives of the people side of management experienced by the organisations and proper linking of issues such as human resource planning, recruitment and selection, performance management, human resource development, motivational and compensation structure, work-life balance, and human resource information systems with organisational strategic business objectives towards business excellence.

INTRODUCTION Human resource management (HRM) seeks to strategically integrate interests of an organisation and its employees; it is much more than a set of activities relating to the coordination and optimum utilisation of an organisation’s human resources (Byars & Rue, 2000, p.3). Basically focus of HRM is on managing people with developing a cordial employer–employee relationship. Strategic human resource management (SHRM) involves the productive use of people in achieving the organisation’s strategic business objectives, employee satisfaction, and fulfillment of individual employee needs. The changes in the business environment with increasing globalisation, changing demographics of the workforce, increased focus on profitability through growth, technological changes, intellectual capital and the never-ending changes that organisations are undergoing have led to increased importance of managing human resources (Devanna & Fombrun, 1984). In the Indian context, the HR department is highly administrative and lacks strategic integration, fails to provide the competitive advantage needed for survival, thus losing its relevance. Organisations are more proactively looking at human resources as a unique asset that can provide

Chandan Kumar Sahoo, Sitaram Das and Bijaya Kumar Sundaray


sustained competitive advantage. SHRM involves a set of internally consistent policies and practices designed and implemented to ensure that a firm’s human capital contributes to the achievement of its business objectives and such practices are macro-oriented, proactive and long-term focus in nature. It views human resources as assets or investment not expenses; implementation of SHRM practices bears links to organisational performance and focusing on alignment of human resource strategy with firm strategy as a means of gaining competitive advantage and sustainable growth. Bramble (1996) suggests that human resource management is influenced by the factors such as changes in technology, laws, social values, and economic conditions which exist outside the organisation, as well as internal factors such as an organisation’s objectives, strategy, culture, and structure. An analysis of strengths and weaknesses of human resource function can identify positive and negative characteristics of it which will help or hinder the achievement of strategic objectives. Fisher, Schoenfeldt and Show (1999) have opined that organisations adopting HR strategies and practices consistent with the demands of their internal and external environments will perform better. The prime concern of SHRM is to ensure that HRM is fully integrated with strategy and strategic needs of the firm; HR policies cover both policy areas and organisational hierarchies; and that HR practices are adjusted, accepted and used by all line managers and employees as part of their everyday work. The basic purpose of this study is to explore the various issues and initiatives of strategic human resource management experienced by the Indian organisations and proper linking of such issues with organisational strategic business objectives. The present study highlights specific strategic HRM initiatives aligned with corporate strategy in order to leverage competitive advantage. This paper contributes to the ongoing discussion of SHRM and workplace relations, strategy alignment and successful drivers of people management in the competitive business environment. STRATEGIC HRM AND WORKPLACE RELATIONS Wright, McMahan and McWilliams (1994) have opined that SHRM has played a major role towards the success of an enterprise because it is in a key position to affect customers, business results and ultimately shareholders’ value. Leading companies, for example, General Electric, Coca Cola, and Microsoft recognise that human capital is their most important resource, and proper and adequate measures should be taken to maximise it. Pfeffer (1998), after an exhaustive review of literature, identified several dimensions of effective people management that produced substantially enhanced economic performance through employment security, rigorous selection, self-managed teams and decentralised decision making, extensive training, reduced status distinctions, extensive sharing of financial and performance information throughout the



organisation. The HR function is recognised for contributing to the bottom line, not for being carried out by nice people with good human relations skills. Confusing people skills with people management is a common mistake made by many HR practitioners. HR executives will never be accepted as strategic business partners until they fully understand the organisation’s business and alignment of HR strategies, policies and practices properly linked with business strategies for maximum output, qualitative product, customer satisfaction, surplus generation, etc. (Gubman, 1995). So the central point of all processes, programs, strategies, and the like is the firms’ involvement in human resources. Therefore, an investigation of strategic HRM issues can enhance our understanding towards goal attainment. Kazmi and Ahmad (2001) classified various definitions of strategic human resource management based on strategy-focused, decision-focused, content-focused and implementation-focused approaches. Fitz-Enz (1998, p. 81) is of the opinion that SHRM is no longer an option but an imperative. It is important that human resource strategy accurately reflect an organisation’s master business strategy to ensure an appropriate fit. Thompson and Strikland (1987, p. 4) defined strategic management as the process whereby management establish an organisation’s long-term direction, set specific performance objectives, develop strategies to achieve these objectives in the light of all relevant internal and external circumstances, and undertake to execute the chosen action plan. According to Stone (2002, p. 4), strategic human resource management focuses on the human resource activities with organisations’ strategic business objectives. In the competitive environment proper emphasis must be given on various issues of SHRM for achievement of long-term business success. HR objectives, strategies, and policies should be evaluated in terms of their contributions to achieving the organisation’s strategic objectives and satisfying employee needs. Delaney and Huselid (1996) have shown positive relations between HR practices and perceptions of organisational performance and operational performance when matched with quality and manufacturing strategies. Hannon and Milkovich (1996) are of the opinion that human resource reputation for being employee-centered has a positive effect on labour turnover, sales, profitability and a company’s share price. Schuler (1998) highlights human resources who limit the weaknesses or enhance the strengths of an organisation which fosters improved organisational competitiveness, growth, adaptability and profitability. Therefore, commitment, competence, cost-effectiveness, congruence, adaptability performance, job satisfaction, employee motivation, and trust should be considered during evaluation of HR strategies and policies. The objective of employee relations (ER) system is to maintain an harmonious relationship between the employer and employees so that there remains no threat to overall effectiveness of the organisation. The improvement of workplace relations is dependent upon several factors like shared vision and



values, information sharing and two-way transparent communication systems, building fairness and trust, ego management and multiple options with dual focus to create win-win situations (Venkat Ratnam, 2000). Proactive employee relations measures provide a conducive workplace relations climate which reflects perception of individuals as responsible strategic business partners; these measures include proper grievance redressal and conflict management mechanisms within the organisation, encouragement for bipartite consultations and joint decision making, collaborative and compromising attitudes between management and unions, and smooth functioning of suggestion schemes, for example. Another important thing is that such programs enhance a degree of trust and confidence among the parties in the industrial relations system. In such environments, attitudes of the employees are reflected in the form of organisational commitment, job satisfaction, loyalty to union, willingness to work for union and responsibility towards the union (Fields & Thacker, 1992). These lead to reduction of grievances and work stoppages. The lack of participation is a major cause of employee dissatisfaction and leads to high levels of absenteeism and turnover, but presence of above ER indicators contribute to a lower rate of employee turnover and absenteeism (Figure 1). Figure 1: Outcomes of Workplace Relations Source: Authors’ own. VRIO FRAMEWORK The growing recognition for human resources contributes to sustaining a competitive advantage for organisations. Barney and Wright (1998) have focused on four factors that are important to organisational strategic accomplishments towards sustainability. Using a VRIO framework (Value, Rareness, Imitability, and Organisation) as the foundation for HR management which reflects people are truly seen as assets, not as expenses. It also means that the culture of Indian organisations must be considered when developing organisational and HR strategies. Value: Human resources that can create value are those that can respond to

ER Indicators

Confidence & Trust

Conflict resolution

Grievance redressal

Collaborative attitude

Joint decision making

Suggestion schemes

Information sharing

Attitude of Union members

Organisational commitment

Job satisfaction

Loyalty to union

Responsible

Willingness to work for union

Outcomes

Higher productivity

Low work stoppages

Low absenteeism

Low employee turnover

Low accident rate



external threats and opportunities. Having this ability means that employees can make decisions and be innovative when faced with environmental changes.

Rareness: The most important aspect is that the human resources in an organisation be provided training to enhance their capabilities, so that they are continually seen as “the best” by customers and industry colleagues. This rareness also helps in attracting and retaining employees with scarce and unique knowledge, skills, and abilities. Reducing employee turnover is certainly important in preserving the rareness of human resources.

Imitability: Human resources have a special strategic value when they cannot be easily imitated by others. Organisations have to create images with customers and competitors that they are different and better at customer service. Any competitors trying to copy the HR management culture created in such organisations would have to significantly change many organisational and HR aspects.

Organisation: Human resources must be organised in order for an entity to take advantage in the competitive business environment. This signifies that the human resources must be able to work in collaborative and coordinated way, and have HR policies and programs which are to be managed in such ways that support people working in the organisation.

APPROACHES OF STRATEGIC HRM Many factors effect HRM and HR professionals must identity and consider the impact of a particular influence whether from the organisation’s external or internal environment. Strategic HRM adopts an overall resource-based philosophy and within this framework there are three possible approaches, namely, high-performance management, high-involvement management, and high-commitment management, which make a significant contribution towards target achievement as depicted in Figure 2.

High-performance Management A high-performance management approach involves development of a number of interrelated processes which together make an impact on performance of the firm through its people in such areas as productivity, quality and levels of customer service, growth, profit, and ultimately delivery of increased shareholders value. This is achieved by enhancing the skills and engaging the enthusiasm of employees. The main drivers are decentralised decision-making, development of people capacities, team effort, trust and enthusiasm, employee commitment, and fair treatment.

High-involvement Management This approach involves treating employees as partners in the enterprise whose interests are respected and who have a voice on matters that concern them. It is concerned with communication and involvement. The



aim is to create a climate in which a continuous dialogue between managers and the members of their teams take place to define expectations and share information on the organisation’s mission, values, and objectives. This establishes mutual understanding of what is to be achieved and a framework for managing and developing people to ensure that it will be achieved. The following high-involvement work practices have been identified in most Indian business units are work teams, problem-solving groups, job rotation, suggestion schemes, quality circles, etc.

High-commitment Management High-commitment management aimed at reflecting commitment so that behaviour is primarily self-regulated rather than controlled by sanctions and pressures external to the individual, and relations within the organisation are based on high levels of trust and confidence. The fundamental business need is to formulate appropriate strategy in order to develop and maintain a high performance culture. The characteristics of such a culture are a clear line of sight, leadership from the top, promoting positive attitudes, autonomy, proper reward, career ladders, redesigning of jobs and reduction of hierarchies, challenging job, permanent employment, and fair compensation.

ROLE OF STRATEGIC HRM As HRM becomes more business oriented and strategically focused, the following may be expected as new roles to be played by the HR department. Strategic Partner

It refers to the HR managers being an essential part of the management team running an organisation and contributing to achievement of the organisation’s objectives by translating business strategy into action. In addition, HR professionals must develop business acumen, a customer orientation and an awareness of the competition to be able to link business strategy to human resource policies and practices. Ulrich (1997, p. 79) rightly mentioned HR professionals as strategic partners when they have the ability to translate business strategy into action. Administrative Expert

This reflects efficiency of HR managers and effective management of human resource activities so that they create value for the organisation. Yeung (1998, p.4) indicates that competency levels of human resource managers in high performing firms are significantly higher than those of low performing firms. To become administrative experts, human resource professionals must be able to reengineer HR activities through the use of technology, rethinking and redesigning work processes and continuous improvement of all organisational processes.



Figure 2: Basic Approaches of SHRM Source: Authors’ own.

Employee Champion

It signifies the HR manager to be the employees’ voice in management decisions. So HR professionals must be able to relate and meet needs of employees. Hence such professionals successfully perform their jobs so as to help employees, for example, learn how to set priorities, eliminate non-value added work, clarify goals, simplify complex process, become involved in decision making, increased commitment, share in economic gains, etc.

Company Champion

This requires the human resource manager to be the company voice in management decisions as becoming the part of business team. Ellig (1996, p. 19) has pointed out the dual responsibility of employee champion and company champion can create tensions and HR managers must learn how to balance the demands of both.

Change Agent

A change agent is a person who acts as a catalyst for change. Yeung, Brockbank and Ulrich (1994) clarified that the change agent role can be achieved by leading change in human resource function and by developing problem-solving, communication, and influence skills. Therefore, the human resource manager must know how to manage change. STRATEGY ALIGNMENT Strategic HRM is essentially an integrated process that aims to achieve ‘strategic

Performance Management Decentralised decision-making Development of people capacities Team effort Trust enthusiasm Employee commitment Fair treatment

Involvement Management Work teams Problem-solving groups Job rotation Suggestion schemes Quality circles

Commitment Management A clear line of sight Leadership from the top Promoting positive attitudes Autonomy Proper reward Career ladders Redesigning of jobs Reduction of hierarchies Challenging job Permanent employment Fair compensation

Strategic HRM



fit’. A strategic HRM approach produces HR strategies that are integrated vertically with the business strategy and are ideally an integral part of that strategy, contributing to business planning process as it happens. Walker (1992) defines strategic HRM as a means of aligning the management of human resources with the strategic intent of the business. Vertical integration is necessary to provide congruence between business and human resource strategy so that the latter supports the accomplishment of the former and, indeed, helps to define it. It is also about horizontal integration, which aims to ensure that different elements of HR strategy fit together and are mutually supportive. A basic requirement in developing HR strategy is that it should be aligned to the business strategy and should fit the organisational culture. HR strategies need to be congruent with existing culture of the organisation, or designed to produce cultural change in specified directions. HR strategies are concerned with making business strategies work but business strategy must take into account key HR opportunities and constraints. A framework for aligning HR and business strategies is provided by a competitive strategy approach that relates the different HR strategies to the firm’s competitive strategies as clearly depicted in Figure 3. Figure 3: HR Strategy Alignment Source: Authors’ own. HR strategies have to take account of particular needs of both the organisation and its people. The best fit approach emphasises the importance of ensuring that HR strategies are appropriate to the circumstances of the organisation, including its culture, operational processes and external environment. Coherence exists when a mutually reinforcing set of HR policies and practices have been developed that jointly contribute to the attainment of organisational goals by gaining competitive advantage. Horizontal integration is an important aspect of strategic HRM and strategic HRM is holistic; it is concerned with the organisation as a total entity and addresses what needs to be done across the organisation as a whole in order to enable it to achieve its corporate strategic objectives (Table 1).

Competitive Strategy

Industry Structure

Economic Condition

Market Scope

Competitive Strategy

Labour Market

Govt. Control

HR Strategy

Talent Management

Continuous Improvement

Resourcing

Learning & Development

Employee Relations

Reward



Table 1: Competitive Advantage and HR Strategies

Competitive Advantage

HR Strategy

Resourcing Development Reward

Innovation Recruitment and retention of talented human resource with innovative skills and proper attitude.

Enhancing innovative skills and enrichment of individual competencies.

Financial incentives, rewards and recognition for proper value additions.

Quality Inducting right kind of people who are likely to deliver quality and high levels of customer service.

Emphasis on knowledge management, support total quality and customer care efforts with proactive training initiatives.

Link rewards to quality performance and high standards of customer service.

Cost-leadership HR Restructuring (develops employment structures; recruit people who are likely to add value; and managing downsizing).

Just-in time training (based on immediate business needs and can generate measurable improvements in cost-effectiveness).

Review all reward practices to ensure that they provide value for money and do not lead to unnecessary expenditure.

Employing Competent people

Scientific recruitment and selection procedures based on a rigorous analysis of the special capabilities required by the organisation.

Individual performance improvement (by developing organisational learning processes towards personal development).

Both financial and non-financial rewards to be related to competence and skills; ensure that pay levels are competitive.

Source: Armstrong (2006), p. 136. DRIVERS OF PEOPLE MANAGEMENT People management or HRM objectives must reflect the strategic objectives and values of the organisation. Schuler, Galante and Jackson (1987) have pointed out that organisations can improve their environment for success by making choices about human resource planning, staffing appraisal, fair and adequate compensation, training and development, and labour relations that are consistent with and support the corporate strategy. Therefore, human resources



objectives, policies and plans must be integrated with organisations’ strategic business objectives. The key drivers of SHRM are discussed below:

1. Human Resource Planning

As part of the strategic planning process, human resource planning (HRP) considers both internal and external environmental influence on an organisation, its objectives, culture, structure and human resource management. Therefore, HR managers need to forecast organisations’ future human resource requirements and determine where they will come from. HRP requires proactive role of the HR manager to ensure top management is supportive; designing of the HRP process; the organisation does not start with an overly complex system; proper communication between HR personnel and line managers; the human resource plan is integrated with the organisations strategic business plan; and balance between qualitative and quantitative approaches to HRP.

2. Recruitment and Selection

The pressures of competition, cost saving, downsizing, and global skill shortage have made recruitment a top priority. Strategic recruitment avoids the risks and costly waste of time by locating and attracting the right potential candidates to the right job openings within an organisation and an effective recruitment system to satisfy the needs of candidates as well as the needs of the organisation (Schneider & Schmitt, 1992). The hiring and retention of key human resources is a critical issue for organisations. Further poor selection decisions result in increased training time, labour turnover, absenteeism, accidents, industrial unrest, job dissatisfaction and poor performance and a systematic selection process is essential to ensure that the person and the job match.

3. Performance Management It provides a dynamic link to employee recruitment, selection, training and development, career planning, compensation and benefits, safety and health, and industrial relations for strategy execution. Performance appraisal signals to managers and employees what is really important; it provides ways to measure what is important; it fixes accountability for behaviour and results; and it helps to improve performance (Schneider, Shaw & Beatty, 1991, p. 279). HR professionals have a critical and challenging role in educating the existing employees on significance and use of performance appraisal in employee development, performance improvement and achievement of the organisation’s strategic business objectives (Goates, 1994). Therefore, appraising and managing performance strategically is a critical management responsibility and a vital part of the organisation’s strategic management process.



4. Human Resource Development Human resource development has an important role in generating improved organisational performance and individual growth, but it must be aligned with corporate objectives if an organisation is to gain any real benefit from expenditure. The strategic HRD approach aims to meet an organisation’s specific business objectives and the ultimate purpose of human resources development is to help the organisation and individuals to compete more effectively, now and in the future. Hall (1995, p.15) posits that to add value, HRD activities must derive from an explicit strategy that is consciously linked to the business strategy. The employee development policy could express the organisation’s commitment to the continuous development of the skills and abilities of employees in order to maximise their contribution and to give them the opportunity to enhance their skills, realise their potential, advance their careers and increase their level of confidence and satisfaction.

5. Motivational Strategies

Employee motivation is one of the most challenging aspects of HRM. According to Spitzer (1996), increasing cost pressures, downsizing and the advent of the lean organisation have focused management attention on strategic importance of employee motivation. But there is no particular mechanism for what motivates employees at work. In general, strategic business objectives seeking competitive advantages through higher productivity and improved customer service can be achieved only if employees are strongly motivated to perform. HR policies and practices have both a direct and indirect impact on employee motivation. On the other hand, poorly designed jobs, subjective performance appraisals and discriminatory hiring and promotion can harm employee motivation and satisfaction.

6. Fair Compensation

Compensation can help to reinforce the organisation’s culture and key values and to facilitate achievement of its strategic business objectives. Organisations which are seeking to gain a competitive advantage through a high innovation strategy utilise remuneration practices that encourage, facilitate and reward employees towards desired behavioural and performance outcomes. Strategic compensation system is a formidable communicator and can be a powerful instrument for change and a major determinant of the culture of an organisation; reward system by itself will not change a culture, but it can help to reinforce a desired culture. Milkovich and Broderick (1991, p. 25) have given emphasis on compensation policies and practices to reinforce employee behaviours that help to achieve the organisational objectives and reinforce its desired culture.



7. Work-life balance Work-life balance policies define how the organisation intends to allow employees greater flexibility in their working patterns so that they can balance what they do at work with the responsibilities and interests they have outside work. The policy will indicate how flexible work practices can be developed and implemented. It will emphasise that the numbers of hours worked must not be treated as a criterion for assessing performance. It will set out guidelines on specific arrangements that can be made, such as flexible hours, compressed working week, term-time working contracts, working at home, special leave for parents, career breaks, and child care.

8. Human Resource Information System

Human resource managers are under increasing pressure to become strategic business partners to help the organisation better respond to challenges of downsizing, restructuring and global competition by providing value-added contributions towards business success. Smith (1999) pointed out HR managers and line managers in the process of decision-making use computers to generate accurate, timely and related information to achieve organisations’ strategic business objectives. Sherman (1992, p. 30) opined that organisational culture and human resource philosophies and practices will influence the choice, design and use of its human resource information system. However, it must be emphasised that if the human resource information system is not related to the organisational strategy and human resource objectives, there will be little or no return.

In case of forward looking organisations, the HR executives are to be more proactive towards defining real drivers of people management which will bring better employment relationships and a sense of ownership towards continued organisational success. The human resource function is not different and should not be treated differently (Cascio, 1990, p. 8). Its outcomes must be measured in economic terms. Sherman and Bohlander (1992) said the HR climate in an organisation has an impact on employee motivation, performance, job satisfaction and morale. The quality of this climate can be measured by examining employee turnover, absenteeism, health and safety records, and employee attitude surveys. According to Abbott, Cieri and Iverson (1998) high employee turnover involves increased costs in recruitment, selection, orientation, and training. In addition, labour turnover may lead to disruption of production, problems in quality control, poor communication, and an inability to develop teamwork and morale. The reality is that until human resource management can show a substantial and quantifiable positive effort on the bottom line, it will not be given a place at the apex level.



CONCLUSION The present climate of economic turbulence, acute competition and pressure for increased productivity has led to a need for human resource managers to adopt a strategic approach, to be part of the top management team, to be involved in corporate planning, to develop business know-how, to become bottom-line oriented and to develop a vision for human resource management. SHRM activities such as job analysis, recruitment and selection, and training and development must be part of a coordinated effort to improve the productive contribution of people in meeting an organisation’s strategic business objectives. An effective human resource planning system is essential for an organisation to be pro-active, because such information allows managers to make strategic decisions that ensure optimum performance. In addition, the importance of analysing human resource management needs must be stressed because each organisation will want to use its data in different ways. Further, job enrichment builds motivating factors such as achievement, recognition, responsibility, and opportunities for personal growth. Accelerating rates of change and global competition have meant that training and development have become important organisational and national issues. Training and development are now recognised as critical to competitive success. In addition, compensation policies and practices should reinforce employee behaviours that help to achieve the desired business objectives and reinforce its desired culture. Proper alignment of HR strategies with business strategy will enable a firm to develop a win-win situation both for employees and employers and helps towards the achievement of the targeted goal. REFERENCES Abbott, J., Cieri, H.D. & Iverson, R . (1998), ‘Costing turnover: Implications of

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