Business strategy and HRM

Strategy

About organisational strategy

Before we can find and evaluate links between the two, we need to define the term
strategy. Johnson and Scholes (2010, p.3) define strategy as follows:
"Strategy is the direction and scope of an organisation over the long-term: which
achieves advantage for the organisation through its configuration of resources within
a challenging environment, to meet the needs of markets and to fulfil
stakeholder expectations".

In other words organisational strategy is all about creating and sustaining an

advantage over competitors with the resources availiable. Now the question is, how
can an organisation’s human resources help create that competitive advantage?

Organisational strategy and HRM

“Human Resource Management (HRM) is now often seen as the major factor
differentiating from successful and unsuccessful organisations, more important than
technology or finance in achieving competitive advantage” (Marchington &
Wilkinson, 2005, p.3)

Strategic human resource management (SHRM) is a view that emphazises the

importance of the link beween business strategy and HRM. There is a wide set of
definitions for SHRM and Bratton and Gold (2003, p.37) defines it as “the process of
linking the human resource function with the strategic objectives of the organization
in order to improve performance”.

Theoretical approaches
There are three main theoretical approches in contemporary literature to assist
organisations in the forming of an HR strategy. They all give different views on how
to best use your human resources to support the overall strategy and increase
performance. (Torrington, Hall, Taylor, 2008, p.35)

Best practice

Best practice or universalistic perspective suggests that there is one universal or best
set of HR practices that all organisations should follow to increase performance. The
best known set is the one of Pfeffer, who has come up with a set of 7 best practices:
(Armstrong, 2008, p.40)

 Employment security

 Selective hiring

 Self-managed teams

 High compensation contingent on performance

  Training to provide a skilled and motivated work force

 Reduction of status differentials

 Sharing information

Best fit

The other widely spread perspective is the “best fit”, where HR strategies are
consistent with the overall business strategy in order to create a “fit”. The HR
strategies will differ depending on what competitive strategy the organisation uses.
Thus enabling vertical integration, which is at the core of many HRM models.
(Beardwell, Claydon, 2007, p.44-46) However, research in both perspectives shows
empirical evicence so the debate continues about what way is the best.(Torrington,
Hall, Taylor, 2008, p.23)

Resource-based view

The third perspective is the resource-based view, which is a more recent approach that
emphazises that employees are key strategic assets (Beardwell, Claydon, 2007, p.52).
Futhermore it’s concerned with the relationships between internal resources, strategy
and business performance. The focus is not just on the behaviour of the human
resources, but on the skills, knowledge, attitudes and competencies that underpin this
and has more sustained impact than current behaviour (Torrington, Hall, Taylor,
2008, p.43). However, Stiles and Kulvisaechana argue that this is not enough to
achieve competetive advantage, but organisations must also possess strong social and
organisational capital to do so (Stiles and Kulvisaechana cited in Gunnigle, 2006,
p.62). In addition, in order for a resource to result in sustained competitive advantage,
it must meet four criteria: (Barney cited in Torrington, Hall, Taylor, 2008, p.43)

 Valuable – matching competences with job requirements

 Rarity – find the right people with the right abilities for the future

 Inimitable – difficult for competitors to imitate

 Non-substitutable – human resources does not become obsolete like

technology

This is the view Google has adapted and undoubtedly made it’s trademark. Googles
director of people operations Liane Hornsey to emphasises this in an interviw.

She explains that Google’s philosophy is hiring by consensus, or ‘360-degree hiring’.

This is a method where applicants gets interviewed numerous times by not only the
line manager, but also future peers as well as people who the applicant might be
managing in the future. This of course, means spending huge amount of resources and
time on hiring, but Google belives that this is the key to finding the right person for
the position. She also says that if the work-environment is full of innovative
employees that are happy to work in teams and share knowledge, the rest will take
care of itself. (meettheboss.com, no date)

HR Metrics

If you can’t measure it, you can’t manage it, is a well-known quote in organisational
strategy. Dessler (2010, p.44) emphasises that the human resource manager needs to
be able to “speak the CFO’s language,” by explaining human resource activities in
financially measurable terms, such as return on investment and cost per unit of
service.
This is why HR metrics are important, because it provides a link between strategy and
HR. HR metrics are performance measures of how well human resource activities are
accomplishing HR-objectives linked to organisational objectives (Diamond edge,
2010).
To keep track of this, today’s managers use tools like the HR or balanced scorecard,
where the can monitor how well employee performance is aligned with key strategic
objectives (Dessler, 2010, p.117-118)

Figure 1.1 (Adapted from The boston consulting group 2008)

The Boston Consulting Group (2008) Creating People Advantage: How to Address
HR Challenges Worldwide Through 2015. Availiable at:
http://www.ccarh.ca/uploadedFiles/Content_-
_Primary/Creating_People_Advantage_ES_April_2008.pdf (Accessed: 12 December
2010)
Meettheboss.com (no date). Liane Hornsey: The Full Interview. Availiable at:
http://www.meettheboss.tv/broadcast/?contributorFullName=liane-
hornsey&mediaTitle=liane-hornsey-the-full-
interview&mediaFileId=1019&chapterSeek=0 (Accessed: 16 December 2010)

Diamond Edge (2010) Human Resource Metrics Measure Contribution of HR

to Financial Outcomes. Available at http://www.strategic-human-
resource.com/human-resource-metrics.html (Accessed 16 December 2010).

Armstrong, M. (2008) Strategic human resource management : a guide to action. 4th

edn. London: Kogan Page Ltd.

Beardwell, J. and Claydon, T. (eds.) (2007) Human resource management : a

contemporary approach. 5th edn. Harlow: Pearson Education.

Bratton, J. and Gold, J. (2003) Human resource management: theory and practice.

3rd edition London: Macmillan Education.

Dessler, G. (2010) Human resource management. 12th edn. Upper Saddle River, NJ:
Pearson Education.

Johnson, G., Scholes, K. and Whittington, R. (2008) Exploring corporate strategy.

8th edn. Harlow: Pearson Education.

Marchington, M and Wilkinson, A 2005, “Human resource management: people

management and development. 3rd ed. CIPD (Chartered Institute of Personnel and
Development), London.

Torrington, D., Hall, L. and Taylor, S. (2008) Human resource management. 7th edn.
Harlow: Pearson Education.

Bibliography

Ulrich Dave (1997) Human resource champions: the next agenda for adding value
and delivering results. Harvard Business School Press. Boston.

Wright P, McMahan G, McWilliams A. “Human resources and sustained competitive

advantage: a resource-based perspective” International Journal of Human Resource
Management. Business Source Complete (Online). (Accessed: December 13 2010)