CHAPTER 2 STRATEGIC HUMAN RESOURCE MANAGEMENT

Contents of Chapter 2 Understanding the business context Approaches to the strategy-making process The rise of strategic human resource management Exploring the relationship between strategic management and SHRM The configurational approach The resource-based view of SHRM Best-practice SHRM

Understanding the business context The nature of business strategy   What is Strategy ? -> Content   How is strategy formed? -> Process

Approaches to the strategy-making process The classical-rational-planning approach The evolutionary approach The processual approach The systemic approach

The classical or rational-planning approach Common elements in successful strategies Long-term, simple, and agreed objectives Profound understanding of the competitive environment Objective appraisal of resources Effective implementation Successful strategy

The classical or rational-planning approach Three level is viewed in the classical perspective   Corporate level: it relates to the overall scope of the organization, its structures, financing and distribution of key resources   Business level: it relates to its competitive positioning in markets/products/services   Operational level: relates to the methods used by the various functions: marketing, finance, production and of course human resources to meet the objectives of the higher-level strategies

The classical or rational-planning approach Analysing an organization – –Analyse the external environment Political Legal Technological Economic influences on business Now categories these into opportunities and threats

The classical or rational-planning approach – –Analyse the internal environment Resources Structure Leadership Skills Knowledge Culture Now categories these into strengths and weaknesses

The classical or rational-planning approach –Conduct a SWOT analysis Put your analysis of the external and internal environment into a SWOT analysis. You might find it useful to prioritize the key strengths and weaknesses of the business, and the main threats and key opportunities available to the business. Remember that it is important to be able to justify your decisions. You also need to be clear about differentiating between business and HR issues, although it is likely that certain HR strengths could be a core business competence/weakness

The classical or rational-planning approach – –Strategic choice Now consider the organization’s strategy, review its vision statement, mission statement, corporate objectives and values. Does a comprehensive analysis of the external and internal environment of your organization help you to understand the reasoning behind the organization’s strategy?

The classical or rational-planning approach – –Implementation What changes has the organization made in terms of culture, structures, leadership and HR practices to deliver its strategy? Have these changes been effective? Why? Why not?

The evolutionary approach The evolutionary approach suggests that markets are too competitive for ‘expensive strategizing and too unpredictable to outguess’. They believe that sophisticated strategies can deliver only a temporary advantage, and some suggest focusing instead on efficiency and managing the ‘transaction cost’

The processual approach This approach recognizes the inherent rivalries and conflicting goals present within organizations, and the impact this can have on strategy implementation.

The systemic approach According to this approach, organizations differ according to the social and economic systems in which they are embedded

Approaches to the strategy-making process Whittington’s model Emergent Outcomes Profit-maximising Plural Processes Deliberate EvolutionaryClassical Processual Systemic

The rise of SHRM A good business strategy, one which is likely to succeed, is formed by people factors. In the majority of organizations people are now the biggest asset. The knowledge, skills and abilities have to be deployed and used to the maximum effect if the organization is to create value

Exploring the relationship between strategic and SHRM: the best-fit school of SHRM Best-fit: Models of HRM that focus on alignment between HRM and business strategy and the external context of the firm. Tend to link or ‘fit’ generic type business strategies to generic HRM strategies Best-fit was therefore explored in relation to life-cycle models and competitive advantage models, and the associated difficulties of matching generic business-type strategies to generic HRM strategies were considered, particularly in their inherent assumptions of a classical approach to the strategy- making process

Exploring the relationship between strategic and SHRM: the best-fit school of SHRM Life-cycle models   In the start-up phases: Flexibility in HR   In the growth stage: Grow size of organization, development of more formal HR policies and procedures   In the maturity stage: Move to cost control by HR strategy   In the decline stage:   How can HR strategy secure and retain the type of HR that are necessary for the organization’s continued viability, as industries and sectors develop?   Which HR policies and practices are more likely to contribute to sustainable competitive advantage as organizations go through their life-cycle

Exploring the relationship between strategic and SHRM: the best-fit school of SHRM Competitive advantage models   Three key bases of competitive advantage: cost leadership, differentiation through quality and service, and foucus or ‘niche’ market -> to ‘fit’ the generic strategies of cost reduction, quality enhancement and innovation   The ‘cost reduction’-led HR strategy is likely to focus on the delivery of efficiency through mainly ‘hard’ HR techniques, whereas the ‘quality enhancement’   The ‘innovation’-led HR strategies focus on the delivery of added value through ‘softer’ HR techniques and policies

Exploring the relationship between strategic and SHRM: the best-fit school of SHRM Best-fit approach to strategic HRM explored the close relationship between strategic management and HRM, by considering the influence and nature of vertical integration. Vertical integration, where leverage is gained through the close link of HR policies and practices to the business objectives and therefore the external context of the firm, is considered to be a key theme of strategic HRM

Exploring the relationship between strategic and SHRM: the best-fit school of SHRM Limitations of best-fit models of SHRM   The reliance on the classical rational-planning approach to strategy-making, its reliance on determinism and the resulting lack of sophistication in their description of generic competitive strategies.   Best-fit models tend to ignore employee interests in the pursuit of enhanced economic performance.   Lack of emphasis on the internal context of individual businesses within the same sector, and the unique characteristics and practices that might provide its main source of sustainable competitive advantage.

Exploring the relationship between strategic and SHRM: the best-fit school of SHRM Configurational approach An approach that identified the benefits of identifying a set of horizontally integrated HR practices that were aligned to the business strategy, thus fitting the internal and external context of the business.   HR practices are defenders   HR practices are prospectors

The resouce-based view of SHRM The resouce-based view of SHRM Resource-based view Strategy creation built around the further exploitation of core competencies and strategic capabilities. Core competences Distinctive skills and knowledge, related to product, service or technology, that can be used to gain competitive advantage. The VRIO framework: –Value –Rarity –Inimitability –Organization

The resouce-based view of SHRM The resouce-based view of SHRM The VRIO framework: –Value –Rarity –Inimitability –Organization

The resouce-based view of SHRM The resouce-based view of SHRM The VRIO framework: –Value How the HR function can create value to reduce cost, such as reduction in headcount and the introduction of flexible working practices …. How they might increase revenue, as the business as effiency, also as customer selection, customer retention and customer referral, means through enhanced customer service and customer added value. Which HR contribute the most to suitainable competitive advantage

The resouce-based view of SHRM The resouce-based view of SHRM The VRIO framework: –Rarity The HR Executive needs to consider how to develop and exploit rare characteristics of a firm’s human resources to gain competitive advantage

The resouce-based view of SHRM The resouce-based view of SHRM The VRIO framework: –Inimitability If an organization’s human resources add value and are rare, they can provide competitive advantage in the short-term, but if other firms can imitate these characteristics, then over time competitive advantage may be lost and replaced with competitive parity.

The resouce-based view of SHRM The resouce-based view of SHRM The VRIO framework: –Organization To ensure that the HR function can provide sustainable competitive advantage, the VRIO framework suggests that organizations need to ensure that they are organized so that they can capitalize on the above, adding value, rarity and inimitability.

The resouce-based view of SHRM The resouce-based view of SHRM Applying the resource-based view of SHRM The resource-based view of SHRM has recognized that both human capital and organizational processes can add value to an organization; however, they are likely to be more powerful when they mutually reinforce and support one another.

The resouce-based view of SHRM The resouce-based view of SHRM Limitations of the resource-based view – –The resource-based view represents a paradigm shift in strategic HRM thinking by focusing on the internal resources of the firm as a key source of sustainable competitive advantage, rather than focusing on the relationship between the firm and the external business context – –Human resources, as scarce, valuable, organization-specific and difficult to imitate resources, therefore become key strategic assets.

Best-practice SHRM: high-commitment models Best practice: A ‘set' or number of human resource practices that have the potential to enhance organizational performance when implemented. Usually categorized as ‘high commitment', high involvement' or ‘high performance'.

Best-practice SHRM: high-commitment models The best-practice approach highlights the relationship between ‘sets’ of good HR practices and organizational performance, mostly defined in terms of employee commitment and satisfaction. These sets of best practice can take many forms: some have advocated a universal set of practices that would enhance the performance of all organizations to which they were applied; others have focused on integrating the practices to the specific business context (high- performance work practices). A key element of best practice is horizontal integration and congruence between policies.

Best-practice SHRM: high-commitment models Difficulties arise here, as best-practice models vary significantly in their constitution and in their relationship to organizational performance, which makes generalizations from research and empirical data difficult

Summary to Chapter 2