Strategic Human Resources Management: A Review of the Literature and a Proposed Typology Cynthia A. Lengnick-Hall; Mark L.

Lengnick-Hall The Academy of Management Review, Vol. 13, No. 3. (Jul., 1988), pp. 454-470.
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Academy o Management Revlew, 1988.Vol. 13.No. 3.454-470 f

Strategic Human Resources Management:
A Review of the Literature
and a Proposed Typology

University o Minnesota, Duluth
Past efforts to relate the management of human resources to a firm's business strategy have taken three approaches: matching managerial style or personnel activities with strategies, forecasting manpower requirements given certain strategic objectives or environmental conditions, a n d presenting means for integrating human resource management into the overall effort to match strategy a n d structure. In this article, the literature on each of these approaches is reviewed, a n d a typology is presented that posits a reciprocal interdependence between a firm's business strategy a n d its human resources strategy. lmplications for research a n d practice a r e discussed. Competitive advantage encompasses those capabilities, resources, relationships, a n d decisions that permit a firm to capitalize on opportunities a n d avoid threats within its industry (Hofer & Schendel, 1978). Porter (1985) argued that human resource management can help a firm obtain competitive advantage by lowering costs, by increasing sources of product a n d service differentiation, or by both. Achieving competitive advantage through human resources requires that these activities be managed from a strategic perspective. This article provides a framework for strategists who wish to make better competitive use of their firm's human resources a n d for human resource managers who hope to enhance the human resource function's contribution to the strategic objectives of the firm. We do not attempt to review or critique human resource practices in general. (Readers interested in the practice of strategic human resource management a r e referred to Schuler a n d Jackson, 1987.)Rather, we explore how human resource management activities might b e considered in light of a firm's strategic objectives a n d competitive position. Likewise this article does not evaluate strategy formulation or implementation techniques or alternatives. (Readers interested in strategy formulation a r e referred to Hofer a n d Schendel, 1978, or Porter, 1985. Readers interested in strategy implementation a r e referred to Galbraith a n d Kazanjian, 1986, or Hrebiniak and Joyce, 1984.)Instead, we propose a typology that guides researchers a n d managers in considering human resources a s a way to gain a n improved competitive position. Some writers on strategic human resources management have focused in specific areas: (a) human resource accounting, which attempts to assign value to human resources in a n effort to quantify this organizational capacity (Flamholtz, 1971; Frantzreib, Landau, & Lundberg, 1977),(b) human resources planning (Baird, Meshoulam, & DeGive, 1983; DeSanto, 1983; Galosy, 1983; Olian & Rynes, 1984; Russ, 1982; Stumpf & Hanrahan, 19841, (c)responses to a strategic change in the environment (Ellis, 1982; Fombrun, 1982;

integration provides a broader range of solutions for solving complex organizational problems. a n d retention (Galosy. 1982. and technological resources a r e given consideration in setting goals a n d assessing implementation capabilities. They further pointed out that although strategic human resource management is beneficial. Programmers a r e hired from outside the organization. 1982. reciprocity in integrating human resource a n d strategic concerns limits the subordination of strategic considerations to human resource prefer- . greater potential for information overload. but the long-run evaluation is uncertain. Again.compensation systems (Migliore. Migliore. 19841. commitments to employees regarding job security a n d work rules that may make the firm less competitive over time. this example illustrates the complex repercussions of such integration. over time. Why is it desirable to integrate human resources management a n d strategic choice despite these difficulties? First. customers face few prohibitive expenses or difficulties in changing from one manufacturer to another. a n d other specific elements are examined. Harvey. Second. 1983).Lindroth. a n d IBM gains a programmer that is intimately aware of their own a n d the customer's needs a n d corporate climate. IBM has. a n d certain career paths a r e blocked for existing IBM employees. for many years. 1983. One of the forces that increases competitive pressure in the computer industry is low switching costs. 1982. As a result. taught programming skills to customers' employees (Schuler & MacMillan. the short-term outcome is beneficial. In order to counter this. Sweet. selection. An accurate evaluation of costs a s well a s benefits is rarely presented by proponents of specific strategic human resource management practices. 1984. although integration between human resource management a n d competitive strategy often is proposed in the literature. Third. integration ensures that human. Wills & Dyer. 1984). or (dl matching human resources to strategic or organizational conditions (Gerstein & Reisman. Other researchers have examined the broader scope of human resources strategies (Dyer.domain choice (Snow & Miles. 1982). The computer industry provides a n example of using human resources to solve a strategic problem. through integration organizations must explicitly consider the individuals who comprise them a n d must implement policies. significant costs must be considered. As a result. & Devanna. loyalty a n d commitment of programmers is high a n d is shared by both IBM a n d the customer. commitments to organizational growth that a r e incompatible with industry conditions. Finally. Fombrun. In addition. the stronger tie also may increase the customer's expectation of responsiveness from IBM a n d . These researchers noted that the strategic management of human resources is a multidimensional process with multiple effects. The combination of these factors raises the switching costs of IBM relative to other manufacturers and. Leontiades. 1983). 1982). a n d a n overconcern with employee reactions to a strategic choice at the expense of a concern with marketplace realities. The customer gains a stronger tie with IBM. 1982. 1982). Maier. Such costs stem from additional decision complexity. Further. Smith. 1984). Tichy. Clearly. allocating a disproportionate amount of the firm's financial resources to human resource activities. improves the firm's competitive position. Snow & Miles. However. 1983. Therefore. 1982. 1982. it is difficult to evaluate strategic solutions to human resource problems or human resource solutions to strategic problems relative to the more traditional approach of using human resource management-based solutions to human resource problems a n d strategic solutions to deal with competitive threats. integration should not be a unidirectional process from either perspective i undesirable consequences a r e to b e minif mized.productivity (Deutsch. In this last category recruiting. few offer prescriptions for global human resource strategies. in other words. However. 1983. financial. this responsiveness may become more difficult or expensive to provide. thus. a n important human resource precedent is set. it is difficult to compare a p proaches. Warner.

but the interaction effects between process and content also a r e considered. or (b) those using a value approach (Cascio. 1982). First. Scott. There a r e two human resource accounting methods: (a)those using a cost approach. organizations may underestimate their potential for choice a n d influence. Because the human resources management a n d strategic management literatures a r e vast. Additional information on these characteristics is provided in the following literature review. we placed our investigation at the intersection of both streams of research. We observed four common characteristics of organizational strategic human resource management models based on a literature review a n d interaction with managers. Although life cycles are part of organization climate. 198713). Rarely are human resources seen a s a strategic capacity from which competitive choices should be derived. organization stages a r e derived from rather than shape strategic choices (Chandler. and do not recognize the need for lack of fit during organization transitions a n d when organizations have multiple a n d conflicting goals. the causal direction is merely reversed. policies a n d practices in strategic human resource management. Such distinctions partition much of the strategic management literature. Second. Human resources valuation considers the economic risk and opportunity losses caused by ineffective manpower management. the potential contribution that human resources might make to the competitive position of the firm is unnecessarily limited." Cheek (1973) indicated that personnel departments cannot effectively manage cost improvements through productivity increases due to inadequate staff a n d a n inability to channel resources to alternate undertakings. or congruence. Fourth. most strategic human resource management models emphasize fit. When human resources are used to determine strategic direction. Background and Literature Summary Human Resources Valuation In many firms labor costs account for more than 50 percent of the total costs of doing business (Fombrun. Organization change then becomes difficult to implement a n d is perceived a s less desirable. whereas process focuses on the means by which these policies a n d practices are derived a n d implemented. It also implies that cause a n d effect relationships a r e unidirectional. Our typology concentrates on the organizational level of analysis. strategic human resource management models emphasize implementation over strategy formulation. The former contrasts corporate direction from strategy operationalization at lower levels in the hierarchy. Human resources are considered means. 1962. 1974. This implies little management choice a n d a n external dominance of the firm. It is directed toward strategic human resource content. Content concerns specific choices. not part of generating or selecting strategic objectives. a n d (b) differentiating content issues from process elements. Rumelt. the approach is unidirectional from human resource problems to strategic solutions. Consequently. The process does not become more multidirectional. When firms occasionally attempt to match strategy to people. Third. 1971). but not on matching strategy to people. Content versus process distinctions prevail throughout both streams of research. The difference centers on whether a n employee is viewed in terms of costs-to-date or in terms of . traditional models focus on matching people to strategy. Russ (1982) argued that "human resources are probably the last great cost that is relatively unmanaged. Means-ends reversal is a likely consequence of this characteristic. many models rely too heavily on organization or product life cycles a s single a n d uncontrollable catalysts of change. 1985). that is. rather than interactive. Consequently. 456 This assumes that people a r e more adaptable than strategy. This reduces a potential source of suboptimization. Dyer (1985) suggested that two dichotomies a r e important to consider: (a) separating organizational level from functional level strategic human resource concerns.ences a n d the neglect of human resources a s a vital source of organizational competence a n d competitive advantage (MacMillian & Schuler.

Such practices a r e particularly evident in multidivisional firms that have products at various stages of the product life cycle. DeSanto.. Less effort is aimed at adapting strategy to managers than vice versa. 1981). 1984). Human Resources Planning Human resources planning is broadly defined a s anticipating future business a n d environmental demands on organizations a n d meeting the personnel requirements dictated by those conditions (Cascio. A partial explanation for this lack of use may be found in the focus of human resources planning literature. it is not clear that the information benefits of valid a n d reliable human resource valuation data are worth the costs involved in obtaining such data.Identifying potential managers a n d providing developmental career sequences has long been the practice of many firms. More important. Methods that comprehensively consider both costs a n d benefits of employee contributions a r e cumbersome a s well a s expensive. managers are chosen to implement strategy. no information is provided on benefits of using human resources in one way versus another. Rowland & Summers. Experts do not agree on who should judge a n employee's worth to the organization. Hence. resources which could b e used to accomplish similar objectives. Cost a p proaches focus on historical costs incurred to hire.. Salary frequently is used a s a proxy for expected contribution. great care may b e taken in designing a statistical model of manpower planning. For example. Thus a large g a p exists between available techniques a n d their use because important organizational realities a r e not incorporated in the models (Zedeck & Cascio. Markov analysis). 1983. These approaches do not provide for comparison of human resource costs with costs of other. has been linked with strategic business planning (Stumpf & Hanrahan. but political issues involved in fostering their use generally a r e ignored. 1983. 1984). There a r e difficulties in assessing human costs a n d contributions. Managerial succession planning. As a result. whereas little thought is given to gaining managerial acceptance of the model's output. managerial suc- . Most research focuses on human resource supply and demand forecasting (Zedeck & Cascio. It is unclear how employee valuation information will improve managerial decisions. but does not provide insight into valuation of human resources given competitive strategy. train.g. 1984). but a s discussed earlier. nor is information obtained on improving the value of human resources within the firm. Finally. a n d maintain employees.expected contributions. or on replacement costs that would be incurred i a n employee f were replaced. 1987a). perhaps mechanical. evidence sug- gests that the link between human resources planning a n d strategic management often is not emphasized in practice (Baird et al. Managerial succession planning in these firms seems unduly dependent on having sufficient start-up projects for the firm's entrepreneurs a n d having sufficient mature products for the firm's efficiency experts. 1984. Olian & Rynes. Fit can be counterproductive from a competitive perspective because it may inhibit innovativeness a n d constrain the firm's repertoire of skills Fit approaches to strategic human resource planning often create a s many problems a s they solve. a n d almost no effort is aimed at selecting managers to devise a strategy. Value approaches consider present value of the employee's stream of net future contributions to the firm. this method of approaching strategic human resource issues permits either a n evaluation of implementation costs or a comparison of various strategic options relative to human costs. Valuation approaches a r e limited to providing partial answers to strategy implementation questions. Unfortunately. however. This implies that human resources planning could b e a n important input into strategic plans. These differences reflect quite distinct organization cultures. Many statistical techniques a r e available for making such forecasts (e. Achieving fit appears to be the guiding premise underlying much of the work in managerial succession planning.

and interest-group politics affect organizational structure and human resource issues. When a comprehensive environmental perspective has been adopted. He viewed managing human resources a s creating a n organizational climate that is conducive to flexibility. Ellis ( 1982)identified environmental challenges such a s raw material price increases. less desirable jobs. demographics. He recommended reallocaf tion o educational resources. temporary help). Other researchers. however.for example. Snow. Fombrun (1982). Lindroth suggested utilizing the fringe labor population (e. the search for fit involves a constantly moving target. international competition. Meyer. 1983. She claimed this will lead to a labor shortage particularly in lower paying. and demographic changes (Fombrun. and Coleman (1978)argued that i f the firm permits the environment to dictate its strategic choices in a reactive manner. He advocated a management style that is pragmatic. part-time workers. technological innovation (Maier. Several problems emerge from past efforts to manage environmental change through human resource management strategies. sensitive rather than stoic. and to formal appraisal systems. 1982) affect human resources strategy.cession planning also has been underutilized a s a n input in the strategic business plan (Gutteridge & Otte. and participation. the more problematic the recommended solutions become. the . studied a specific environmental change and posited appropriate human resource management responses. whereas the political environment is hypothesized to have the strongest effect on definitions for success. Changes in the social environment are related to shifts in organizational development. explore how the resulting human resource policies interact with other organization processes or influence strategic position. the rate o increase in the work force will be less f than the rate o increase in new jobs (typically f created by technological advances) in the 1980s and 1990s. The more narrowly environmental conditions are defined. elitism. Dimick and Murrcry (1978) discussed the effect o competitive markets f and lack o special advantages on recruiting and f manpower planning.. rapid changes in demand. Numerous environmental characteristics have been investigated to determine how they constrain human resources or strategy formulation. In a turbulent environment. supply shortages. increased worker f mobility both within firms and from organization to organization. Miles. to promotion. Maier (1982) investigated innovation cycles and the qualitative and quantitative labor force requirements at each stage o the cycle. They did not. and on career counseling. and social activists and recommended a generic solution rather than differential responses to specific problems. automation. Fombrun contended that changes in the technological environment have the greatest effect on service jobs and on general retraining. retirees. Lenz ( 1981) discussed several contingency relationships. 1982). inflation.g. 1982). and increased industrywide coordination of technological innovation. Response to Strategic Changes in the Environment Environmental factors such a s uncertainty (Ellis. and based on a philosophy of generating numerous alternatives and initiatives. 1981). on organizational commitment. studied how changes in information processing. Reypert. For example. A generalist approach to managing human resources in the face of environmental change also has been explored. productivity. such a s Lindroth (1982)and Maier (19821. the research has been limited to correlation studies o environmental conditions with f various elements of structure or organization processes. Lindroth ( 1982) noted that according to the Bureau of Labor Statistics. practicality. but offered no conclusions regarding how a n improved fit between particular environmental and organization process contingencies affects economic or competitive performance. active rather than passive. He saw changes in the economic environment a s having the most direct effect on compensation alternatives and initial employee training.

a n d technical plans frequently are altered to reflect changing strategies. Further. Sweet (1982). Harvey ( 1983). i at all. environmental conditions. yet the option is not sufficiently comprehensive to influence the total human resource strategy of the firm. growing. thereby. These researchers look at vertical integration (engaging in more activities along the chain from raw materials to distribution of the product). but adopted a more restricted focus. Leontiades. comprised of base pay. the managerial characteristics that receive attention do not vary as substantially a s the types of expansion efforts a n d strategic conditions vary. narrow focus seriously limits its usefulness. Although the notion of fit.chances of long-term survival a r e reduced. the human resources management function often appears to have been forgotten. 1962)rather than product life cycles. factors that contribute to a product's unique value. Milkovich a n d Newman (1987) furthered this approach. or global expansion. key relationships. a n d many others have described human resources strategies a s developing a match between certain strategic or organizational conditions and certain specified aspects of human resource processes or skills. One approach involves matching managerial skills a n d interests with the general characteristics of the productimarket environment. they did not consider the inevitable need for change a s new products a n d technologies enter the marketplace (Cooper & Schendel. . Migliore (1982). factors that define the cost structure for a firm. change the contingencies that should b e accommodated. or sources of differentiation. on the other hand. a n d a list of skill requirements for the executive position. a firm develops a coherent strategy which considers. they did little to overcome the problems of identifying a n d a n a lyzing the appropriate information to either characterize the strategic situation or clarify the manager's role under a specific set of conditions. a n d Sweet (1982) claimed that one intent of this approach is to diminish belief in the "universal manager" myth. related diversification. incentives. yet nearly all studies reveal similar clusters of successful managerial talents. An alternate approach to creating fit is to match the firm's human resources policies a n d processes with specific strategic choices (Smith. In a similar manner. Most studies deal exclusively with managers. Other researchers (e. 1985). . marketing. Gerstein a n d f Reisman ( 19831. However. a more successful strategy is likely to result. 1982a). a firm's human resources policies may alter its market position and. but is not solely dependent upon. for example. for example. a n d maturing product cycles. Matching Human Resources to Strategic or Organizational Conditions Gerstein a n d Reisman ( 1983). They argued that the compensation mix. Further. Migliore (1982). recommended a diagnosis of the "business situation" primarily in terms of the product life cycle a s a precondition for matching executive characteristics to situational requirements. He argued that human resource policies should b e tailored to reflect the needs of the future. shift (Porter. yet little is offered toward resolution. a n d benefits. Leontiades (1982). they argued that a firm may b e able to influence its environment a n d that this potential should not b e ignored. rather than emerging. If. should b e uniquely constructed for each phase of the firm's expansion cycle.. or congruence. 1976) or a s cost drivers. often looking no deeper in the organization than the chief executive officer or top management team. Here a specific solution is offered. Such approaches assume that the environment will change very slowly. An important problem is identified. technical a n d managerial responsibilities. the "universal management team configuration" seems to have gained popularity. Although the "universal manager" may have lost credibility. is appropriate. 1982) fog cus on expansion strategy (Chandler. Although these authors provided steps for implementation. Gerstein and Reisman (19831.Smith pointed out that although financial. Their approach included using role descriptions of executive function. rather than mirroring current conditions or past practices.

Further. philosophy. First. or training-remains the same. Agencies such a s NASA and private firms such a s Hewlett-Packard use this approach. This recommendation is linked with the concept of human resource valuation. The answers to these questions depend heavily on organization strengths. Lengnick-Hall & McDaniel. a firm values long-term employment a n d does not expect major strategic shifts. this typology suggests ways to address the limitations of prior approaches while integrating their contributions. a n d structure.The whole issue of fit deserves reassessment. For example. for example. They assume strategic direction has been decided. processes for career planning. As Perry (1986)pointed out. They assume that the basic issue-whether it is employee skills. f and culture in strategic human resource management decisions to help alleviate this difficulty. a n d culture. the fundamental questions that must be addressed also vary because strategic issues reflect strategic contingencies. Human resources valuation approaches were limited by expense. 1984). a n investment in creating firm-specific a n d industry-specific skills is wise. strategy. a n d problems with using results. Technical jargon is often industry-specific. factor considered in selecting a firm's strategic direction. Summary of the Literature In summary. firm-specific skills increase the costs o turnover to the employf ees a s well a s to the firm. their value to the firm is enhanced. we assume that the choice of strategy has not been made. the difficulty of putting a dollar value on human resources. we assume the management of human resources should contribute directly to strategy formulation a n d to strategy implementation. The questions which a r e asked primarily reflect organizational outcomes a n d environmental threats a n d opportunities. however. To the extent that a n employee's skills are specific to a certain organization. only the answer changes a s strategic conditions change. their mobility and transferability are reduced. 1986. Third. have offered methods for forecasting manpower requirements given certain strategic objectives. assume that human resource considerations should be the sole. Neither of these skills is valuable in a different firm or different industry context. Each of these approaches has three assumptions in common. Second. We suggest substituting firma n d industry-specific skills versus firm.a n d industry-nonspecific skills (Perry. If. forecasting. Other firms in which greater . Both aslung the right questions and making acceptable choices a r e necessary for sustained high performance. or even the primary. A major problem with human resources planning approaches is overreliance on supply a n d demand forecasting a n d response at the expense o other organization realities. We propose spef cific consideration o a firm's values. a n d the firm's ability to imple~nent change. a focus on maximizing fit can b e counterproductive i organization f change is needed or i the firm has adopted conf flicting competitive goals to correspond to a complex competitive environment (Lengnick-Hall.a n d industry-specific skills have value only within a particular context. weaknesses. Further. we assume that a s strategic conditions vary. a n d have presented ways to achieve fit among human resource management processes. Research has shown that achieving fit is not always desirable. retention. Firm. and their replacement costs are increased. We do not. past approaches to strategic human resources management have suggested ways to match managerial style or personnel activities with strategic efforts. then. They assume that strategy implementation deals solely with means to achieve strategic ends a n d has no explicit role in strategy formulation. These issues vary with bottom-line expectations a n d prior organization choices. knowing a firm's filing system is firm-specific. Conditions that influence what types of questions should b e asked a r e not the same contingencies that determine the answers to those questions. Assumptions Leading to the Proposed Typology The proposed typology relies on a different set of assumptions. 1986) a s a proxy that overcomes these obstacles.

1980). Readiness is a proxy for implementation feasibility and indicates how well resources meet the needs of the situation. EXPANSION . human resource strategy a r e formulated. Evolution also moves conditions from top to bottom (from high growth expectations to lower growth goals) a s markets become saturated a n d a s new competitors enter the marketplace. 1986. In most industries. 1978). technological change makes current skills or techniques less competitive over time (Hofer & Schendel. Leontiades. such a s McDonalds a n d many universities. Growth readiness matrix.tenure flexibility is desired. We suggest that fit be considered the opposite end of the continuum from flexibility. we recommend. As industries and products mature. in prior research they have been considered in a deterministic manner. High growth generally means increased opportunities. ing and research a n d development in emerging industries to a focus on production and manufacturing in more mature industries (Porter. high cash flow. In past research on + RETURN ----------- . growth becomes less feasible because there a r e fewer opportunities. DEVELOPMENT / CORPORATE GROWTH EXPECTATIONS / rf 2 . a n d experience needed for strategy implementation. Industries also change from a focus on market- Figure I. 1979. numbers. Corporate growth expectations a r e a proxy for the goals of the organization (Chandler. may invest in creating industry-specific skills to enhance their current competitive position. 1962. apply pressure to move the strategic situation from left to right (from high readiness to obsolescence) a s technologies a n d strategies change. The four quadrants represent four conditions under which organization strategy and. We contend that movement from one quadrant to another results from a n interaction between environmental conditions a n d organizational choice. 1982). a n d because market share must b e taken away from competitors. but are wise to avoid investing in substantial development of firm-specific skills that inhibit mobility.I' /3 / 4 / PRODUCTIVITY REDIRECTION LOW 1 HIGH INVESTMENT 1 LOW ORGANIZATIONAL READINESS I A Typology for the Strategic Management of Human Resources The "GrowthIReadiness" matrix depicted in Figure 1 captures the basic features of our typology. such a s industry and product maturation. Evolutionary forces. 1985). 1977. 1980). multiple strategic a n d competitive options. Organizational readiness measures availability or obtainability of human resources skills. styles. a n d expansion. Much strategic management research centers on goal selection a n d attainment (Porter. Hayes & Wheelwright. Although these evolutionary forces a r e well documented (Day. Porter. a n d that firms explicitly choose a position along the continuum to coincide with their assessment of upcoming competitive conditions. because these a r e more expensive. De Kluyver. Approaches that focus on responding to environmental change or matching human resources to existing conditions suffer from a n excessive concern with developing fit a n d presume fixed goals a n d directions.

Sambo's management decided there was insufficient time to make the major changes needed and still achieve the original goals. Fourth. Both choice and environment influence human resources availability and obtainability. 1980). the cause o poor readif ness should be diagnosed. but not 2 . i the firm is not in a single business. Here the organization's culture should be considered. that intended to grow rapidly during early phases o f industry development. will require greater resource expenditures and a more significant competitive advantage than a firm such a s Genentech. Investments have a greater potential for payoff if businesses and. 1986). Second. we propose that case studies examining the issues we describe may further illuminate relationships and lead to improved strategic human resource management theory construction and testing. Anheuser-Busch's withdrawal from the softdrink industry and entry into the bak- ery and snack industries provides a n example o f this decision. First. the reasonableness o corporate f growth expectations given product life cycle. Quadrant 1 : Development The Development quadrant is characterized by high growth expectations and a poor level o f readiness between strategy and human resource skills. In summary.Valuation concerns suggest that compatibility o f industry-specific and firm-specific skills across businesses should be considered. Effective strategy formulation is based on assessments o functional and technical capabilf ities. The first-order choice is strategy formulation (Pitts & Snow. the construct o strategic human f resource management has two dimensions: organizational goals and availabilitylobtainability of human resources. Safeway for example. 1986).There are three options: (a)a firm may choose to invest heavily in its human resources to improve implementation feasibility. skills are related. 1986). Third. a genetic engineering firm. If increased readiness is not feasible. a number o analytic steps f should be taken. (b) a firm may decide to change corporate goals to reflect the lack of readiness. goals or strategic approaches to goal attainment must be changed. the potential for long-term investment effectiveness needs to be determined (Perry. This is a n example o reciprocal human resource and straf tegic decision making.If a firm is not meeting its objectives. for example. 1986). f choices regarding a particular business and the overall growth and diversification pattern o the f company need to be reconciled (Day. Environmental constraints and opportunities have a dominant effect on potential for return. the appropriate response is relatively fixed. If the skills are firm-specific. Once that has been accomplished. Organizational choice has a dominant effect on organizational goals and investment decisions. Hyatt's investment in retraining Braniff employees after acquisition. The normative statements regarding strategic human resource management decisions can be translated into hypothetical statements to allow for further refinement and future empirical testing.organizational life cycles the manager's responsibility determines the current stage of development. such a s Sambo's shift in focus from growth to profit after 1983 financial difficulties. Anheuser-Busch determined that they could not "train" employees to become more competitive in the soft drink industry. and f realistic goals (Pitts & Snow. and the competitive position o the firm must be determined (Porter. industry conditions. A f firm that attempts to grow rapidly in a mature industry. The last option retains the growth goals by altering the competitive advantage used to achieve such goals.or (c) a firm may choose to change the corporate operating strategy to capitalize on the skills and resources that are currently available. consequently. We propose a contingency approach in which organization choices influence the rate and direction o f organization life stages. This typology explores these complex. multivariate relationships in a systematic fashion. This determines whether or not current goals can be obtained with additional investment in human resource capabilities. In fact. strengths and weaknesses o the firm.

goals a r e temporary or i strategy is likely to change. have a culture that presumes individuality a n d idiosyncratic behavior.. greater investments in achieving organizational readiness a r e warranted (Hrebiniak & Joyce. f large investments in fit are unwise. for example. As the firm expands. For example.g. firm.a n d industry-specific skills play a crucial 463 . socializenced this problem with their "fraction of the acing new employees)? Resolution depends on tion plan" (whereby franchise owners partici(a)the level of human resource investment re.The price is a n tive positions in the mainstream of a growth increased likelihood of means-ends goal reverindustry.Under these conditions.g.. Thus. more resources must be allocated to managing the effects of growth a n d the organization systems needed to accommodate expansion. leaving fewer resources available for managing growth. ued readiness. resource allocation decisions. For example. If goals represent a long-term commitment a n d if strategic conditions a r e supportive. 1984)a n d those who recommend responsiveness high growth expectations a n d good readiness to organization a n d environmental contingenindications between strategy a n d skills.g. Although good fit ethical drug industry or the position of Target may make growth easier to achieve. The issue of fit versus flexibility is also important. 1981). conallocation. was near bankruptcy a n d corporate takeover. 1984. managing information. Finally the fitlflexibility continuum should be considered. What proportion of resources should tinued growth is likely to become a means to be devoted to achieving continued growth. negotiating defense contracts) makes a given level of growth more expensive to achieve. a n d (c)other per. but wasteful to invest in skills designed to deal with a temporary shortage or distribution problems resulting from a strike. In this type of firm. hierarchy. it also Stores in the retail industry. organization processes a r e expected to change to reflect the personalities a n d skills of new members. for example. This is supported by huThe Expansion quadrant is characterized by man resources planners (Stumpf & Hanrahan. A high need for firm-specific skills (e. role (Perry. pated in the rewards of expansion). 1986). 1986. military organizations can expand rapidly without substantial changes in organization systems because their cultures a r e relatively uniform a n d rely heavily on standardization. A number of analytic steps contribute to sound formance measures that are important to the firm. division of labor. Lenz. a n d socialization to coordinate a n d control activities. If. These conditions apply to firms in established competicies (Lawrence. 1986). Culture places both demands a n d limits on organization processes (Galbraith & Kazanjian. reliance on firm-specific skills should b e reduced because such investments provide only shortterm benefits. High growth a n d strong readiness a r e conQuadrant 2: Expansion ducive to maximal fit.unit-specific. it may be shrewd to invest in developing capabilities for dealing with a consolidation in the supplier industry or a major technological shift.. These five analytic steps provide a template for strategic human resource management under "development" conditions. Apple Computers. This f is a plus i the firm is committed to employment security a n d promotion from within. McNeilab's position in the sal (MacMillan & Jones. organization. worhng toward fit is desirable. updating planning systems. they provide greater flexibility. a n d achieve financial a n d status benefits even i conf what proportion should b e channeled into mantinued growth is no longer cost effective within the industry setting. Other firms. The result quired to maintain desired growth a n d contin. a n d industry life cycles need to be identified (Day. First. Under these condimakes continued growth the primary means to tions. relevant Again organization culture a n d the need for trends in product. Such organizations can devote most resources to achieving growth. Porter. 1984). If culture demonstrates a preference for external hiring. the first-order question involves resource achieve organizational rewards. on the other hand. (b)profitability. Sambo's restaurants experiaging the effects of growth (e. 1986). fighter pilots) or industry-specific skills (e.

a reassessment of goals. the basic choice is where to channel resources and efforts that are no longer required simply to maintain growth objectives. A firm can begin planning for exit . Quadrant 3: Productivity The Productivity quadrant is characterized by low growth expectations and strong readiness for strategy implementation. There are several alternatives. Stated differently. and the like. 1985). a s in the development stages. The focus can be on improving the current competitive position. developing o succession plans. General Electric provides a good example of this approach. Further. Resistance to change coupled with organization clout and few alternatives can make a firm uncompetitive a s environmental conditions change. Nor is it unusual for growth expectations that are the outcome of prior human resource policies to become competitively undesirable. Porter. Industry analysis. personal power of successful employees also increases. for example. f Second. the positions established by Mercedes Benz or the Kroger Stores. along with a n evaluation o hiring and training needs. 1980). mobility of these employees is reduced.1985). 1986.As the need for firm-specific or unit-specific skills increases. Often while firms are growing. the key question is how to channel the results o productive activities f (Day. a firm should identify costs of managing growth (Porter. If there is a resulting deficit. allows a firm to assess the direct costs and benefits of achieving growth. in f order to compensate for or correct organizational weaknesses. costs of achieving and maintaining growth should be compared with the revenue that additional growth is expected to provide (Porter. a strategy taken by the major television networks that continue escalating investment despite low growth prospects. mentoring. If growth is expected to be long-term but under changing marketplace conditions. Reciprocity between human resources and competitive strategy is important. It is not unusual for growth to be competitively feasible yet have little payoff due to implementation costs. 1985). If a surplus results. is in order. The focus can be on preparing for anticipated changes in the particular business in question. Because a firm has a n established competitive advantage and is not trying to expand rapidly. capacity exf pansion requirements. the seeds for future problems are being sowed i organizaf tion design does not keep pace with organization accomplishments. These four steps provide guidelines for strategic human resource management under "expansion" conditions. and so forth. Such firms are highly profitable a n d their resources should not b e wasted. Fourth. There is less concern with establishing a position. or with extending the market. there is a strong incentive to resist change (MacMillan & Jones. resources might be appropriately allocated to managing the stress of continued expansion and 464 elevated performance expectation. a n appropriate allocation strategy for these resources is needed. 1986). a s in the expansion stage. If growth is expected to be short-term. This last focus includes using resources to improve socialization. among the most important o f these is a consideration of fit versus flexibility (Pitts & Snow. Third. For example. operations usually are highly effective and efficient. a firm should identify indirect costs o achieving growth.Planning horizons and profitability can be predicted from a n asssessment o the industry's f structure. resources might be appropriately allocated to research and development or training in a n effort to anticipate competitive trends. At this point a firm should identify specific structural and organizational process changes that need to accompany growth. Because this power is contingent on maintaining existing organization conditions. 1986). i a growth pattern is expected to be f long-term and in a relatively stable environment. Resources can f be invested in related or unrelated businesses in the portfolio. resources might be most appropriately allocated to preparing for organizational transition. or the means to achieve growth. Rather. Financial services firms such a s American Express made this choice in the face o deregulation.

a n understanding o the current straf tegy's viability and the long-term attractiveness of the industry is important for allocating human and other resources (Day. 1986). If dierator (Day. This situation often arises in firms that focus on excessive fit between skills. even if it is suboptimal for the firm a s a whole. on the other hand. restructuring. Second.How to sustain the current competitive advantage should be assessed a s the product a n d industry mature. firms facing these conditions are in declining industries or have maintained obsolete products or manufacturing processes that are no longer competitive (Porter. Third.g. businesses that receive investments to aid their own competitive position may. Their choice is either turnaround or exit from the industry. a firm must decide whether to redirect employee activities or to alter the business focus. over time. The natuf ral tendency is for management to be internally focused to increase profits. fit should be de-emphasized. 1985). and strategy. First. businesses are unrelated and unit-specific skills have been emphasized.As growth slows. If. Redirection. is characterized by low growth expectations and poor readiness. 1978). The marketplace may become unattractive over time regardless o competitive position. If fit. Stated differently. The role a particular business plays in the overall corporate plan inevitably changes a s the unit shifts from a cash user to a cash gen1986. a n d industry-specific skills also contribute to or inhibit organization transition (Perry. f has been emphasized.from the business. yet low growth industries require extensive environmental analysis. Examples include small breweries and many family farms. culture. mimicry and aggression also increase. If turnaround is chosen.Hofer & Schendel. and the issue becomes whether continued fit should be rewarded to increase profits and efficiency or whether the first steps toward organization change should b e encouraged. a n d skills that are necessary for transition should be rewarded. Undoubtedly some degree of fit already has been established. a strategic focus predominates because choices concern trade-offs between current actions and future options. even though their future prospects may be uncertain. this shift in perspective presents a monumental challenge (MacMillan & Jones. employees have a vested interest in maintaining a n existing strategic posture for the business. firm-. and realignment are needed.g. 1978). firm-. Both human resource and competitive considerations a r e paramount.. industry structure should be assessed (Porter. Typically. sufficient resources should be reinvested in the unit to maintain competitiveness. turnover (both f . 1980).. employees may feel more secure. and industry-specificskills should continue to receive rewards. 1986). verse businesses are managed interdependently. and unit-. Hofer & Schendel. rather than flexibility. evaluating competitive trends helps to determine a reasonable time horizon for planning (Porter. retraining. If businesses are related and firmspecific and industry-specific skills have been emphasized. resources should be channeled to other units. fit should be balanced with flexibility. I exit is selected. Substitute products often gain popularity while a firm is focusing on efficiency. Unit-. 1980). procedures. If the planning horizon is long. 1986. Coke's position in the soft drink industry) or is competitive position dependent on escalating investments (e. supplier firms and buyers often consolidate or further increase their segmentation. Is the current competitive position viable with a flat level of investment (e. be expected to contribute to the growth and competitiveness o other units. research and development required to maintain position in the computer industry)? Can the current competitive advantage be protected and sustained? Because competition increases during low growth periods. Several analytic steps a r e useful. Under conditions of low growth and high productivity. often a choice i substitute f products are serious threats. Quadrant 4: Redirection The fourth quadrant. If the planning horizon is short.

Third. but exit will be quite difficult. on the extent to which firm. are key to strategy and f human resource choices under conditions o low f growth and poor readiness.. Often.. or preparing for quick divestment in a particular business (Porter. Exit is a desirable choice in a multibusiness firm. Exit. these are the likely outcomes. 1986). If turnaround is infeasible. and i not. any turnaround strategy would have a short-term payback. commitment to employment security) must be examined (MacMillan & Jones.If new employment options exist. is less desirable. Concluding Comments Reciprocal interdependence between a firm's business strategy and its human resources strat- .g. Often when a firm reaches this stage of development. Equally often. a s in many steel companies. A number of analytic steps are appropriate. The need for human resources in other areas of the firm (e. exit is less complif cated by organization values. are there growth areas that require new human resources?) should be considered (Day.g. no choice is truly desirable. With related diversification. 1980). Examples include hotels and restaurants that have improved service and made a comeback. Schendel & Hofer.and industry-specific skills are low but incompatible with competitive conditions. under these circumstances. If firm. but those that exist fit well with the competitive conditions (e. software development firms). It is not uncommon for technical changes in a product or the production process to cause functional conflict rather than functional synergy in firms that have technically related product groups... f and analysis o feasibility. assessment o the competitive position. these problems can be reduced. values that have dominated during times o growth and implementation are malf adaptive when the firm is faced with end-game choices such a s harvesting.voluntary and involuntary) and relocation within the firm are often required. perhaps. organization culture is firmly established. if lack of readiness reflects a poor organizational strategy. 1986. both competitive restructuring and a shift in firm andlor industry values is needed to effect a turnaround. First. turnaround is feasible i appropriate new skills f can be acquired. the most painful choice. severe organizational conflict may arise from attempts to remain competitive in a product area that has undergone major technical changes. Organization culture and employment philosophy (e. turnaround will create grave organizational conflict.g. and most contain significant risks. a s the issues about what to do with family farms illustrate. has a substitute product curtailed demand) or whether the firm is poorly positioned (e. If the industry is declining. . 1978). a n evaluation of turnaround and exit feasibility depends. 1980). Most organization cultures do not help the firm avoid premature divestiture nor do they reduce the likelihood o f creating a cash trap. Porter. In single-business organizations.and industry-specific skills are present and the extent to which these skills meet the needs of the current competitive environment (Perry. If firm.and industry-specific skills comprise a low proportion of the skill base.and industry-specific skills f comprise a high proportion o the human resource skill base. If firm. merger or acquisition o new skills and f new values is a typical response. If consideration o the future is incorporated durf ing "productivity" phases. in part. analysis to determine a source of competitive advantage is needed. An additional cultural issue concerns diversification strategy. evaluation of the industry condition. the importance o firmf specific and/or industry-specific skills must be considered in evaluating costs and effectiveness. These three steps. This is. and such skills are compatible with the competitive environment.g. turnaround feasibility depends on whether additional skills can be learned in a timely manner. If firmand industry-specific skills comprise a high proportion o the human resource skill base and do f not meet competitive needs. developing a niche. Second. it is important to determine whether the industry is experiencing widespread decline (e. 1986.g . small textile mills facing industry consolidation).

egy underlies the proposed approach to the strategic management of human resources. Both human resource strategy and business strategy are seen a s composite outcomes because in each. events. The crucial interaction is between multidimensional demand and multifaceted readiness: Each is a n input to and a constraint on the other. but have ignored the truly multidimensional nature of this process. Previous efforts have captured some o the important relaf tionships among key variables. We propose a broader perspective o strategic f human resource management than has been offered in the literature or in practice. This perspective is depicted in Figure 2. This produces inadequate theory formulation at best and does a disservice to the field (strategic management or human resources management) that is slighted. In part. this can be attributed to meshing two areas that have developed independent of one another (at least in the academic arena). and relationships influence organizational results. A perspective on business strategy and human resource strategy interdependence. 467 . many functions. The intent of this paper is not to argue that all firms should adopt a strategic human resources STRUCTURE CONDITIONS 0 0 LABOR MARKET SKILLS & VALUES HUMAN RESOURCE STRATEGY COMPETITIVE STRATEGY 0 COMPETITIVE ADVANTAGE DEMAND FOR SKILLS & EMPLOYEES 0 0 ECONOMIC CONDITIONS CULTURE ORGANIZATION AVAILABILITY & READINESS Figure 2. Related to this has been the temptation o researchf ers and practitioners in one field to gain only a superficial understanding o the other field bef fore attempting to integrate the two. Greater cross-fertilization of ideas is justified at this stage of theory development to provide a better understanding o two complex f processes.

a n d more informed decision making in the future. there is much anecdotal evidence to suggest that such a relationship does exist. Our typology clarifies many of the issues that researchers a n d managers believe a r e important for sustained organizational performance. This view is presented in Hypotheses 2 a n d 3. petitive strategy will perform better (using multi. the classifications we propose allow the results of organization decisions within a single firm to b e evaluated longitudinally because it is recognized that critical issues a s well a s desired outcomes change over time. Further. ple measures of effectiveness) over the long term The typology proposed in this paper takes a broader perspective of strategic human resources management. than firms that manage competitive strategy primarily as a means to solve human resources issues. More attention needs to be paid to research issues that will provide the necessary support or disconfirmation (see especially Dyer. petitive strategy will perform better (using multi. deplete the human resources of the firm. it must solve human resource problems through human resource means and. Rather. Without some means of categorization. manage their human resources. From this approach. If a firm elects not to adopt a strategic human resource perspective. a n d succeed or fail in the marketplace. our intent is to highlight some of the advantages a n d disadvantages of integrating human resources management within the strategic management process. The typology suggests avenues of research that should yield a greater awareness of two complex organizational processes. if not impossible. it must solve competitive problems with other types of resources. human resources a r e seen a s constraints on business policy. Finally. ciprocally considers human resources and com. A firm's outlook often becomes more inwardly perspective. implement those plans. making it more difficult to accurately predict a n d interpret environmental events. Excessive attention may prove to b e a s detrimental a s the prior neglect. Hypothesis 2: Firms that engage in a strategy formulation process that systematically and re. comparative a n d other methods of empirical research become difficult. a firm may become less competitive than firms that have greater internal flexibility. Moreover. although Hypothesis 1 suggests this as a testable concept: Hypothesis 1 : Firms that engage in a strategy formulation process that systematically and re. It defines some boundaries of the concept a n d presents a set of propositions that need further testing. then human resource considerations must b e intimately linked with strategic choices. 1984). it is too early to adopt one theory of strategic human resource management a n d expect a blueprint for decision making. However. if human resource considerations a r e used to determine strategic position. Hypotheses 3: Firms that engage in a strategy formulation process that systematically and reciprocally considers human resources and competitive strategy will perform better (using multiple measures of effectiveness)over the long term than firms that manage human resources primarily as a means to solve competitive strategy issues. ple measures of effectiveness) over the long term than firms that manage competitive strategy and human resources independently of each other. linking human resources management intimately with strategic management may overemphasize human resource matters in strategy formulation. better understanding of their interaction. This view may. There are opportunity costs associated with this view as well. however. This view assumes that the human resources a r e critical to achieving competitive success. By classifying organizations through the proposed typology. From the viewpoint of practicing managers. over time. 468 . researchers can explore how organizations fating similar contingencies create strategic plans. there is little empirical evidence to suggest that strategic human resource management directly influences organizational performance or competitive advantage. by implication. If a strategic human resource management perspective is adopted. ciprocally considers human resources and com. To date. To limit these negative effects we argue that a reciprocal interdependence is most appropriate.

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1988).http://www. Vol.CO%3B2-H A Model for Human Resource Valuation: A Stochastic Process with Service Rewards Eric Flamholtz The Accounting Review. 253-267. 3. .org/sici?sici=0001-4273%28197812%2921%3A4%3C611%3ACOSPDI%3E2. 454-470.0. 1971)..jstor. 1978). No.. T. Stable URL: http://links. 1981). LINKED CITATIONS . pp. 131-154. pp. Victor V. Vol.jstor.jstor. Lengnick-Hall.Jun. Stable URL: http://links.jstor. Stable URL: http://links.Page 1 of 2 - You have printed the following article: Strategic Human Resources Management: A Review of the Literature and a Proposed Typology Cynthia A.CO%3B2-5 .CO%3B2-C 'Determinants' of Organizational Performance: An Interdisciplinary Review R. 13. Lenz Strategic Management Journal. 2.0. Vol.. Vol. (Dec. (Jul. (Apr. 2. Stable URL: 2. (Apr. you may be required to first logon via your library web site to access JSTOR. Murray The Academy of Management 21. If you are trying to access articles from an off-campus location. 611-623. Please visit your library's website or contact a librarian to learn about options for remote access to JSTOR.. No.0. 4. References Correlates of Substantive Policy Decisions in Organizations: The Case of Human Resource Management David E. This article references the following linked citations. Lengnick-Hall The Academy of Management Review.0. No. Mark L. No. pp. Dimick.

Jr.CO%3B2-3 . Henry Coleman. Structure. 1978).org LINKED CITATIONS . Miles.jstor. Meyer.0. 3.Page 2 of 2 - Organizational Strategy. 546-562. and Process Raymond E. Alan D. 3. Snow. Stable URL: http://links. No. Charles C. Vol. The Academy of Management Review.. pp. (Jul.

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