Strategic Human Resource Management

chapter two
Strategic human resource

management
John Bratton
If a global company is to function successfully, strategies at different levels need to

inter-relate.1
Throughout the first half of our century and even into the early eighties, planning –
with its inevitable companion, strategy – has always been a key word, the core, the
near-ultimate weapon of ‘good’ and ‘true’ management. Yet, many firms, including
Sony, Xerox, Texas Instruments, …have been remarkably successful… with minimal
official, rational, and systematic planning.2
Chapter outline
Introduction p. 38
Strategic management p. 38
Hierarchy of strategy p. 42
Strategic human resource management p. 46
HRM and organizational performance p. 60
Chapter objectives
After studying this chapter, you should be able to:
1. Explain the meaning of strategic management and give an overview of its con-
ceptual framework.
2. Describe the three levels of strategy formulation and comment on the links
between business strategy and human resource management.
3. Explain the two models of strategic HRM, the matching model and the resource-
based model.
4. Comment on the various strategic HRM themes of re-engineering, workplace
learning, trade unions and leadership.
5. Explain the methodological difficulties of measuring the link between HRM prac-
tices and organizational performance.
38 The Nature of Human Resource Management
Introduction
In th e first ch ap ter we exam in ed th e th eoretical d ebates on th e n atu re an d sign ifi-

can ce of th e n ew HRM m od el, in th is ch ap ter we exp lore variou s strategic issu es asso-
ciated with HRM. Ju st as th e n ew HRM m od el is con tested , so too is th e n otion of
strategy. So before we look at som e of th e issu es associated with th e strategy–HRM
con cep t, th is ch ap ter first exam in es strategic m an agem en t con cep ts an d fram ework
an d exp lores th e lin ks between bu sin ess strategy an d HRM. Th e secon d p art of th e
ch ap ter con sid ers th e p roblem s associated with th e ‘strategy’ elem en t of th e term
‘strategic HRM’ (SHRM) an d som e issu es associated with strategic HRM. Th e th ird p art
con cen trates on th e HRM–organ ization p erform an ce lin k an d th e p resu m p tion th at
th e workp lace in n ovation s associated with th e n ew HRM m od el actu ally m ake a d if-
feren ce to organ ization al p erform an ce. Th is ch ap ter ad d resses a n u m ber of q u estion s,
som e essen tial to ou r u n d erstan d in g of h ow p ost-in d u strial organ ization s work, wh ich
th e n ew HRM p arad igm raises. How d o ‘big’ corp orate d ecision s im p act on HRM?
Does th e evid en ce su ggest th at firm s ad op tin g a ‘strategic’ HRM ap p roach exp erien ce
su p erior p erform an ce? Th ere is a com m on th em e ru n n in g th rou gh th is ch ap ter; m u ch
of th e acad em ic work p oin ts ou t th at th ere are fu n d am en tal stru ctu ral con strain ts th at
attest to th e com p lexity of im p lem en tin g th e n ew HRM m od el.
Strategic management
Th e wo rd ‘st rat egy’ was first u sed in En glish in 1656 an d co m es fro m t h e Greek
n o u n ‘st rat egu s’, m ean in g ‘co m m an d er in ch ief’. Th e d evelo p m en t an d u sage o f t h e
wo rd su ggest s t h at it is co m p o sed o f stratos (arm y) an d agein (t o lead ) an d in it s m il-
it ary co n t ext m ean s ‘t o p ro d u ce large-scale o p erat io n s’ (Akt o u f, 1996, p . 93). Th e
Oxford Dictionary d efin es st rat egy in t erm s o f ‘gen eralsh ip ’. In a m an agem en t co n -
t ext , t h e wo rd ‘st rat egy’ h as n o w rep laced t h e m o re t rad it io n al t erm , lo n g-t erm
p lan n in g, t o d en o t e an act ivit y t h at t o p m an agers p erfo rm in o rd er t o acco m p lish
Senior management
Environment Resources
Figure 2.1 The three traditional poles of a strategic plan

Source: Adapted from Aktouf, 1996
Strategic human resource management 39
an o rgan izat io n ’s go als. W h eelen an d Hu n ger (1995, p . 3) d efin e st rat egic m an age-
m en t as ‘t h at set o f m an agerial d ecisio n s an d act io n s t h at d et erm in es t h e lo n g-ru n
p erfo rm an ce o f a co rp o rat io n ’. Akt o u f (1996) t akes a sim ilar view wh en h e sees
st rat egy as t h e m ain t en an ce o f a ‘visio n o f t h e fu t u re’ t h at is co n st an t ly u p d at ed by
d at a o n bo t h t h e in t ern al an d t h e ext ern al en viro n m en t . O t h er d efin it io n s em p h a-
size t h e ach ievem en t o f p erfo rm an ce go als: ‘A st rat egy is a sp ecific p at t ern o f d eci-
sio n s an d act io n s t h at m an agers t ake t o ach ieve an o rgan izat io n ’s go als… Fo r m o st
if n o t all o rgan izat io n s, an o verrid in g go al is t o ach ieve su p erio r p erfo rm an ce…
[Th erefo re] a st rat egy can o ft en be d efin ed m o re p recisely as t h e specific pattern of
decisions and actions that m anagers take to achieve superior organizational perform ance’
(Hill an d Jo n es, 1998, p p . 3–4). St rat egic m an agem en t is co n sid ered a co n t in u o u s
act ivit y, u n d ert aken by t h e u p p er ech elo n o f t h e o rgan izat io n , t h at req u ires co n -
st an t ad ju st m en t o f t h ree m ajo r in t erd ep en d en t p o les: t h e valu es o f sen io r m an age-
m en t , t h e en viro n m en t , an d t h e reso u rces available (see Figu re 2.1). St rat egic
m an agem en t em p h asizes t h e n ecessit y t o m o n it o r an d evalu at e en viro n m en t al
o p p o rt u n it ies an d t h reat s in t h e ligh t o f an o rgan izat io n ’s st ren gt h s an d weak-
n esses. Hen ce, an y ch an ges in t h e en viro n m en t an d t h e in t ern al an d ext ern al
reso u rces m u st be m o n it o red clo sely so t h at t h e go als p u rsu ed can , if n ecessary, be
ad ju st ed . Th e go als sh o u ld be flexible an d o p en t o am en d m en t , su bject t o t h e
d em an d s an d co n st rain t s o f t h e en viro n m en t an d wh at t akes p lace in t h e st at u s o f
t h e reso u rces.
M odel of strategic management
We are th e blin d p eop le an d strategy form ation is ou r elep h an t. Sin ce n o on e h as h ad

th e vision to see th e en tire beast, everyon e h as grabbed h old of som e p art or oth er an d
‘railed on in u tter ign oran ce’ abou t th e rest (Min tzberg et al., 1998).
HRM in practice 2.1
Japanese forced into HR strategy rethink

Japanese companies based in the UK are reforming local workplace
practices to stay ahead in the global economy
BY JEN N IE WALSH People M anagem ent
Jap an ese em p loym en t m eth od s an ese com p an ies based in th e t ices su ch as t o t al q u alit y
m ay h ave revolu tion ised organ - UK, reveals th at m an y are grap - m an agem en t an d con tin u ou s
isation s in th e 1970s an d 80s, p lin g with th e con flict between im p rovem en t, h as p rovided sig-
b u t t h e d em an d s o f t o d ay’s corp orate valu es an d cu ltu re, n ifican t com p etitive advan tages
glo b al m arket s are fo rcin g a an d th e n eed to d evelop an em - in th e p ast, bu t m ay n o lon ger
ret h in k, acco rd in g t o a n ew p loym en t m od el for th e fu tu re. b e en o u gh to b eat o ff
rep ort by Arth u r An d ersen . Op eration efficien cy – Jap an - com p etition , accordin g to th e
Th e rep ort, wh ich focu ses on ese in d u st ry’s raison d’etre – rep ort.
th e p erson n el p ractices of Jap - ach ieved by p ion eerin g p rac- Jap an ese firm s are n ow h av-
in g to focu s on d evelop in g an d work in all areas an d get to tion s – th e m ost sen ior p osition
ret rain in g lo cal em p lo yees, kn ow about every aspect of th e a Eu rop ean execu tive h as ever
m o vin g fro m sen io rit y-b ased busin ess,’ said Robert Hodkin - ach ieved in a Jap an ese fin an cial
p ay to p erform an ce-related an d son , auth or of th e report. ‘But in stitu tion .
locally set p ay, an d im p lem en t- th at can h in der creativity an d ‘Nikko is very m u ch a Jap an -
in g m ore effective ap p raisal an d th ere is n ow a recogn ition of th e ese co m p an y,’ a sp o kesm an
com m u n ication system s. n eed to ch an ge. On th e wh ole, said . ‘Bu t to p rovid e th e best
Alm ost h alf of th ose su rveyed th ere h as been a ten den cy to level of service to ou r Eu rop ean
d id n ot h ave a d efin ed grad in g im itate rath er th an in n ovate.’ clien t s we h ave t o reco gn ise
stru ctu re, an d th e m ajority of th at lan gu age an d cu ltu ral d if-
t h ese d id n o t h ave an HR feren ces exist, an d so we h ave
Th ere is still a ten den cy
d ep artm en t. Th ere is still a ten - join t Eu ro-Jap an ese p erson n el
d en cy for h ead offices in Jap an
fo r h ead o ffices in at sen ior levels.’
to d ictate or sign ifican tly in flu - Japan to dictate o r Mark Hu t ch in gs, p erso n n el
en ce th e level of p ay an d ben e- sign ifican tly in fluen ce m an ager at San yo Elect ric,
fits for UK em p loyees. th e level o f pay an d p o in t ed t o Nissan ’s early
Man y com p an ies are u n will- ben efits fo r UK ap p ro ach t o em p lo yin g lo cal
in g to rep lace existin g job titles em plo yees. n ation als as key to its su ccess.
becau se th is m igh t ‘u p set trad i- ‘Nissan gave local n ation als a
t io n al st ru ct u res an d h ierarch an ce to m an age im m ed iately.
ch ies’, alt h o u gh t h ere is a Nikko Secu rities, th e Jap an ese Th e p roblem s exp erien ced by
st ro n g co n sen su s ab o u t t h e secu rit ies h o u se, recen t ly o t h er Jap an ese co m p an ies,
n eed to rem ove ‘glass ceilin gs’ an n ou n ced th at Lon d on is takin clu d in g San yo, were largely
fo r lo cal st aff an d an acu t e in g o ver fro m To kyo as t h e becau se we d id n ’t d o th at. Su c-
awaren ess of eq u al op p ortu n i- h ead q u art ers o f it s in t ern a- cess d oes seem to be m easu ra-
ties issu es. tion al op eration s. It h as also ble by th e exten t to wh ich local
‘Th ere is a tradition of lifetim e in stalled Mich el d e Carvalh o as n ation als are in volved in m an -
em ploym en t, wh ere em ployees h ead o f in t ern at io n al o p era- agem en t.’
In th e d escrip tive an d p rescrip tive m an agem en t texts, strategic m an agem en t ap p ears

as a cycle in wh ich several even ts follow an d feed u p on on e an oth er. Th e strategic
m an agem en t p rocess is typ ically broken d own in to five even ts or step s:
1. organ ization ’s d irection

2. en viron m en tal an alysis
3. strategy form u lation
4. strategy im p lem en tation
5. strategy evalu ation .
Figu re 2.2 illu strates h ow th e five even ts or step s follow an d in teract. At th e corp orate
level, th e strategic m an agem en t p rocess in clu d es activities th at ran ge from ap p raisin g
th e organ ization ’s cu rren t m ission an d goals to strategic evalu ation .
STEP 1 M ission and Goals

Management philosophy
Values
STEP 2 Environmental Analysis

Internal scan
External scan
STEP 3 Strategic Formulation

Strategic choice
Corporate
Business
Functional
STEP 4 Strategy Implementation

Leadership
Structure
Control systems
Human resources
STEP 5 Strategic Evaluation

Operating performance
Financial performance
Figure 2.2 The strategic management model
Th e first step in th e strategic m an agem en t m od el begin s with sen ior m an agers

evalu atin g th eir p osition in relation to th e organ ization ’s cu rren t m issio n an d go als.
Th e m ission d escribes th e organ ization ’s valu es an d asp iration s. It is th e organ iza-
tion ’s raison d’être, an d in d icates th e d irection sen ior m an agem en t is goin g. A goal is
a d esired fu tu re state th at th e organ ization attem p ts to realize (Daft, 1998, p . 46).
En viro n m en tal an alysis looks at th e in tern al organ ization al stren gth s an d weak-
n esses an d th e extern al en viron m en t for op p ortu n ities an d th reats. Th e factors th at
are m ost im p ortan t to th e organ ization ’s fu tu re are referred to as strategic factors an d
are su m m arized with th e acron ym SW OT, m ean in g Stren gth s, Weakn esses, Op p or-
tu n ities an d Th reats. Strategic fo rm ulatio n in volves sen ior m an agers evalu atin g th e
in teraction of strategic factors an d m akin g strategic choices th at gu id e th e organ -
ization to m eet its goal(s). Som e strategies are form u lated at th e corp orate, bu sin ess,
an d sp ecific fu n ction al level su ch as m arketin g an d HRM. Th e u se of th e term ‘strat-
egic ch oice’ raises th e q u estion of wh o m akes d ecision s in work organ ization s an d
wh y th ey are m ad e (McLou gh lin an d Clark, 1988). Th e n otion of strategic ch oice also

d raws atten tion to strategic m an agem en t as a ‘p olitical p rocess’ wh ereby strategic
ch oices on issu es su ch as resou rces are taken by a ‘p ower-d om in an t’ grou p of sen ior
m an agers with in th e organ ization . Ch ild (1972) affirm s th is in terp retation of th e
d ecision -m akin g p rocess wh en h e writes:
[W ]h en in corp oratin g strategic ch oice in a th eory of organ ization s, on e is recogn izin g

th e op eration of an essen tially p olitical p rocess, in wh ich con strain ts an d op p ortu n ities
are fu n ction s of th e p ower exercised by d ecision -m akers in th e ligh t of id eological val-
u es (Ch ild , 1972 an d q u oted in McLou gh lin an d Clark, 1988, p . 41).
In a p olitical m od el of strategic m an agem en t, it is n ecessary to con sid er th e d istri-

bu tion of p ower with in th e organ ization . Accord in g to Pu rcell an d Ah lstran d (1994),
we m u st con sid er ‘wh ere p ower lies, h ow it com es to be th ere, an d h ow th e ou tcom e
of com p etin g p ower p lays an d coalition s with in sen ior m an agem en t are lin ked to
em p loyee relation s’ (p . 45). Th e strategic ch oice p ersp ective on organ ization al d eci-
sion m akin g m akes th e d iscou rse on strategy ‘m ore con crete’; it also p rovid es im p or-
tan t in sigh ts in to h ow th e em p loym en t relation sh ip is m an aged .
Strategy im plem en tatio n is an area of activity th at focu ses on th e tech n iq u es u sed
by m an agers to im p lem en t th eir strategies. In p articu lar, it refers to activities wh ich
d eal with lead ersh ip style th at is com p atible to th e strategies, th e stru ctu re of th e
organ ization , th e in form ation an d con trol system s, an d th e m an agem en t of h u m an
resou rces. Lead in g m an agem en t con su ltan ts an d acad em ics (see Ch am p y, 1996; Kot-
ter, 1996) em p h asize stron gly th at lead ersh ip is th e m ost im p ortan t an d d ifficu lt p art
of th e strategic im p lem en tation p rocess. Strategy evaluatio n is an activity in th e
strategic m an agem en t p rocess th at d eterm in es to wh at exten t actu al ch an ge an d p er-
form an ce m atch es d esired ch an ge an d p erform an ce. Th e strategic m an agem en t m od el
d ep icts th e five m ain activities u n d ertaken by sen ior m an agers as a ration al an d lin ear
p rocess. However, it is im p ortan t to n ote th at it is a norm ative m od el. Th at is, it sh ows
h ow strategic m an agem en t should be d on e an d h en ce influences m an agerial p rocesses
an d p ractices, rath er th an d escribes wh at is actu ally d on e by sen ior m an agers (W h ee-
len an d Hu n ger, 1995). As we h ave alread y n oted , th e n otion th at strategic d ecision
m akin g is a p olitical p rocess im p lies a p oten tial gap between th e th eoretical m od el
an d reality.
Hierarchy of strategy
An o t h er asp ect o f st rat egic m an agem en t in th e m u ltid ivision al bu sin ess organ iza-
t io n co n cern s t h e o rgan ization al level to wh ich strategic issu es ap p ly. Con ven tion al
wisd o m id en tifies d ifferen t levels of strategy: (1) corp orate, (2) bu sin ess, an d (3)
fu n ct io n al (see Figu re 2.3). Th ese th ree levels of strategy form a h ierarch y of strategy
wit h in a large co rp o rat io n . In d ifferen t com p an ies th e sp ecific op eration of th e h ier-
arch y o f st rat egy m igh t vary between ‘top -d own ’ an d ‘bottom -u p ’ strategic p lan n in g
Th e t o p -d o wn ap p ro ach resem bles a ‘cascad e’, wh ere th e ‘d own stream ’ strategic
d ecisio n s are d ep en d en t on h igh er ‘u p stream ’ strategic d ecision s (W h eelen an d
Hu n ger, (1995).
Co rpo rate-level strategy d escribes a corp oration ’s overall d irection in term s of its
gen eral p h ilosop h y toward s growth an d th e m an agem en t of its variou s bu sin ess u n its.
Su ch strategies d eterm in e th e typ e of bu sin esses a corp oration wan ts to be in an d

wh at bu sin ess u n its sh ou ld be acq u ired , m od ified or sold . Th is strategy ad d resses th e
q u estion what business are we in? Devisin g a strategy for a m u ltid ivision al com p an y
in volves at least fou r typ es of in itiatives:
Establish in g in vestm en t p riorities an d steerin g corp orate resou rces in to th e m ost

attractive bu sin ess u n its.
In itiatin g action s to im p rove th e com bin ed p erform an ce of th ose bu sin ess u n its
th at th e corp oration first got in to.
Fin d in g ways to im p rove th e syn ergy am on g related bu sin ess u n its in ord er to
in crease p erform an ce.
Decision s d ealin g with d iversification .
Busin ess-level strategy deals with decision s an d action s p ertain in g to each bu sin ess
u n it. Th e m ain objective of a bu sin ess-level strategy is to m ake th e u n it m ore com p et-
itive in its m arketp lace. Th is level of strategy addresses th e q u estion how do we com pete?
Alth ou gh bu sin ess-level strategy is gu ided by ‘u p stream ’ corp orate-level strategy, bu si-
n ess u n it m an agem en t m u st craft a strategy th at is ap p rop riate for th eir own op eratin g
situ ation . In th e 1970s, Mich ael Porter (1980) m ade a sign ifican t con tribu tion to ou r
u n derstan din g of bu sin ess strategy by form u latin g a fram ework th at describes th ree
com p etitive strategies: low-cost leadersh ip strategy, differen tiation strategy, an d focu s
strategy. Th e low-cost leadersh ip strategy attem p ts to in crease th e organ ization ’s m ar-
ket sh are by em p h asizin g low u n it cost com p ared to com p etitors. In a differen tiation
com p etitive strategy, m an agers try to distin gu ish th eir services an d p rodu cts – su ch as
bran d im age or q u ality – from oth ers in th e in du stry. With th e focu s com p etitive strat-
egy, m an agers focu s on a sp ecific bu yer grou p or region al m arket.
Miles an d Sn ow (1984) also m ade an im p ortan t con tribu tion to th e strategic m an -
agem en t literatu re. Th ese au th ors iden tified fou r m odes of strategic orien tation s:
defen ders, p rosp ectors, an alysers, an d reactors. Defen ders are com p an ies with a lim -
ited p rodu ct lin e an d th e m an agem en t focu s on im p rovin g th e efficien cy of th eir exist-
in g op eration s. Com m itm en t to th is cost orien tation m akes sen ior m an agers u n likely
to in n ovate in n ew areas. Pro specto rs are com p an ies with fairly broad p rodu ct lin es
t h at fo cu s o n p ro d u ct in n o vat io n an d m arket o p p o rt u n it ies. Th is sales
orien tation m akes sen ior m an agers em p h asize ‘creativity over efficien cy’. An alysers
are com p an ies th at op erate in at least two differen t p rodu ct m arket areas, on e stable
an d on e variable. In th is situ ation sen ior m an agers em p h asize efficien cy in th e stable
areas an d in n ovation in th e variable areas. Reacto rs are com p an ies th at lack a con sis-
ten t strategy–stru ctu re–cu ltu re relation sh ip . Th u s, in th is reactive orien tation , sen ior
m an agem en t’s resp on ses to en viron m en tal ch an ges an d p ressu res ten d to be p iecem eal
strategic adju stm en ts. Accordin g to Miles an d Sn ow, com p etin g com p an ies with in a
sin gle in du stry can ch oose an y on e of th ese fou r m odes or typ es of strategies an d adop t
a corresp on din g com bin ation of stru ctu re, cu ltu re, an d p rocesses con sisten t with th at
strategy in resp on se to th e en viron m en t. Th ese strategic ch oices h elp exp lain wh y
com p an ies facin g sim ilar en viron m en tal th reats or op p ortu n ities beh ave differen tly
an d wh y th ey con tin u e to do so over a lon g p eriod of tim e (W h eelen an d Hu n ger,
1995). In tu rn , th e differen t com p etitive or bu sin ess strategies in flu en ce th e ‘down -
stream ’ fu n ction al strategies.
Fun ctio n al-level strategy p ertain s to th e m ajor fu n ction al op eration s with in th e
bu sin ess u n it, in clu d in g research an d d evelop m en t, m arketin g, m an u factu rin g,
fin an ce, an d h u m an resou rces. Typ ically, th is strategy level is p rim arily con cern ed
with m axim izin g resou rce p rod u ctivity an d ad d resses th e q u estion how do we support
the business-level com petitive strategy? Th e th ree levels of strategy – corp orate, bu sin ess,
an d fu n ction al – form a h ierarch y of strategy with in a large m u ltid ivision al corp ora-
tion . Strategic m an agem en t literatu re em p h asizes th at th e strategies at d ifferen t lev-
els m u st be fu lly in tegrated . Th e n eed for in tegration h as been exp lain ed like th is:
If a global com p an y is to fu n ction su ccessfu lly, strategies at d ifferen t levels n eed to in ter-
relate. Th e strategy at corp orate level m u st bu ild u p on th e strategies at th e lower levels
in th e h ierarch y. However, at th e sam e tim e, all p arts of th e bu sin ess h ave to work to
accom m od ate th e overrid in g corp orate goals (F.A. Maljers, Ch airm an of th e Board of
Un ilever, an d q u oted by W h eelen an d Hu n ger, 1995, p . 20).
CONTEXTUAL
FACTORS
Corporate-level strategy
Product market Corporate management
What business are we in?
Capital market
Labour market
Business-level strategy
Business Business Business
Technology Unit 1 Unit 2 Unit 3
How do we compete?
Government
policies
EU policies
NAFTA Functional-level
policies strategy
Human Manu-
R& D Marketing Finance
resources facturing
How do we support
Stakeholder the business-level
interests strategy?
HRM : philosophy, policies, programs, practices,

processes, relationships with managers, non-managers,
trade unions, customers and suppliers
Figure 2.3 Hierarchy of strategic decision making

Business-level strategy and HRM

Strategic m an agem en t texts em p h asize th at each level of strategy form s th e strategic
en viron m en t of th e n ext level in th e corp oration . At th e fu n ction al level, h u m an
resou rce m an agem en t strategy is im p lem en ted to facilitate th e bu sin ess strategy
goals. An HR strategy can be d efin ed as ‘Th e p attern th at em erges from a stream of
im p ortan t d ecision s abou t th e m an agem en t of h u m an resou rces, esp ecially th ose
d ecision s th at in d icate m an agem en t’s m ajor goals an d th e m ean s th at are (or will be)
u sed to p u rsu e th em ’ (Dyer, 1984, p . 159). Dyer’s d efin ition d raws atten tion to th e
d yn am ic n atu re of strategy becau se strategy is con ceived as a p attern in a stream of
d ecision m akin g (Boxall, 1992). HRM strategy is closely lin ked to bu sin ess strategy.
Th e n atu re of th e lin ks between HRM strategy an d bu sin ess strategy h as received
m u ch atten tion in th e literatu re. A ran ge of bu sin ess–HRM lin ks h ave been id en tified
an d classified in term s of a p roactive–reactive con tin u u m (Kyd d an d Op p en h eim ,
1990), an d in term s of en viron m en t–h u m an resou rce strategy–bu sin ess strategy lin k-
ages (Bam berger an d Ph illip s, 1991). In th e ‘p roactive’ orien tation , th e HRM p rofes-
sion al h as a seat at th e strategic table an d h e or sh e is actively en gaged in strategy
form u lation . In Figu re 2.3, th is typ e of p roactive m od el is d ep icted by th e two-way
arrows on th e righ t-h an d sid e sh owin g both d own ward an d upward in flu en ce on
strategy. At th e oth er en d of th e con tin u u m is th e ‘reactive’ orien tation , wh ich sees
th e HRM fu n ction as fu lly su bservien t to corp orate an d bu sin ess-level strategy, an d
corp orate an d bu sin ess-level strategies u ltim ately d eterm in in g HRM p olicies an d
p ractices. On ce th e bu sin ess strategy is d eterm in ed , with ou t th e in volvem en t of th e
HRM p rofession al, HRM p olicies an d p ractices are im p lem en ted to su p p ort th e ch o-
sen com p etitive strategy. Th is typ e of reactive orien tation wou ld be d ep icted in Fig-
u re 2.2 by a one-way downwards arrow from bu sin ess to fu n ction al-level strategy. In
th is sen se th e p ractice of strategic HRM is con cern ed with th e ch allen ge of m atch in g
th e p h ilosop h y, p olicies, p rogram s, p ractices an d p rocess, th e ‘five Ps’, in a way
wh ich will stim u late an d rein force d ifferen t em p loyee role beh aviou rs ap p rop riate
for each com p etitive strategy (Sch u ler, 1989).
Th e im p ortan ce of th e en viron m en t as a d eterm in an t of HRM p olicies an d p rac-
tices h as been in corp orated in to som e m od els. Exten d in g strategic m an agem en t con -
cep ts, Bam berger an d Ph illip s’ (1991) m od el d ep icts lin ks between th ree p oles: th e
en viron m en t, h u m an resou rce strategy an d th e bu sin ess strategy (see Figu re 2.4). In
Human resource strategy
Environmental influences Business strategy
Figure 2.4 Environment as a mediating variable for HRM strategies

Source: Bamberger and Phillips, 1991
th e h ierarch y of th e strategic d ecision -m akin g m od el, th e HRM strategy is in flu en ced

by con textu al variables su ch as m arkets, tech n ology, n ation al govern m en t p olicies,
EU p olicies an d trad e u n ion s. Pu rcell an d Ah lstran d (1994) argu e th at th ose m od els
th at in corp orate con textu al in flu en ces as a m ed iatin g variable of HRM p olicies an d
p ractices ten d to lack ‘p recision an d d etail’ of th e p recise n atu re of th e en viron m en t
lin kages an d ‘m u ch of th e work on th e lin kages h as been d evelop ed at an abstract an d
h igh ly gen eralized level’ (p . 36).
In th e late 1980s, Joh n Pu rcell m ad e a sign ifican t con tribu tion to research on bu si-
n ess HRM strategy. Drawin g on th e literatu re on ‘strategic ch oice’ in in d u strial rela-
tion s (for exam p le Th u rley an d Wood , 1983; Koch an et al., 1986) an d u sin g th e n otion
of a h ierarch y of strategy, Pu rcell (1989) id en tifies wh at h e labels ‘u p stream ’ an d
‘d o wn st ream ’ t yp es o f st rat egic d ecisio n s. ‘Up st ream ’ o r ‘first -o rd er’, st rat egic
d ecision s are con cern ed with th e lon g-term d irection of th e corp oration . If a first-
ord er d ecision is m ad e to take over an oth er en terp rise, for exam p le, a Fren ch com -
p an y acq u irin g a water com p an y in sou th ern En glan d , a secon d set of con sid eration s
ap p ly con cern in g th e exten t to wh ich th e n ew op eration is to be in tegrated with or
sep arate from existin g op eration s. Th ese are classified as ‘d own stream ’ or ‘secon d -
ord er’, strategic d ecision s. Differen t HRM ap p roach es are called ‘th ird -ord er’ strategic
d ecision s becau se th ey establish th e basic p aram eters of labou r m an agem en t in th e
workp lace. In th eory, wrote Pu rcell, ‘strategy in h u m an resou rces m an agem en t is
d eterm in ed in th e con text of first-ord er, lon g-ru n d ecision s on th e d irection an d scop e
of th e firm ’s activities an d p u rp ose… an d secon d -ord er d ecision s on th e stru ctu re of
th e firm ’ (1989, p . 71). In a m ajor stu d y of HRM in m u ltid ivision al com p an ies Pu rcell
an d Ah lstran d (1994) argu e th at wh at actu ally d eterm in es h u m an resou rce m an age-
m en t p olicies an d p ractices will be d eterm in ed by d ecision s at all th ree levels an d by
th e ability an d lead ersh ip style of local m an agers to follow th rou gh goals in th e con -
text of sp ecific en viron m en tal con d ition s. Case stu d y an alysis h as h igh ligh ted th e
p roblem atic n atu re of strategic ch oice m od el bu ild in g. Collin g (1995) em p h asized
th at th e con cep tion of strategic ch oice exaggerates th e ability of organ ization s to
m ake d ecision s in d ep en d en t of en viron m en tal con texts in wh ich th ey d o bu sin ess.
Fu rth er, th e n otion th at a h igh -wage an d em p owerin g HRM strategy follows from an
‘ad d ed -valu e’ com p etitive strategy is m ore p roblem atic in p ractice: ‘ad d ed -valu e
strategies d o n ot p reclu d e or p reven t th e u se of m an agerial con trol over em p loyees…
[an d ] few com p an ies are able to op eration alise ad d ed -valu e p rogram m es with ou t cost-
con strain ts an d even fewer can d o so for very lon g’ (1995, p . 29). Mu ch of th e strat-
egic h u m an resou rce m an agem en t (SHRM) literatu re h as focu sed on two asp ects of th e
strategy d ebate, th e in tegration or ‘fit’ of h u m an resou rce m an agem en t strategy with
bu sin ess strategy an d th e ‘resource-based’ m od el of strategic HRM. Th e n ext section
takes a critical look at th ese in flu en tial SHRM m od els.
Strategic human resource management
Alth ou gh th e roots of th e strategic literatu re on HRM are in ‘m an p ower’ [sic] p lan -

n in g, it is th e n orm ative HRM m od els d evelop ed in th e 1980s th at m ad e th e strategic
con cep t cen tral to research p rod u ctivity in th is area (Cap p elli an d Sin gh , 1992). In th e
1980s, sch olars attach ed th e p refix ‘strategy’ to th e term h u m an resou rce m an age-
m en t an d th e n otion of ‘strategic in tegration ’ becam e p rom in en t in th e HRM litera-
tu re. In terest am on g p ractition ers in lin kin g th e strategy con cep t to HRM can be
exp lain ed by th e p ressu re to en h an ce th e statu s of HRM p rofession als with in com p a-

n ies (Pu rcell an d Ah lstran d , 1994) at a tim e wh en ‘re-en gin eerin g’ is q u estion in g th e
n eed for HRM sp ecialists in a ‘flatter’ organ ization al stru ctu re.
On e key featu re of Beer et al.’s (1984) m od el of HRM is ‘strategic integration’; in p ar-
ticu lar th e n eed to establish a close two-way relation sh ip or ‘fit’ between th e extern al
bu sin ess strategy an d th e elem en ts of th e in tern al HR strategy: ‘An organ ization ’s
HRM p olicies an d p ractices m u st fit with its strategy in its com p etitive en viron m en t
an d with th e im m ed iate bu sin ess con d ition s th at it faces’ em p h asize Beer et al. (1984,
p . 25). Drawin g u p on Beer et al.’s an alytical fram ework, Gu est p osits th at typ ically
strategic p lan n in g em p h asizes th e q u an titative asp ects of fin an ce, m arketin g an d p ro-
d u ction an d gives less atten tion to th e q u alitative d im en sion s of th e p ost-in d u strial
organ ization , su ch as valu es, cu ltu re an d p ower. Con seq u en tly, th e im p lem en tation s
of strategic bu sin ess p lan s becom e m ore p roblem atic if th e h u m an resou rces com p o-
n en t is n ot an in tegral p art of th e strategic p lan n in g p rocess:
Becau se th ey are th e m ost variable, an d th e least easy to u n d erstan d an d con trol of all
m an agem en t resou rces, effective u tilization of h u m an resou rces is likely to give organ i-
zation s a sign ifican t com p etitive ad van tage. Th e h u m an resou rce d im en sion m u st
th erefore be fu lly in tegrated in to th e strategic p lan n in g p rocess (Gu est, 1987, p . 512).
Th e con cep t of in tegration h as th ree oth er asp ects: th e in tegration or ‘coh esion ’ of
HR p olicies an d p ractices in ord er to com p lem en t each oth er an d to h elp ach ieve
strategic goals, th e in tern alization of th e im p ortan ce of HR on th e p art of lin e m an -
agers an d , th ird , th e in tegration of all workers in to th e bu sin ess to foster com m itm en t
or an ‘id en tity of in terest’ with th eir organ ization . Th e basic p rop osition d evelop ed
h ere is th at if th ese form s of in tegration are im p lem en ted , workers will be m ore coop -
erative, flexible an d willin g to accep t ch an ge, an d , th erefore, th e organ ization ’s strate-
gic p lan s are likely to be m ore su ccessfu lly im p lem en ted . In th is section we exam in e
th e n atu re of th e relation sh ip of on e elem en t of in tegration , th e strategic p lan n in g–
HRM lin k. Th is ap p roach to strategic HRM is referred to as th e ‘m atch in g’ m od el. We
also exam in e an altern ative view of strategic HRM; th e ‘resou rce-based ’ m od el.
The matching strategic HRM model

Th e u n d erlyin g p rem ise of th is in flu en tial m od el is th at h igh -wage cou n tries in th e
western h em isp h ere can on ly gain com p etitive ad van tage th rou gh ad op tin g Mich ael
Porter’s (1980, 1985, 1990) gen eric ‘low-cost’ or ‘d ifferen tiation ’ strategy. Fu rth er,
each Porterian com p etitive strategy in volves a u n iq u e set of resp on ses from workers
or ‘n eed ed role beh aviou rs’ an d a p articu lar HRM strategy th at m igh t gen erate an d
rein force a u n iq u e p attern of beh aviou r (Sch u ler an d Jackson , 1987; Cap p elli an d
Sin gh , 1992). Th u s, th e p ractice of strategic HRM is con cern ed with th e ch allen ge of
m atch in g th e p h ilosop h y, p olicies, p rogram s, p ractices an d p rocess, th e ‘five Ps’ (see
Figu re 2.3), in a way wh ich will stim u late an d rein force d ifferen t em p loyee role
beh aviou rs ap p rop riate for each com p etitive strategy (Sch u ler, 1989). Sim ilarly, each
typ e of Miles an d Sn ow’s (1984) com p etitive strategies – ‘d efen d er’, ‘p rosp ector’ an d
‘an alyser’ – will req u ire th at an organ ization ’s HRM p olices an d p ractices sh ou ld be
con figu red an d m an aged in a way th at is con gru en t with each p articu lar strategy.
Th e p u blication of Fom bru n et al.’s Strategic Hum an Resource Managem ent (1984)
gen erated early in terest in th e ‘m atch in g’ m od el. Devan n a et al.’s fram ework ch ap ter
in th is book argu ed th at ‘HR system s an d organ ization al stru ctu re sh ou ld be m an aged

in a way th at is con gru en t with organ ization al strategy (p . 37). Th is is sim ilar to Ch an -
d ler’s (1962) d istin ction between strategy an d stru ctu re an d h is often q u oted m axim
th at stru ctu re follows strategy. In th e Devan n a et al. m od el, h u m an resou rce m an age-
m en t strategy an d stru ctu re follow an d feed u p on on e an oth er an d are in flu en ced by
en viron m en tal forces (Figu re 2.5). Th is basic m od el con stitu ted th e ‘bare bon es of a
th eory’ on SHRM (Boxall, 1992).
Th e n otion of ‘fit’ between an extern al com p etitive strategy an d th e in tern al HRM
strategy is a cen tral ten et of th e HRM m od el ad van ced by Beer et al. (see Figu re 1.3).
Th e au th ors em p h asize th e an alysis of th e lin kages between th e two strategies an d
h ow each strategy p rovid es goals an d con strain ts for th e oth er. Th ere m u st be a ‘fit
between com p etitive strategy an d in tern al HRM strategy an d a fit am on g th e elem en ts
of th e HRM strategy’ (Beer et al., 1984, p . 13). An y in con sisten cy in in tern al HRM
p ractices will likely lead to ‘role con flict an d am bigu ity th at can in terfere with in d i-
vid u al p erform an ce an d organ ization al effectiven ess’ (Sch u ler, 1989, p . 164). Th ere is
som e th eorization of th e lin k between p rod u ct m arkets an d organ ization al d esign an d
ap p roach es to labou r m an agem en t. So, for exam p le, a firm m an u factu rin g large-batch
p rod u cts in a m arket wh ere low cost is critical will, Beer et al. argu e, n eed to d evelop
a d ifferen t ap p roach to m an agin g its workforce th an a firm m an u factu rin g sm all-
batch , cu stom ized p rod u cts wh ere q u ality is a key su ccess factor. HRM is seen to be
‘strategic by virtu e of its align m en t with bu sin ess strategy an d its in tern al con sisten cy’
Political
forces
Economic Cultural
forces M ission forces
and
strategy
Firm
Human
Organisation resource
structure management
Figure 2.5 Devanna et al.’s matching model of strategic HRM

Source: Devanna et al., 1984
(Boxall, 1996). In th e m atch in g m od el, th e relation sh ip between bu sin ess strategy

an d HRM strategy is said to be ‘reactive’ in th e sen se th at HRM strategy is su bservien t
to ‘p rod u ct m arket logic’ an d th e corp orate strategy. Th e latter is assu m ed to be th e
in d ep en d en t variable (Boxall, 1992; Pu rcell an d Ah lstran d , 1994). As Miller (1987)
em p h asizes:
HRM can n ot be con cep tu alized as a stan d -alon e corp orate issu e. Strategically sp eakin g
it m u st flow from an d be d ep en d en t u p on th e organ ization ’s (m arket orien ted ) corp o-
rate strategy (cited in Boxall, 1992, p . 66).
Limitations with the matching model

Th e m atch in g m od el can be critiq u ed both on con cep tu al an d em p irical grou n d s. In
th e first area, th e con cep tu al, th e m atch in g m od el is p red icated u p on th e ration al
view of strategic d ecision m akin g grou n d ed in clearly d efin able p red isp osition s an d
acts of p lan n in g, ch oice an d action . Th at is, th e th ird -ord er or ‘in tern al’ strategy – a
carefu lly p lan n ed ap p roach to h ow p eop le at work are to be d ep loyed , d evelop ed ,
m otivated an d con trolled – is d erived from first-ord er or ‘extern al’ strategy – a ch osen
ap p roach of com p etin g in th e m arketp lace. In oth er word s, it assu m es th at organ iza-
tion al con trollers act ration ally. Bu t, as m an y critical organ ization al th eorists attest,
strategic d ecision s are n ot n ecessarily based on th e ou tp u t of ration al calcu lation . Th e
assu m p tion th at bu sin ess-level strategy an d HRM strategy h as su ch a logical lin ear
relation sh ip is q u estion able given W h ittin gton ’s (1993) work on strategy. His two axes
m od el h as fou r p ersp ectives on strategy – ‘classical’, ‘evolu tion ary’, ‘p rocessu al’, an d
‘system ic’ – th ereby com p licatin g th e n otion of align in g bu sin ess strategy an d HRM
strategy. W h at p ersp ective on strategy is bein g ad op ted wh en writers m ake n orm ative
statem en ts th at HRM sh ou ld ‘fit’ th e bu sin ess strategy? As Legge (1995) em p h asizes,
th e n otion of align in g bu sin ess strategy an d HRM strategy on ly ap p lies to th e ‘classi-
cal’ ap p roach (th e su p rem e goal is p rofitability an d ration al, top -d own strategic p lan -
n in g is th e m ean s to ach ieve it) to strategy. Th u s, th e ‘act of consciously m atch in g
HRM p olicy to bu sin ess strategy is on ly relevan t if on e ad op ts th e ration alistic ‘classi-
cal’ p ersp ective on strategy (p . 103). Th e ‘d ecision p rocess’ m od el an d th e ‘p olitical
p rocess’ m od el ap p ear to p rovid e a m ore fru itfu l ap p roach in to strategic d ecision
m akin g. Prop on en ts of th e two m od els argu e th at m an agerial ration ality is lim ited by
lack of in form ation , tim e an d ‘cogn itive cap acity’ an d , ad d in g to th e m an agem en t
m ilieu , m an agem en t is a h igh ly com p etitive p rocess, in wh ich m an agers fiercely com -
p ete for resou rces, statu s an d p ower. Rath er th an viewin g strategic ch oices as th e ou t-
com e of ration al d ecision m akin g, Joh n son (1987) op in es th at:
Strategic d ecision s are ch aracterized by th e p olitical h u rly-bu rly of organ ization al life
with a h igh in cid en ce of bargain in g, a trad in g off of costs an d ben efits of on e in terest
grou p again st an oth er, all with in a n otable lack of clarity in term s of en viron m en tal
in flu en ces an d objectives (cited in Pu rcell, 1989, p . 72).
A secon d p roblem is with th e p rescrip tive valid ity of th e m od el. Som e HRM th eo-
rists h ave q u estion ed wh eth er th e fit m etap h or is n ecessarily a d esirable goal to
ach ieve. In p eriod s of m arket tu rbu len ce an d fin an cial strin gen cy th ere is a ten d en cy
for corp orate m an agem en t to im p rove p rofitability by d own sizin g, d ecen tralizin g
d ecision m akin g an d ap p lyin g m ore d em an d in g p erform an ce ou tcom es at th e u n it
level. As Pu rcell (1989, 1995) argu es, th is, in tu rn , en cou rages sim ilar tren d s in HRM
an d in d u strial relation s strategies. A m u ltid ivision al com p an y p u rsu in g a strategy of
acq u isition , asset strip p in g, an d d own sizin g m igh t ‘logically’ ad op t a set of HRM strat-
egy th at in clu d es com p u lsory lay-off an d a com p en sation system based on sh ort-term
p erform an ce resu lts. In su ch a case, th e bu sin ess strategy an d HRM strategy m igh t ‘fit’,
bu t as Legge p oin ts ou t, th ese HRM p olicies ‘alth ou gh con sisten t with su ch a bu sin ess
strategy, are u n likely to gen erate em p loyee com m itm en t’ (1995, p . 126). In oth er
word s, ach ievin g th e goal of ‘close fit’ of bu sin ess an d HRM strategy can con trad ict
th e core ‘soft’ HRM goals of com m itm en t, flexibility an d q u ality. Fu rth er, sen ior m an -
agers are p ragm atic an d th e p oten tial for con trad iction s abou n d in th e work aren a.
Work organ ization s m ay ad op t a ‘soft’ version of HRM for wh ite-collar m an agerial
staff, wh ich is con sisten t with its bu sin ess strategy, wh ile sim u ltan eou sly p u rsu in g a
‘h ard ’ version of HRM for blu e-collar workers, wh ich m igh t u n d erm in e th e com m it-
m en t of th e latter.
To fu rth er p u rsu e th e q u estion wh eth er a m atch in g of bu sin ess an d HRM strategies
is n ecessarily d esirable, Boxall (1992, 1996) argu es th at ‘excessive fit’ can be d isad van -
tageou s to gain in g com p etitive ad van tage. It can m ake a com p an y in flexible an d in ca-
p able of ad ap tin g q u ickly to th e extern al en viron m en t: ‘[m an agers] n eed to resp on d
ap p rop riately to a range of com p etitive con d ition s’. He goes on to state th at, ‘Th e fit
m etap h or is an u n fortu n ate on e in an age wh en flexibility an d th e n eed for rap id
learn in g in organ ization s h ave becom e p erceived as su ch m ajor virtu es’ (1992,
p p . 68–9). Fin ally, a close align m en t of HRM p olicies an d p ractices with bu sin ess strat-
egy m igh t be ‘im p ractical’ owin g to th e p erson ality traits of m an agers; it ‘assu m es a
rigid ity of p erson ality an d a stereotyp in g of m an agers th at is u n ten able, as well as an
u n realistic p recision in th e selection p rocess’ (Legge, 1995, p . 127).
A t h ird p ro blem cen t res o n u n d erlyin g st ru ct u ral variables in p ro fit -d riven
econ om ies wh ich seriou sly u n d erm in e th e n otion of strategic in tegration . Pu rcell’s
(1995) work, for exam p le, d em on strates h ow th e im p eratives of th e m arketp lace an d
‘ration al’ m an agerial d ecision s lim it th e ad op tion of th e m atch in g p arad igm . He
argu es th at wh en a fin an cial-con trol m od e of m an agem en t an d sh ort-term in vest-
m en t criterion d om in ates, it ten d s to d rive ou t lon g-term HR in vestm en t at th e work-
p lace an d ‘d estroy’ th e basis of HRM as p art of corp orate strategy. He also n otes th at
m u ltid ivision al com p an ies are n ot m on olith ic; a ran ge of p ossible p attern s of corp o-
rate strategy is p ossible. It is, h owever, worth n otin g th at th e com p an ies ad op tin g a
fin an cial-con trol m od el, ‘su bstan tially ou t-p erform th e in d u stry average’ an d , con se-
q u en tly, are viewed favou rably by th e cap ital m arkets. As th e 1990s con tin u e to be
m arked by sh ort-term fin an cial exp ed ien cies in th e An glo–North Am erican cap ital
m arkets, th is tren d m akes th e ad op tion of n on -econ om ic an d in tan gible valu es ch ar-
acteristic of th e ‘soft’ HRM p arad igm as p art of a corp orate strategy im p robable. Th e
im p lication s of Pu rcell’s (1989) in cisive an alysis of th e in tegration m od el is th at, h ow-
ever in sp ired m an agers m igh t be by th e p rogressive HRM p arad igm , th ere are con tra-
d ictory ‘stru ctu ral ten d en cies’ at work th at will con strain m an agem en t im p lem en tin g
th is m od el. In ad d ition , th e m atch in g m od el is essen tially ‘u n itary’ an d it ten d s to
assu m e th at workers are u n p roblem atic an d will com p ly with m an agem en t’s p ercep -
tion of th e ‘n eed ed role beh aviou rs’. Ad vocates of tigh t fit between bu sin ess an d HRM
strategies ten d to ign ore th e realities of th e workp lace an d th e p ossibility th at workers
an d th eir u n ion s m igh t in flu en ce strategic p lan n in g (Boxall, 1992, 1996).
In th e secon d area for d ebate, th e em p irical, th ere are two related h yp oth eses: th e
first asks wh eth er HRM strategies are in fact related to bu sin ess strategy; th e secon d
q u estion asks wh eth er organ ization s th at m an age to ach ieve a ‘tigh t fit’ actu ally
exp erien ce su p erior p erform an ce. Th e secon d an d m ore ch allen gin g q u estion , we
ad d ress later in th is ch ap ter. As far as th e first em p irical q u estion , it is evid en t th at
both su rvey-based research an d case stu d ies h ave gen erated on ly lim ited em p irical
su p p ort for th e m atch in g p arad igm (Boxall, 1992, 1996; Legge, 1995). Jackson et al.’s
(1989) su rvey stu d y of 267 firm s fou n d som e su p p ort for th e p rop osition th at firm s
p u rsu in g an in n ovative strategy seek to d evelop HRM p ractices for blu e-collar work-
ers th at are ‘broad ly con sisten t with th at th ru st’, bu t th at HRM p ractices varied with
tech n ology, in d u strial sector, organ ization al size an d stru ctu re, an d workp lace u n ion -
ism (cited in Boxall, 1992, p . 67). Th e stu d y d oes n ot disprove th e m atch in g m od el of
strategic HRM, bu t ‘it p rovid es few an swers’ (Jackson et al., 1989, p . 782). Margin son
et al. (1993), in a su rvey stu d y of large UK com p an ies failed to fin d an exp licit lin k
between HRM strategy an d bu sin ess strategy. Sim ilarly, Pu rcell an d Ah lstran d ’s (1994)
stu d y of m u ltid ivision al com p an ies fou n d th at HRM issu es are ‘rarely taken in to
accou n t’ in th e form u lation of corp orate strategies. Down ie an d Coates’ (1994) su r-
vey stu d y of Can ad ian firm s rep orted th at HRM is takin g on som ewh at ‘m ore strate-
gic im p ortan ce’, bu t p rovid ed little evid en ce to su bstan tiate th e n otion of strategic
in tegration . Th e stu d y fou n d th at Can ad ian HR m an agers are ‘often ou tsid e th e
d ecision -m akin g circle’. Peck’s (1994) su rvey stu d y of th e relation sh ip s between
‘strategy, HR p olicies an d th e em p loym en t relation sh ip ’ in 45 Am erican firm s con -
clu d ed th at th e relation sh ip s between th e th ree are ‘m ore com p lex th an p reviou sly
assu m ed ’ (1994, p . 729). Th e case stu d y of US steel m ills by Arth u r (1992) d oes p ro-
vid e som e evid en ce of a fit between a low-cost bu sin ess strategy an d cost-red u cin g
HRM p ractices, bu t th e association s are ‘far from p erfect’ (Pfeffer, 1994, cited in Box-
all, 1996, p . 63). As a review of th e literatu re m akes clear, th e fit m etap h or h as p roven
to be both con cep tu ally an d em p irically elu sive. Th e u p sh ot is th at align in g bu sin ess
an d HRM strategies is a com p lex p rocess an d we lack d etailed d ata p rovid ed by lon g-
itu d in al case stu d ies to d em on strate th e relation sh ip between bu sin ess strategy an d
HRM strategy. We tu rn n ow to th e secon d ap p roach to strategic HRM, th e ‘resou rce-
based ’ m od el.
The resource-based model

Th e resou rce-based m od el of SHRM d raws atten tion to th e strategic valu e of th e work-
force an d to th e issu es of workp lace learn in g. Th u s it ap p ears to em brace a ‘soft’ view
of h u m an resou rce m an agem en t. Th e gen esis of th e resou rce-based m od el can be
traced back to Selzn ick (1957) wh o su ggested th at work organ ization s each p ossess
‘d istin ctive com p eten ce’ th at en ables th em to ou tp erform th eir com p etitors, an d to
Pen rose (1959) wh o con cep tu alized th e firm as a ‘collection of p rod u ctive resou rces’.
Sh e d istin gu ish ed between ‘p h ysical’ an d ‘h u m an resou rces’, an d d rew atten tion to
issu es of learn in g in clu d in g kn owled ge an d exp erien ce of th e m an agem en t team .
Moreover, Pen rose em p h asized , wh at m an y organ ization al th eorists take for gran ted ,
t h at o rgan izat io n s are ‘h et ero gen eo u s’ (Pen ro se, 1959, cit ed in Bo xall, 1996,
p p . 64–5). More recen tly, Barn ey (1991) h as p osited th at ‘sustained com p etitive ad van -
tage’ (ou r em p h asis) is n ot ach ieved th rou gh an an alysis of its extern al m arket p osi-
tion bu t th rou gh a carefu l an alysis of th e firm ’s skills an d cap abilities; ch aracteristics
wh ich com p etitors fin d th em selves u n able to im itate. Pu ttin g it in term s of sim p le
SW OT an alysis, th e m atch in g m od el em p h asized th e strategic sign ifican ce of extern al
‘Op p ortu n ities’ an d ‘Th reats’, th e resou rce-based p ersp ective em p h asizes th e strategic
Internal analysis External analysis
Strengths Opportunities
Weaknesses Threats
Resource-based model Environmental models of

competitive advantage
Figure 2.6 The relationship between SWOT analysis and the resource-based SHRM model
Source: Barney 1991
im p ortan ce of in tern al ‘Stren gth s’ an d ‘Weakn esses’. Th is m od el, su m m arized in

Figu re 2.6, su ggests th at work organ ization s ach ieve su stain able com p etitive ad van -
tages by ‘im p lem en tin g strategies th at exp loit th eir in tern al stren gth s, th rou gh
resp on d in g to en viron m en tal op p ortu n ities , wh ile n eu tralizin g extern al th reats an d
avoid in g in tern al weakn esses’ (Barn ey, 1991, p . 99).
Barn ey argu es th at fou r ch aracteristics of resou rces an d cap abilities are im p ortan t
in su st ain in g co m p et it ive ad van t age: valu e, rarit y, in im it ab ilit y an d n o n -
su bstitu tability. From th is p ersp ective, th e collective learn in g in th e workp lace by
m an agers an d n on -m an agers, esp ecially h ow to coord in ate workers’ d iverse kn ow-
led ge an d skills an d in tegrate d iverse in form ation tech n ology, is a strategic asset th at
rivals fin d d ifficu lt to rep licate. Figu re 2.7 su m m arizes th e relation sh ip between
resou rce h eterogen eity an d im m obility, valu e, raren ess, im itability, an d su bstitu tab-
ility an d su stain ed com p etitive ad van tage. Am it an d Sh oem aker (1993) m ake a
sim ilar p oin t to Barn ey wh en th ey em p h asize th e strategic im p ortan ce for m an agers
to id en tify, ex ante, an d m arsh al ‘a set of com p lem en tary an d sp ecialized resou rces
an d cap abilities wh ich are scarce, d u rable, n ot easily trad ed , an d d ifficu lt to im itate’
to en able th e com p an y to earn ‘econ om ic ren t’ (p rofits). Th u s, accord in g to th e
resou rce-based SHRM m od el, ‘th e valu e of th e firm ’s strategic assets exten d s beyon d
th eir con tribu tion to th e p rod u ction p rocess’ (p . 37).
It d ep en d s on a wid e ran ge of ch aracteristics, in clu d in g in im itability, lim ited su b-
stitu tability, overlap with strategic in d u stry factors an d scarcity, an d varies with
ch an ges in th e relevan t set of strategic in d u stry factors. Am it an d Sh oem aker’s m u lti-
d im en sion al fram ework is u sefu l becau se it recogn izes th e d yn am ic n atu re of strategy
an d takes in to accou n t th e existen ce of p ower an d con flict in sh ap in g (an d p oten tially
su bvertin g) strategy wh en th ey state th at:
Owin g to u n certain ty, com p lexity, an d con flict (both in an d ou tsid e th e firm ), d ifferen t
firm s will em p loy d ifferen t strategic assets, with ou t an y on e set bein g p rovably op tim al
or easily im itated . At best, m an agers can d evise h eu ristic solu tion s th at n avigate
Value rareness
imperfect imitability
Firm resource • History

heterogeneity
• Dependent Sustained
competitive
Firm resource • Causal ambiguity
advantage
immobility • Social complexity
• Substitutability
Figure 2.7 The relationship between resource endowments and sustained competitive
advantage
Source: Barney 1991
between th e n u m erou s cogn itive an d affective biases ch aracteristic of h u m an s an d

organ ization s (1993, p . 44).
Cap p elli an d Sin gh (1992) en vision a com in g ‘m arriage’ between bu sin ess strategy
an d HRM strategy based on th e m u tu al recogn ition of th e su stain able com p etitive
ad van tage th at skilled em p loyees p oten tially create for th e p ost-in d u strial organ iza-
tion . As Cap p elli an d Sin gh go on to d iscu ss, th is m ean s th at ‘com p etitive ad van tage
arises from firm -sp ecific, valu able resou rces th at are d ifficu lt to im itate’ (p . 186). Th e
strategic sign ifican ce of HRM, Cap p elli an d Sin gh argu e, is wh en HRM sp ecialists
d em on strate h ow, by d evelop in g valu able, n on -tran sferable skills, HR im p acts p osi-
tively on lon g-term organ ization al p erform an ce. Sim ilarly, Kam och e (1996) argu es
th at wh en th e two d im en sion s of ‘h u m an resou rce com p eten cies’ an d th e ‘firm ’s core
com p eten cies’ are align ed th e ‘fu ll valu e of th is syn th esis is realizable’ (p . 226). Joh n
Pu rcell (1995) bu ild s on Cap p elli an d Sin gh ’s work to offer a m ore op tim istic scen ario
th an th at offered in h is 1979 stu d y. He argu es th at th e organ ization ’s h u m an resou rce
assets can m ake th e p oten tial con tribu tion of strategic HRM ‘im m en se’. Th e role for
in tern al HRM strategy is to avoid becom in g en m esh ed in sh ort-term , d ecen tralized
fin an cial–con trol m od els ch aracteristic of m ost Am erican , Can ad ian an d UK m u lti-
d ivision al com p an ies. In stead , th e strategic role for HRM is to d evelop ‘h orizon tal’
lon g-term strategies wh ich p lace a ‘p rem iu m ’ on th e h u m an resou rces an d wh ich
‘em p h asize in tan gible, learn in g, an d skill tran sfer an d th e red u ction in tran saction
cost’ (Pu rcell, 1995, p . 84). Th e m essage for corp orate HRM execu tives, argu es Pu rcell,
is clear; th ey h ave to d em on strate th at th e p rogressive HRM p arad igm is in variably
associated with im p roved organ ization al econ om ic p erform an ce: ‘Th e ch allen ge for
h u m an resou rce m an agem en t is to sh ow a lin k between p olicy, p ractice an d organ i-
zation al ou tcom es th at is m ean in gfu l to th e corp orate board ’ (p . 84). As we d iscu ss
later in th is ch ap ter, th ere n ow ap p ears to be su fficien t su rvey an d case stu d y evid en ce
available to d em on strate a p ositive relation sh ip between HRM an d p erform an ce (Ich -
n iowski et al., 1996).
Limitations with the resource-based model

How sh ou ld we evalu ate th e resou rce-based m od el? As with th e con tin gen t m atch in g
ap p roach , th e resou rce-based ap p roach to strategic HRM can be critiq u ed on both
con cep tu al an d em p irical grou n d s. On e p roblem is th at th e term itself, ‘resou rce-
based ’ ap p ears to m ean d ifferen t th in gs to d ifferen t au th ors. Som e com p etin g term s
in clu d e ‘d istin ctive com p eten ce’ (Selzn ick, 1957), ‘d yn am ic cap abilities’ (Teece et al.,
1990), ‘core com p eten cies’ (Prah alad an d Ham el, 1990), ‘h u m an resou rce com p eten -
cies’ an d th e ‘firm ’s core com p eten cies’ (Kam och e, 1996) an d so on . Th e d efin ition s
ran ge from n arrow sp ecific in terp retation s to very broad d escrip tion s an d are ‘som e-
tim es tau tological; resou rces are d efin ed as firm stren gth s, an d firm stren gth s are th en
d efin ed as strategic resou rces; cap ability is d efin ed in term s of com p eten ce, an d com -
p eten ce is th en d efin ed in term s of cap ability’ (Nan d a, 1996, p . 100).
Th e p rescrip tive m essage of th e resou rce-based ap p roach is based u p on th e fam iliar
assu m p tion s in McGregor’s (1960) ‘Th eory Y’ – th at workers h ave talen ts wh ich are
rarely fu lly u tilized in th e workp lace – an d cou ld th erefore be seen as n o m ore th an
‘good in ten tion s an d wh istlin g in th e d ark’ (Gu est, 1990, p . 392). Th e p rescrip tive
valid ity of th e resou rce-based ap p roach h as been q u estion ed by som e th eorists. For
som e, th is p ersp ective on strategic HRM m akes th e m istake it accu ses th e m atch in g
m od el of m akin g; ‘it seem s to be ascribin g p reem in en ce to th e in sid e-ou t p ersp ective
of strategy’ (Nan d a, 1996, p . 103). Th e p ractition er literatu re, h owever, warn s again st
ign orin g th e strategic relevan ce of both extern al an d in tern al factors an d calls for a
‘d u al’ focu s on m arket an alysis an d organ ization al cap abilities.
An oth er p roblem with th e resou rce-based SHRM m od el stem s from its im p licit
accep tan ce of a u n itary p ersp ective of th e p ost-in d u strial workp lace in wh ich goals
are sh ared an d levels of tru st are h igh . As is th e case with th e m atch in g m od el, ad vo-
cates of th e resou rce-based SHRM p ersp ective om it th e d yn am ics of workp lace trad e
u n ion ism in th e strategic eq u ation . However, writers typ ically recogn ize th e im p or-
tan ce of workers’ con tribu tion to th e labou r p rocess, kn owled ge an d skills, syn ergy,
p roactive lead ersh ip , en cou ragin g in n ovation an d stim u latin g learn in g p rocesses
an d , in con trast to th e m atch in g ap p roach , it is a d yn am ic m od el of strategy. A com -
p reh en sive th eory of strategic HRM wou ld be ‘p lu ralist’ an d in corp orate worker
in terests with in th e n exu s of th e firm . As Boxall (1996) correctly ackn owled ges ‘we
m u st in corp orate an ad eq u ate th eory of em p loym en t relation s in to th e th eory of
strategic HRM’ (1996, p . 68).
Fin ally, wh at em p irical su p p ort is th ere for th e resou rce-based SHRM m od el? To
d ate, th e literatu re rep orts th at em p irical stu d ies h ave lagged beh in d th is m od el of
strategic HRM. In relation to th e q u estion of em p irical su p p ort Nan d a (1996) m akes a
p ertin en t observation : ‘W h ile th e an alysis h as been sop h isticated at m acroth eoretic
level, it stan d s relatively u n su p p orted by m icroth eoretic fou n d ation s on th e on e sid e
an d em p irical verification s on th e oth er’ (Nan d a, 1996, p . 97). Th e p rem ise u n d erly-
in g th e resou rce-based ap p roach to strategic HRM is th at su stain able com p etitive
ad van tage or above average p erform an ce is d erived from workp lace learn in g: ‘it is a
firm ’s ability to learn faster an d ap p ly its learn in g m ore effectively th an its rivals, th at
gives it com p etitive ad van tage’ (Ham el an d Prah alad , 1993, cited by Boxall, 1996,
p . 65). Th is m akes train in g an d em p loyee d evelop m en t a vital if n ot p ivotal com p o-
n en t of strategic HRM. In Britain an d Can ad a h owever, th e gen eral record of work-
p lace train in g is ‘d ism al’. Ash ton an d Felstead (1995) assert th at th ere h as been n o
system atic evid en ce of a tran sform ation of train in g activity in British com p an ies. In
ad d ition , An glo–North Am erican m an agem en ts h ave p laced m ore em p h asis on n on -

stan d ard em p loym en t an d red u cin g labou r costs an d , exp licitly or im p licitly, h ave d e-
em p h asized em p loym en t secu rity, wh ich wou ld su ggest a lim ited accep tan ce of th e
resou rce-based ap p roach as it ap p lies to HRM (Boxall, 1996). In Can ad a, Betch erm an
et al.’s (1994) su rvey stu d y rep orted th at ‘th e large m ajority of firm s d o n ot take a sys-
tem atic, forward -lookin g ap p roach to train in g; rou gh ly 20 p er cen t ap p ear to h ave a
train in g bu d get an d abou t 15 p er cen t h ave a form al train in g p lan ’ (1994, p . 36).
W h en faced with th e variou s exigen cies of global p rice com p etition , th e m ajority of
An glo–North Am erican com p an ies h ave op ted for a Porterian low-cost strategy an d a
m arket-d riven HRM strategy to m in im ize in vestm en t in h u m an resou rces. Th e con se-
q u en ces of a low-cost strategy in a free-m arket global econ om y lead s to secon d -rou n d
effects on th e workforce. Lin e m an agers, clerical an d m an u al workers realize th at th eir
jobs are m ore in secu re, an d th at th eir em p loyers are com p elled to be in creasin gly
aggressive on em p loym en t relation sh ip m atters; th at in tu rn affects workers’ com m it-
m en t to th e organ ization an d th e valu e th ey p lace in u p grad in g th eir skills. Th u s, a
m arket-d riven ‘h ard ’ HRM strategy can p erp etu ate a low-skill, low-wage econ om y.
Desp ite con su ltan ts an d sen ior bu sin ess execu tives’ p rotestation s it wou ld ap p ear th at
m u ch of th e ‘soft’ HRM p ractices h ave been p u t back on th e sh elf.
Dimensions of strategic HRM
In ad d ition to focu sin g on th e valid ity of th e m atch in g an d th e resou rce-based SHRM

m od els th at h ave ju st been d iscu ssed , research ers h ave id en tified a n u m ber of im p or-
tan t th em es associated with th e n otion of strategic HRM th at are briefly d iscu ssed
h ere an d , with th e excep tion of lead ersh ip , m ore exten sively in later ch ap ters. Th ese
are: re-en gin eerin g organ ization s an d work (see also Ch ap ter 4); lead ersh ip ; workp lace
learn in g (see also Ch ap ter 10); an d trad e u n ion s (see also Ch ap ter 12).
Re-engineering and strategic HRM

Both ‘h ard ’ an d ‘soft’ n orm ative m od els of HRM em p h asize th e im p ortan ce of orga-
n ization al an d job red esign . As we p reviou sly m en tion ed , m u ch of th e literatu re on
th e ‘soft’ HRM m od el is con cern ed with job d esign th at wou ld en cou rage th e vertical
an d h orizon tal com p ression of tasks, worker au ton om y an d self-con trol or accou n ta-
bility. A n ew bu zz word for th e red esign of work organ ization s is ‘bu sin ess p rocess re-
en gin eerin g’ (BPR).
Un d er cap italism th e tran sform ation of work organ ization h as a lon g h istory (see
for exam p le Littler, 1982), so Ham m er an d Ch am p y (1993) d id n ot in ven t th e p rocess,
bu t th ey certain ly gave it a n ew n am e ‘re-en gin eerin g’ an d p op u larized th e con cep t
with over 2 m illion cop ies of th eir book sold world wid e sin ce it was p u blish ed in
1993. Ham m er an d Ch am p y d efin e BPR as:
[T]h e fu n d am en tal reth in kin g an d rad ical red esign of bu sin ess p rocesses to ach ieve d ra-
m atic im p rovem en ts in critical, con tem p orary m easu res of p erform an ce, su ch as cost,
q u ality, service, an d sp eed (1993, p . 32).
Ham m er an d Ch am p y argu e for a n ew ap p roach to organ ization al d esign , work

p rocesses, an d m an agem en t. First, th e h ierarch y of th e corp oration is ‘flatten ed ’ as
m an y m id d le-m an agem en t p osition s give way to ‘en ablin g’ in form ation tech n ology
an d self-m an aged work team s. Secon d , work is red esign ed in to self-m an aged team s
an d m an agerial accou n tability is sh ifted to th e ‘fron t lin e’: ‘W h atever su p ervisory
cap acity th ose m id d le m an agers m igh t h ave h ad n ow p asses to th e p eop le wh o work
in team s or h ave becom e in creasin gly m ore self-m an aged ’ (Ch am p y, 1996, p . xv).
Th ird , in form ation tech n ology is a ‘critical en abler’ th at allows organ ization s to d o
work in ‘rad ically’ d ifferen t ways. Fou rth , sen ior m an agem en t m ake an ‘u n waverin g’
com m itm en t to rad ical ch an ge, in clu d in g cu ltu ral ch an ge, set am bitiou s goals, an d
in itiate th e re-en gin eerin g p rocess. Th e elim in ation of m an y m id d le-m an agem en t
p osition s, th e vertical an d h orizon tal com p ression of job assign m en ts, an d self-
m an aged work team s d raws atten tion to ‘stron g’ lead ersh ip an d corp orate cu ltu re, an d
th e critical role of HRM. In essen ce, BPR p u ts th e HRM tech n iq u es th at seek to m ake
workers’ beh aviou r an d p erform an ce m ore con gru en t with th e organ ization ’s cu ltu re
an d goals. Fin ally, re-en gin eerin g as a social con stru ct, d isp lays th e in h eren t p ower of
corp orate lead ers to sh ap e an d d efin e reality, n ot u n like wh at Mach iavelli ([1513]
1961) wrote in The Prince: ‘it is far better to be feared th an loved … fear is stren gth en ed
by a d read of p u n ish m en t wh ich is always effective’ (p . 52–3). Ch am p y’s n otes th at:
‘cap italism is a system th at q u ite literally works on fear… th e on ly way to p ersu ad e
m an y folks to u n d ertake a p ain fu l th erap y like reen gin eerin g… is to p ersu ad e th em
th at th e altern ative will be even m ore p ain fu l’ (1996, p . 49). Ch am p y’s can d id obser-
vation reveals th e ‘d arker sid e’ to re-en gin eerin g an d fu rth er ten sion s between ‘h ard ’
an d ‘soft’ HRM m od els. Th e ‘h ard ’ version of HRM m igh t be a n ecessary p rereq u isite
before th e ‘soft’ version of HRM can work in th e re-en gin eered workp lace.
Leadership and strategic HRM

Th e con cep t of m an agerial lead ersh ip p erm eates an d stru ctu res th e th eory an d p rac-
tice of work organ ization s an d h en ce th e way we u n d erstan d SHRM. In th e m an age-
m en t texts, lead ersh ip h as been d efin ed in term s of traits, beh aviou r, con tin gen cy,
p ower, an d occu p ation of an ad m in istrative p osition . Most d efin ition s reflect th e
assu m p tion th at lead ersh ip in volves a p rocess wh ereby an in d ivid u al exerts in flu en ce
u p on oth ers in an organ ization al con text. Lead ersh ip is by n atu re d ialectical: it is
socially con stru cted th rou gh th e in teraction of both lead ers an d followers (Sm ircich
an d Morgan , 1982). After a com p reh en sive review of th e lead ersh ip literatu re, Yu kl
(1998) affirm s th at an y d efin ition of lead ersh ip is ‘arbitrary an d very su bjective’ an d
goes on to d efin e lead ersh ip as:
[T]h e p rocess wh erein an in d ivid u al m em ber of a grou p or organ ization in flu en ces th e
in terp retation of even ts, th e ch oice of objectives an d strategies, th e organ ization of work
activities, th e m otivation of p eop le to ach ieve th e objectives, th e m ain ten an ce of coop -
erative relation sh ip s, th e d evelop m en t of skills an d con fid en ce by m em bers, an d th e
en listm en t of su p p ort an d coop eration from p eop le ou tsid e th e grou p or organ ization
(1998, p . 5).
Yu kl’s d efin ition , wh ile em p h asizin g m an y asp ects of ‘p eop le skills’, ten d s to be
focu sed u p on th e d yn am ics an d su rface featu res of lead ersh ip as a social in flu en ce
p rocess. More critical accou n ts of lead ersh ip ten d to focu s u p on th e h ierarch ical
form s to wh ich it gives rise, p ower relation sh ip s, an d th e gen d er d om in an ce. As su ch ,
it is argu ed th at lead ersh ip is n ot sim p ly a p rocess of beh avin g or a p rocess of m an ip -
u latin g reward s, it is a p rocess of ‘p ower-based reality con stru ction ’ (Sm ircich an d
Morgan , 1982). Most of th e lead ersh ip research an d literatu re ten d s to be an d rocen -
tric in n atu re an d rarely ackn owled ges th e lim ited rep resen tation of eth n ic grou p s
an d wom en in sen ior lead ersh ip p osition s (Town ley, 1994). With in th e literatu re,
h owever, th ere is a con tin u in g d ebate over th e alleged d ifferen ces between a m an -
ager an d a lead er. For exam p le, Ben n is an d Nan u s (1985, p . 21) p rop osed th at ‘m an -
agers are p eop le wh o d o th in gs righ t an d lead ers are th e p eop le wh o d o th e righ t
th in g’. Kotter (1990, 1996) p rop osed th at m an agers d evelop p lan s wh ereas lead ers
create a vision an d a strategy for ach ievin g th e vision . Fu rth er, Kotter p rop osed th at
m an agers an d lead ers d iffer in th eir m eth od s for p rom otin g th eir agen d a. Man agers
organize an d en gage in a p rocess of controlling an d problem -solving, wh ile lead ers
en gage in a p rocess of alignm ent an d seek to m otivate an d inspire. Clearly, an in d ivid -
u al can be a m an ager with ou t lead in g, an d an in d ivid u al can be a lead er with ou t
bein g a m an ager (for exam p le an in form al grou p lead er or elected trad e u n ion
lead er). Kotter argu es th at a balan ce of m an agem en t an d lead ersh ip is n ecessary for
a work organ ization to op erate effectively.
Th e con cep t of lead ersh ip is a cen tral bu ild in g block of th e ‘soft’ HRM m od el’s con -
cern with d evelop in g a ‘stron g’ organ ization al cu ltu re an d bu ild in g a h igh level of
worker com m itm en t an d coop eration . For Gu est (1987), th e cu rren t in terest in alter-
n ative lead ersh ip p arad igm s in th e 1980s, variou sly labelled ‘tran sform ation al lead er-
sh ip ’ (Tich y an d Devan n a, 1986), ‘ch arism atic lead ersh ip ’ (Con ger an d Kan u n go,
1988), ‘self-lead ersh ip ’ (Man z an d Sim s, 1989), or ‘p rin cip le-cen tred lead ersh ip ’
(Covey, 1989, 1990) can be exp lain ed by u n d erstan d in g th e p rereq u isites of th e
resou rce-based SHRM m od el. Man agers are lookin g for a style of lead ersh ip th at will
d evelop th e firm ’s h u m an en d owm en t an d , m oreover, gen erate em p loyee com m it-
m en t, flexibility, in n ovation an d ch an ge. Of th e m an y m an agem en t gu ru s, Peter
Sen ge (1990, p . 340) m akes th e m ost exp licit lin k between strategic HRM, workp lace
learn in g, an d lead ersh ip wh en h e writes th at ‘lead ers are d esign ers, steward s, an d
teach ers’ an d th at a learn in g organ ization will rem ain on ly a ‘good id ea, an in trigu in g
bu t d istan t vision ’ u n til th e lead ersh ip skills req u ired are m ore read ily available. Th u s,
it wou ld seem th at a key con strain t on th e d evelop m en t of a resou rce-based SHRM
m od el an d a ‘learn in g organ ization ’ is lead ersh ip com p eten cies. Barn ey (1991)
em p h asizes th at th e resou rce-based SHRM req u ires lead ers th at d evelop th e organ iza-
tion ’s ‘rare an d n on -su bstitu tion al’ h u m an assets. Un like tech n ology assets, organ iza-
tion s can n ot read ily p u rch ase h u m an su stain able com p etitive ad van tages on th e
op en m arkets an d th erefore ‘m an agers are im p ortan t in th is m od el, for it is m an agers
th at are able to u n d erstan d an d d escribe th e econ om ic p erform an ce p oten tial of a
firm ’s en d owm en ts. With ou t su ch m an agerial an alyses, su stain ed com p etitive ad van -
tage is n ot likely’ (p . 117). Th e in tegrative th eoretical of lead ersh ip an d strategy d evel-
op ed by Nah avan d i an d Malekzad eh (1993) d ep icts th e organ ization al lead er to be
‘key’ to both th e form u lation an d im p lem en tation of com p etitive strategy. If we
accep t Nah avan d i an d Malekzad eh ’s h yp oth eses, it wou ld seem p lau sible th at lead ers
wh o are ‘op en an d p articip ative’ an d ‘ch allen ge-seekers’ are m ore likely ad op t a ‘soft’
SHRM m od el to m atch th e h igh risk ‘p rosp ector’ an d ‘d ifferen tiation ’ com p etitive
strategies, th an lead ers wh o d esire ‘con trol’ an d are ‘ch allen ge-averse’ an d focu s on
‘d efen d er’ an d ‘cost’ lead ersh ip strategies. In th e p op u lar m an agem en t literatu re,
Ham m er an d Ch am p y (1993), in Reengineering the Corporation, m ake a sim ilar p oin t
wh en th ey argu ed th at lead ersh ip is critical in th e re-en gin eerin g p rocesses: ‘m ost re-
en gin eerin g failu res stem from breakd own s in lead ersh ip ’ (p . 107). Kotter (1996) also
argu es th at th e ‘en gin e’ th at d rives ch an ge is ‘lead ersh ip , lead ersh ip , an d still m ore
lead ersh ip ’ (p . 32).
In essen ce, th e ‘tran sform ation al’ lead er extols to em p loyees th e n eed for workin g
beyon d con tract for th e ‘com m on ’ good . Th is lead ersh ip style em p h asizes th e im p or-
tan ce of vision bu ild in g an d th e ability to com m u n icate th is vision an d , sim u ltan e-
ou sly, en th u se su bord in ates to m ake th eir vision a reality: ‘to in n ovate, to ch an ge an d
in d eed to con q u er n ew fron tiers in th e m arketp lace or on th e sh op floor’ (Gu est,
1990, p . 393). In con tem p orary p arlan ce, th e tran sform ation al lead er is em p owerin g
workers. However, to go beyon d th e rh etoric, th e tran sform ation al m od el sh ifts th e
focu s away from th e h ierarch ical n atu re of work organ ization s, con trol p rocesses,
in h eren t con flicts of in terest between lead ers an d th e led , an d in n ate p ower relation -
sh ip s, toward s th e in d ivid u alization of th e em p loym en t relation sh ip , an d th e d evel-
op m en t of in d ivid u al lead ersh ip q u alities or traits th at m igh t lead to gen d er an d racial
stereotyp in g of lead ersh ip traits (see Alvesson an d Billin g, 1992; Wajcm an , 1996).
Even th ou gh th e n ew lead ersh ip p arad igm s em p h asize ‘sh ared lead ersh ip ’ an d
em p owerm en t am on g ‘core’ workers, th ey rep resen t a ‘u n itary’ fram e of referen ce on
em p loym en t relation s an d are sq u arely aim ed at ‘bottom -lin e’ resu lts (Legge, 1995).
Th e gen eral assu m p tion is th at ‘en ligh ten ed ’ lead ersh ip will resu lt in h igh er p rod u c-
tivity an d effectiven ess. Later in th is ch ap ter we will elaborate an d exp an d on th e
HRM–lead ersh ip –p erform an ce lin kages.
Workplace learning and strategic HRM

With in m ost form u lation s of strategic HRM, em p loyee d evelop m en t h as com e to rep -
resen t a key ‘lever’ th at can h elp m an agem en t ach ieve th e su bstan tive HRM goals of
com m itm en t, flexibility an d q u ality. Beer et al. (1984, p . 85) m u se th at ‘em p loyee
d evelop m en t is a key strategy for organ ization al su rvival an d growth ’. Oth ers h ave
argu ed th at in vestm en t in em p loyee d evelop m en t h as becom e a ‘litm u s test’ of
wh eth er or n ot em p loyers h ave ad op ted th e HRM m od el (Keep , 1989). In recen t years,
m an y acad em ics an d corp orate lead ers h ave been attracted by th e con cep t of th e
‘learn in g organ ization ’ (Coh en an d Sp rou ll, 1996), ‘m an agem en t learn in g’ (Bu rgoyn e
an d Reyn old s, 1997) or th e m ore en com p assin g term , ‘workp lace learn in g’ (Sp ikes,
1995). Workp lace learn in g is an in terd iscip lin ary bod y of kn owled ge an d th eoretical
in q u iry th at d raws u p on ad u lt learn in g an d m an agem en t th eory. In p ractice, it is th at
p art of th e m an agem en t p rocess th at attem p ts to facilitate work-related con tin u ou s
learn in g at th e individual, group an d organizational level. For workers an d m an agers
alike, th e assu m p tion s abou t workp lace learn in g cap tu re th e essen ce of th e Am erican
Dream , th e op p ortu n ity for p rogress or growth at work based on in d ivid u al ach ieve-
m en t (Gu est, 1990). Workp lace learn in g occu p ies cen tre stage in th e ‘soft’ resou rce-
based SHRM m od el. In d ivid u al, team , an d organ ization al learn in g can stren gth en an
organ ization ’s ‘core com p eten cies’ an d th u s act as th e en gin e for su stain able com p et-
itive ad van tage.
From a m an agerial p ersp ective, it is su ggested th at an organ ization ’s in vestm en t in
workp lace learn in g acts as a p owerfu l sign al of its in ten tion s to d evelop its ‘h u m an
assets’; th is can h elp d evelop com m itm en t to th e organ ization rath er th an com p li-
an ce. Th e p u rsu it of worker flexibility th rou gh workp lace learn in g is d iscu ssed exten -
sively by observers as a lever for su stain able com p etitive ad van tage: th e ability to learn
‘faster’ th an com p etitors (Dixon , 1992). Most ad vocates of Jap an ese or ‘lean ’ p rod u c-
tion system s em p h asize th e im p ortan ce of in vestin g in h u m an cap ital an d th e
p rocesses of workp lace learn in g (for exam p le Sch on berger, 1982; Wom ack et al.,
1990). An d Koch an an d Dyer ad vise th ose firm s ad op tin g a ‘m u tu al com m itm en t’
strategy to gain com p etitive ad van tage to m ake th e n ecessary in vestm en t in th eir
workforce an d ad op t th e con cep t of lifelong learning (ou r em p h asis, 1995, p . 336). Th e
relation sh ip between learn in g an d worker com m itm en t, flexibility, an d q u ality h ave
also been su bject to m u ch com m en t in th e literatu re.
Th ere is a growin g bod y of work th at h as taken a m ore critical look at workp lace
learn in g. Som e of th ese writers, for exam p le, em p h asize h ow ‘cu ltu ral con trol’ can be
rein forced th rou gh workp lace learn in g (Legge, 1995) an d h ow th e train in g of ‘com -
p eten cies’ can ren d er work m ore ‘visible’ in ord er to be m ore m an ageable (Town ley,
1994). Coop ey (1996) ch allen ges th e acad em ic en trep ren eu rs su ch as Peter Sen ge, The
Fifth Discipline (1990). Coop ey argu es th at workp lace learn in g th eory assu m es a u n i-
tarist p ersp ective in wh ich goals are sh ared an d largely ign ores con flict stem m in g
from in h eren t ten sion s in th e em p loym en t relation sh ip , th at p ower is om n ip resen t in
work organ ization s, an d th at p olitical activity by organ ization al m em bers is likely to
im p ed e learn in g. He goes on to argu e th at th e likely effect of workp lace learn in g is to
stren gth en th e p ower of sen ior m an agem en t, th ose at th e ‘ap ex of th e organ ization ’.
At th e level of rh etoric, u n d erp in n in g n otion s of ‘h igh q u ality’, ‘flexible sp ecializa-
tion ’ an d fu n ction al flexibility, is th e assu m p tion of a well-train ed ‘h igh q u ality work-
force’ (Legge, 1995). However, em p irical d ata sh ow th at in m ost An glo–North
Am erican com p an ies th ere is a growin g tren d in ‘n on -stan d ard ’ form s of em p loym en t
(for exam p le p art tim e an d con tractors). If th ese d ata are correct an d we accep t th e
p lau sible in sigh t th at ‘p erip h eral’ workers ten d to receive th e lowest level of train in g
(Ash ton an d Felstead , 1995), th ere wou ld ap p ear to be a gap between th e th eory an d
p ractice of strategic HRM m od els.
Trade unions and strategic HRM

In th e literatu re th e n ew HRM m od el is d ep icted as ‘u n itary’; it assu m es th at m an -
agem en t an d workers sh are com m on goals, an d d ifferen ces are treated an d resolved
ration ally. Accord in g to th e th eory, if all workers are fu lly in tegrated in to th e bu si-
n ess th ey will id en tify with th eir com p an y’s goals an d m an agem en t’s p roblem s, so
th at wh at is good for th e com p an y an d m an agem en t is p erceived by workers as also
bein g good for th em . Critical to ach ievin g th is goal is th e n otion of worker ‘com -
m itm en t’ to th e organ ization . Th is HRM goal h as led writers from both en d s of th e
p olitical sp ectru m to argu e th at th ere is a con trad iction between th e n orm ative HRM
m od el an d trad e u n ion s. In th e p rescrip tive m an agem en t literatu re, th e argu m en t is
th at th e collectivist cu ltu re, with its ‘th em an d u s’ attitu d e, sits u n com fortably with
th e HRM goal of h igh em p loyee com m itm en t an d th e in d ivid u alization of th e
em p loym en t relation sh ip in clu d in g in d ivid u al con tracts, com m u n ication s, ap p raisal
an d reward s.
Mu ch o f t h e crit ical lit erat u re also p resen t s t h e n ew HRM m o d el as in co n sist en t
wit h t rad it io n al in d u st rial relat io n s an d co llect ive bargain in g, albeit fo r very d iffer-
en t reaso n s. Crit ics argu e t h at HRM p o licies an d p ract ices are d esign ed t o p ro vid e
wo rkers wit h a false sen se o f jo b secu rit y an d o bscu re u n d erlyin g so u rces o f co n flict
in h eren t in em p lo ym en t relat io n s. Acco rd in g t o Go d ard , h ist o rically a m ajo r reaso n
fo r m an agers ad o p t in g ‘p ro gressive’ [HRM] p ract ices h as been t o avo id o r weaken
u n io n s. Ho wever, h e d o es co n ced e t h at ‘it wo u ld also be a m ist ake t o view p ro gres-
sive p ract ices as m o t ivat ed so lely o r even p rim arily by t h is o bject ive’ (1994, p . 155).
Yet o t h er in d u st rial relat io n s sch o lars, t akin g a m o re t rad it io n al ‘o rt h o d o x p lu ralist ’

p ersp ect ive, h ave argu ed t h at in d ep en d en t t rad e u n io n s an d varian t s o f t h e HRM
m o d el can n o t o n ly co exist bu t are even n ecessary t o it s su ccessfu l im p lem en t at io n
an d d evelo p m en t . Th ey argu e t h at t rad e u n io n s sh o u ld beco m e p ro act ive o r ch an ge
‘ch am p io n s’ act ively p ro m o t in g t h e m o re p o sit ive elem en t s o f t h e ‘so ft ’ HRM
m o d el. Su ch a u n io n st rat egy wo u ld creat e a ‘p art n ersh ip ’ bet ween m an agem en t an d
o rgan ized labo u r wh ich wo u ld resu lt in a ‘h igh -p erfo rm an ce’ wo rkp lace wit h m u t u al
gain s fo r bo t h t h e o rgan izat io n an d wo rkers (Bet ch erm an et al., 1994; Gu est , 1995;
Verm a, 1995). W h at is clearly ap p aren t fro m a review o f t h e lit erat u re is t h at t h is
asp ect o f t h e HRM d isco u rse h as been st ro n gly in flu en ced by p o lit ical–legal d evel-
o p m en t s an d t h e d eclin e in t rad e u n io n m em bersh ip an d p o wer in t h e US an d UK
o ver t h e last t wo d ecad es. Th erefo re wh en yo u read Ch ap t er 12 an d t h e lit erat u re, it
is im p o rt an t t o rem em ber t h at t h e d ebat e is set in t h e co n t ext u al d evelo p m en t s in
t h e USA an d Brit ain .
HRM and organizational performance
Alth ou gh m ost HRM m od els p rovid e n o clear focu s for an y test of th e HRM–
p erform an ce lin k, th e m od els ten d to assu m e th at an align m en t between bu sin ess
strategy an d HRM strategy will im p rove organ ization al p erform an ce an d com p eti-
tiven ess. Th e resou rce-based SHRM m od el assu m es a sim p le cau sal ch ain of ‘soft’
HRM p olicies of em p owerm en t, team workin g an d workp lace learn in g R em p loyee
com m itm en t R syn ergy R im p roved organ ization al p erform an ce. Th is ‘in volvem en t
–com m itm en t cycle’ is th e reverse of th e viciou s circle of con trol organ ization al th e-
orists d iscu ssed in th e early 1980s. A core assu m p tion of th is ap p roach is th at com -
m it t ed w o rkers are m o re p ro d u ct ive. Th e im p o rt an ce o f co m m it m en t t o
organ ization al efficien cy an d com p etitiven ess is em p h asized by Beer et al. (1984):
‘In creased com m itm en t can resu lt n ot on ly in m ore loyalty an d better p erform an ce
for th e organ ization , bu t also in self-worth , d ign ity, p sych ological in volvem en t, an d
id en tity for th e in d ivid u al’ (1984, p . 19). In th e late 1990s, d em on stratin g th at th ere
is in d eed a p ositive lin k between HRM an d p erform an ce h as becom e ‘the d om in an t
research issu e’ in th e HRM field (Gu est, 1997). Leavin g asid e th e p roblem of secu rin g
worker com m itm en t, h ow valid is th e p rop osition th at th e resu ltan t beh aviou rs, as
d ep icted in Figu re 1.5 (Ch ap ter 1), lead to im p roved in d ivid u al an d , in tu rn , organ i-
zation al p erform an ce ou tcom es? In th e rest of th is ch ap ter, we will exp lore th e issu e
an d p roblem s of assessin g th e effects of th e n ew HRM in itiatives on organ ization al
p erform an ce. Th e d om in an t em p irical q u estion s on th is top ic ask: Do we h ave a clear
th eoretical basis for classifyin g HRM p ractices? W h at typ es of p erform an ce d ata are
available to m easu re th e HRM–p erform an ce lin k? Do ‘com m itm en t-typ e’ HRM sys-
tem s p rod u ce above-average resu lts th an ‘con trol-typ e’ system s? Do work organ iza-
tion s with a better ‘fit’ between HRM p ractices an d bu sin ess strategy h ave su p erior
p erform an ce (Cap p elli an d Sin gh , 1992)?
Measu rin g th e lin ks between labou r issu es an d econ om ic p erform an ce is well
establish ed in th e field of in d u strial relation s. For exam p le, n u m erou s em p irical stu d -
ies h ave m on itored th e im p act of u n ion s on wages an d p rod u ctivity. Alth ou gh th e
1960s an d 70s saw research on th e effects of su ch m an agem en t in itiatives as
em p loyee in volvem en t sch em es on variou s ou tcom es (attitu d es, job satisfaction an d
p rod u ctivity), Pu rcell wrote th at if it were p ossible to p rove th at ‘en ligh ten ed or p ro-
gressive’ HRM was in variably associated with h igh er p rod u ctivity an d lower costs
‘life for th e… HRM execu tive wou ld be easier’. As it is, th ere is little con clu sive evi-
d en ce (1989, p p . 72–3). A sim ilar p oin t is m ad e by Legge (1995, p . 196) wh en sh e
com m en ts on th e absen ce of ‘few, if an y, system atic evalu ation s’ of ‘h igh com m it-
m en t’ m an agem en t p ractices on organ ization al p erform an ce. Gu est (1997) exam in es
th e weakn esses in th e cu rren t th eoretical HRM m od els with regard to th e HRM–
p erform an ce lin k. Th ere are still gap s in ou r kn owled ge, bu t North Am erican sch ol-
ars, u sin g an alytical tech n iq u es from th e field of in d u strial relation s, h ave recen tly
p rovid ed im p ortan t in form ation on th ese em p irical q u estion s. Mu ch of th is research
h as been sp u rred on by th e d ebates arou n d th e relative m erits of Jap an ese m an age-
m en t an d th e n ew HRM p arad igm . Am erican acad em ics Ich n iowski et al. (1996) give
a d etailed review of som e of th e m eth od ological ch allen ges research ers face in id en -
tifyin g th e lin kages between HRM p ractices an d p erform an ce an d review th e fin d in gs
from a bod y of US research u sin g d ifferen t research d esign s. Betch erm an et al. (1994)
p rovid e evid en ce on th e HRM–organ ization al p erform an ce relation sh ip u sin g Can a-
d ian d ata. Both Betch erm an et al. an d Ich n iowski et al. argu e th at in sp ite of th e h ard
m eth od ological ch allen ges, th e research evid en ce su ggests th at in n ovative HRM
p ractices can in crease organ ization p erform an ce. Before reviewin g th e fin d in gs, let
u s look at som e of th e m eth od ological ch allen ges with th is typ e of research .
M ethodological issues
Th ere are two m ain typ es of workp lace research d esign s, su rveys an d case stu d ies. Su r-
veys of establish m en ts p rovid e a vast am ou n t of q u an titative d ata th at can test th eo-
ries an d p erm it a statistical an alysis of HRM p ractices an d p erform an ce. However,
given th e n atu re of th e research in stru m en t, a m ail q u estion n aire, th e resu lts can n ot
h op e to p rovid e an accu rate p ictu re of th e su btleties an d in tricacies of th e way work
is stru ctu red an d actually p erform ed , an d th e d yn am ics of th e em p loym en t relation -
sh ip . Case stu d ies, on th e oth er h an d , can p rovid e rich d ata on workp lace activities
an d can be u sefu l for su ggestin g h yp oth eses. Case stu d ies p rovid e for th e op p ortu n ity
to test th e accu racy an d sou rce of th e in form ation . For exam p le, a m ail q u estion n aire
askin g resp on d en ts to in d icate, in q u an titative term s, th e d irection an d exten t of
ch an ges in skills resu ltin g from self-m an aged work team s, can best be d on e by
research ers gath erin g d ata from m an agers and workers affected . Th is raises an oth er
im p ortan t p oin t abou t th e ch oice of research d esign . Th e in form ation from m ail
q u estion n aires ten d s to be biased becau se th e d ata are gen erated from on e sou rce, typ -
ically p erson n el m an agers. Th e obviou s con cern is th at if th ere is on ly on e resp on -
d en t p er est ab lish m en t , ‘an y id io syn crat ic o p in io n s o r in t erp ret at io n s o f t h e
q u estion s can d istort th e resu lts’ (Ich n iowski et al., 1996, p . 309). Th e valu e of talkin g
both to m an agers an d workers is em p h asized by Nich ols (1986): ‘a stu d y wh ich sys-
tem atically sam p les both m an agers an d workers is always likely to p rovid e at least
som e sn ip p ets of in form ation th at rarely su rface in oth er accou n ts an d to su ggest d if-
feren t lin es of in terp retation ’ (q u oted in Bratton , 1992, p . 14). Case stu d ies h ave th eir
lim itation s. It is q u estion able h ow far research ers can gen eralize from case stu d y
resu lts. W h atever th e research d esign , th e d ata m igh t n ot p rovid e a fu ll accou n t of
HRM–organ ization al p erform an ce, becau se th e selection bias op erates again st stu d ies
in bad ly m an aged work organ ization s.
Measu rin g t h e HRM–o rgan izat io n al p erfo rm an ce relat io n sh ip is p ro blem at ic fo r
research ers fo r o t h er reaso n s: first , d at abases t en d t o est im at e in d ivid u al HRM p rac-
t ices, rat h er t h an an en t ire ‘syst em ’. Seco n d , research o n t h e o u t co m es o f n ew HRM

p ract ices req u ires m an agem en t p art icip at io n an d , m o reo ver, d isclo su re o f co m m er-
cially sen sit ive in fo rm at io n o n p erfo rm an ce in d icat o rs t h at m an y m an agers are
u n willin g o r u n able t o p ro vid e t o an in d ep en d en t research er. Th e research er h as
t h erefo re t o u se ‘in t erm ed iat e’ p erfo rm an ce in d icat o rs su ch as accid en t , absen t eeism
an d grievan ce rat es. Th ird , a key elem en t in t h e regressio n eq u at io n , in n o vat ive
HRM p ract ices, is based o n su bject ive ju d gem en t s. Research ers an d resp o n d en t s
m igh t d efin e a ‘self-m an aged t eam ’ in d ifferen t ways, wit h o r wit h o u t a ‘su p erviso r’
o r t eam ‘lead er’. Gu est (1997) su ggest s t h at t h e exp ect an cy t h eo ry o f m o t ivat io n
p ro vid es a b asis fo r d evelo p in g a m o re co h eren t rat io n ale ab o u t t h e HRM–
p erfo rm an ce lin k. Exp ect an cy t h eo ry fo cu ses o n t h e lin k bet ween m o t ivat io n an d
t h eo ry. In essen ce, it p ro p o ses t h at in d ivid u al su p erio r p erfo rm an ce is co n t in gen t
u p o n h igh m o t ivat io n p lu s p o ssessio n o f t h e n ecessary skills an d abilit ies an d an
ap p ro p riat e ro le an d u n d erst an d in g o f t h at ro le. Acco rd in g t o Gu est , ‘It is a sh o rt
st ep t o sp ecify t h e HRM p ract ices t h at en co u rage h igh skills an d abilit ies… We t h ere-
fo re h ave a t h eo ry wh ich lin ks HRM p ract ices t o p ro cesses t h at facilit at e h igh in d iv-
id u al p erfo rm an ce’ (p . 268). A fo u rt h ch allen ge is h o w t o iso lat e ext ern al variables.
Fo r exam p le, exch an ge rat es can sign ifican t ly affect fin an cial o u t co m es (see Figu re
2.5), wh ich m akes it d ifficu lt t o m easu re accu rat ely t h e im p act o f HRM p ract ices.
Th is p ro blem is also reco gn ized by Gu est (1997) wh en h e st at es: ‘We also n eed a
t h eo ry abo u t h o w m u ch o f t h e varian ce can be exp lain ed by t h e h u m an fact o r’
(p . 268). Even if relevan t in d icat o rs are m ad e available t o t h e research er an d t h e
ext ern al variables are iso lat ed , t h e p ro blem o f id en t ifyin g t h e cau sal lin ks rem ain a
ch allen ge. Do cert ain HRM p ract ices lead t o su p erio r p erfo rm in g firm s o r d o su p erio r
p erfo rm in g firm s ad o p t cert ain HRM p ract ices? In sh o rt , t h e im p licat io n o f HRM
ch o ices fo r o rgan izat io n al p erfo rm an ce is d ifficu lt t o q u an t ify wit h co m p let e co n fid -
en ce. A co m bin at io n o f bo t h su rvey an d case st u d ies p ro bably p ro vid es t h e great est
co n fid en ce abo u t t h e d irect io n an d m agn it u d e o f t h e p erfo rm an ce effect s o f t h e n ew
HRM p ract ices. ‘Th e key t o cred ible resu lt s’, writ e Ich n io wski et al., ‘is creat in g a co l-
lage o f st u d ies t h at u se d ifferen t d esign s wit h t h eir o wn p art icu lar st ren gt h s an d lim -
it at io n s’ (1996, p . 312).
Research findings
Th e work by Ich n iowski et al. reviews a d iverse bod y of research on th e HRM–firm
p erform an ce lin k an d th e research by Betch erm an an d h is Can ad ian colleagu es fu r-
t h er p ro vid es n ew evid en ce o n t h e su b ject . Lo n git u d in al case st u d ies, in a
Californ ian -based au to assem bly p lan t an d a US p ap er m ill, d ocu m en t th e recon fig-
u ration of trad ition al work stru ctu res to th e ‘team con cep t’ an d su bseq u en t im p rove-
m en ts in p rod u ctivity an d q u ality p erform an ce. A cross-section al com p arative case
stu d y of two cloth es factories fou n d th at ‘team -orien tated ’ work stru ctu res p rod u ced
a 30 p er cen t ad van tage in overall p rod u ction costs over a trad ition al work stru ctu re.
Of th e case stu d ies exam in ed , over 75 p er cen t of th ose th at rep orted ch an ges in eco-
n om ic ou tcom es also rep orted th at th ese were p ositive. Th e resu lts d o n eed in ter-
p retin g with som e cau tion . Th e p erform an ce m easu res d iffer across stu d ies an d so are
n ot com p arable. Fu rth er, access to p erform an ce d ata m ay su ggest th at th e m ore su c-
cessfu l firm s are overrep resen ted (Ich n iowski et al., 1996). Th e fin d in gs from fou r
in tra-in dustry stu d ies – steel m akin g, au tom obile assem bly, cloth es m an u factu re
an d m etalworkin g – sh ow th at d ifferen t work con figu ration s an d worker em p ower-
m en t arran gem en ts associated with th e n ew HRM m od el h ave su p erior ou tp u t an d

q u ality p erform an ces. Of p articu lar in terest is Arth u r’s (1994) in vestigation in to th e
p erform an ce effects of two labou r m an agem en t taxon om ies: ‘con trol’ (trad ition al
p erson n el m an agem en t) an d ‘com m itm en t’ (n ew HRM). His regression resu lts in d i-
cate th at, at least in th e con text of a h igh -tech m ass p rod u ction p lan t, com m itm en t-
typ e HRM p ractices were ‘associated with both lower scrap rates an d h igh er labou r
efficien cy th an con trol’-typ e HRM p ractices (Arth u r, 1994, p . 683). Secon d , integrated
HRM in n ovation s h ave a greater effect th an in d ivid u al HRM p ractices. Th e fin d in gs
from cross-in d u stry an alyses sh ow sim ilar resu lts on th e HRM–firm p erform an ce
lin k. Ich n iowski et al. con clu d e th at th e em p irical evid en ce p resen ts a con sisten t p ic-
tu re; HRM in n ovation s can im p rove organ ization al p rod u ctivity an d th e m agn itu d e
of p erform an ce effects is ‘large’.
Bet ch erm an et al.’s (1994) an alysis, u sin g d ata gen erated from Can ad ian com p a-
n ies, is co n sist en t wit h th e con clu sion d rawn by Casey Ich n iowski an d h is col-
leagu es. Th e Can ad ian stu d y fou n d a statistically sign ifican t association between th e
n ew HRM ap p ro ach an d u n it costs, an d th e regression an alysis con firm ed th at
o rgan izatio n s t h at o p erated u n d er m ore strategic an d p articip ation -based HRM
m o d els exp erien ced o u tcom e tren d s th at were su p erior th an th ose organ ization s
t h at o p erat ed u n d er a trad ition al em p loym en t m od el. Th e su rvey-based stu d y of
Can ad ian est ablish m en ts p rovid es evid en ce th at n ew HRM p ractices op erate best in
cert ain o rgan izat io n al ‘en viron m en ts’. Th e m ore in tan gible corp orate ‘id eology’
variables – ‘p ro gressive d ecision m akin g’ an d ‘social resp on sibility’ – ap p ear to h ave
a m o re sign ifican t im p act on p erform an ce ou tcom es th an team -based p rogram m es
o r in cen tive p ay p lan s. Th ese resu lts su ggests th at ‘in n ovative [HRM] p ractices an d
p ro gram m es o n t h eir own are n ot en ou gh to su bstan tially im p rove p erform an ce.
W h at seem s m o re im p ortan t is th at th ey be in trod u ced in to a su p p ortive work
en viro n m en t ’ (Bet ch erm an et al., 1994, p . 72). Th is is con sisten t with Ich n iowski et
al.’s m ain co n clu sio n t h at ‘Th ere are n o on e or two “m agic bu llets” th at are the work
p ract ices t h at will st im u late worker an d bu sin ess p erform an ce. Work team s or q u al-
it y circles alo n e are n ot en ou gh . Rath er, whole system s [ou r em p h asis] n eed to be
ch an ged ’ (1996, p . 322). Lookin g ah ead , lon gitu d in al case stu d ies can p rovid e th e
d at a o n t h e m o re ‘in t an gible’ asp ects of workp lace learn in g an d ch an ge. Th e u p sh ot
is t h at th e cu rren t bo d y of em p irical research fin d s th at work organ ization s im p lem -
en t in g a p ackage o f in tern ally con sisten t an d m u tu ally rein forcin g HRM p ractices,
asso ciat ed wit h t h e ‘so ft’ HRM m od el, exp erien ce sign ifican t im p rovem en ts in p er-
fo rm an ce. Th is su ggests an ap p aren t p arad ox. If th e p u rsu it of ‘soft’ HRM p ractices
lead s t o im p ro ved o rgan ization al p erform an ce, from th e p ersp ective of ‘econ om ic
rat io n alit y’, o n e wo u ld exp ect su ch m an agem en t p ractices to be m ore wid ely u sed .
Th is ap p aren t p arad o x m ay resu lt from th e lon g-term in vestm en t costs associated
wit h t h e reso u rce-based ap p roach to strategic HRM an d th e p ressu re on in d ivid u al
m an agers to ach ieve sh ort-term fin an cial resu lts.
Chapter summary
This chapter has examined different levels of strategic management. Strategic manage-
ment was defined as a ‘pattern of decisions and actions’ undertaken by the upper echelon
of the company. Strategic decisions were seen to be concerned with change and the
achievement of superior performance and to involve strategic choices. In multidivisional
companies, strategy formulation takes place at three levels – corporate, business, and
functional – to form a hierarchy of strategic decision making. We discussed how the
choices of HRM structures, policies and practices are dictated by corporate and business-
level strategies, as well as environmental pressures. When reading the descriptive and pre-
scriptive strategic management texts there is a great temptation to be smitten with what
appears to be the linear and absolute rationality of the strategic management process. In
this chapter, we draw attention to the more critical literature that recognizes that the
strategic HRM option at any given time is partially constrained by the outcomes of corpo-
rate and business decisions, the current distribution of power within the organization, and
the ideological values of the key decision makers.
The problematic nature of strategic HRM and the two competing SHRM models – the
matching model and the resource-based model – were identified. The matching model
was seen to be a reactive model in the sense that HRM strategy is subservient to corporate
strategy and to be more closely associated with the ‘hard’ version of the HRM model. We
reviewed the literature that has critiqued the matching model of SHRM on both concep-
tual and empirical grounds. It was noted that in the globalized economy with market tur-
bulence the ‘fit’ metaphor might not be appropriate when flexibility and the need for
organizations to learn faster than their competitors seems to be the key to sustainable
competitiveness. We also emphasized how the goal of aligning a Porterian low-cost busi-
ness strategy with a HRM strategy can contradict the core goal of employee commitment.
The resource-based SHRM model which places emphasis on a company’s human resource
endowments as a strategy for sustained competitive advantage was outlined. Again, there
seems little empirical evidence to suggest that many firms have adopted this ‘soft’ SHRM
model, although there is much rhetoric and interest in academia and in many companies
in the concept of workplace learning. We pointed out that senior managers are pragmatic
and work organizations can adopt a ‘hard’ version of HRM for one category of workers or,
in a multidivisional company, for one business while simultaneously pursuing a ‘soft’ ver-
sion of HRM for another group of workers or establishment to provide a coherent under-
standing of HRM policies and practices and why they vary. Whether senior managers
adopt the ‘matching’ or the ‘resource-based’ model of SHRM will be contingent upon first
the corporate and business strategies, as well as upon varying degrees of pressure and
constraints from environmental forces. Case study work highlights the limitations of strate-
gic choice model building. The growing literature on the HRM–organizational perform-
ance link illustrates the methodological challenges, but also the value of such research.
The stronger the linkages between HRM policies and practices and superior performance
outcomes, the stronger the case that can be made to senior management for building sus-
tainable competitive advantage around human endowments and synergies. The empiricial
evidence on the HRM–organizational performance link is promising but, as Guest (1997)

correctly argues, theories of competitive strategy, strategic integration, and expectancy
theory of motivation need further development and testing to create hypotheses on
HRM–performance linkages: ‘the studies report a promising association between HRM and
outcomes, but we are not in a position to assert cause and effect… we need to put a lot of
flesh on the bones’ (p. 274). The next chapter examines some of the environmental factors
that underlie managerial decision-making processes in human resource management.
Key concepts
Strategic management Low-cost leader
Hierarchy of strategy Differentiation strategy
Strategic HRM Workplace learning
M atching model Resource-based SHRM model
Leadership Re-engineering
Discussion questions
1. What is meant by strategy? Explain the meaning of ‘first-order’ and ‘second-order’
strategies?
2. Explain Purcell’s statement that ‘trends in corporate strategy have the potential to ren-
der the ideals of HRM unobtainable’.
3. ‘Business-level strategies may be constrained by human resource issues but rarely seem
designed to influence them.’ Discuss.
4. What is meant by a ‘resource-based’ SHRM model of competitive advantage? What are
the implications for HRM of this competitive strategy?
5. What are the linkages, if any, between strategic HRM, leadership and learning?
6. Why is it difficult to accurately quantify the HRM–organizational performance link?
7. Explain why recent research suggests that the HRM–organizational performance rela-
tionship is clearer and stronger when whole ‘systems’, rather than individual HRM prac-
tices are considered.
Further Reading
Boxall, P. (1992) ‘Strategic human resource management: beginnings of a new theoretical sophisti-
cation?’, Human Resource Management Journal, 2(3): 60–79.
Boxall, P. (1996) ‘The strategic HRM debate and the resource-based view of the firm’, Human Resource
Management Journal, 6(3): 59–75.
Cappelli, P. and Singh, H. (1992) ‘Integrating strategic human resources and strategic management’,
in Lewin, D., Mitchell, O. and Skerer, P. (eds) Research Frontiers in Industrial Relations and Human
Resources. Madison, University of Wisconsin: Industrial Relations Association.
Champy, J. (1996) Reengineering Management: The Mandate for New Leadership. New York: Harper
Business.
Ichniowski, C., Kochan, T., Levine, D., Olson, C. and Strauss, G. (1996) ‘What works at work: overview
and assessment’, Industrial Relations, 35(3): 299–333.
Kamoche, K. (1996) ‘Strategic human resource management within a resource-capability view of the
firm’, Journal of Management Studies, 33(2): 213–33.
Mintzberg, H., Ahlshand, B. and Lampel, J. (1998) Strategy Safari: A Guided Tour Through the Wilds of
Strategic Management. New York: Free Press.
Chapter case study
Air National: Strategic Choice in the New

Competitive Environment 3
Air National’s (AN) 1986 Annual Report glowed with optimism. Bradley Smith, CEO, stated
in his letter to shareholders, ‘As a newly privatized company we face the future with
enthusiasm, confident that we can compete in a deregulated industry.’ By April 1988,
however, the tone had changed with a reported pre-tax loss of $93 million. The newly
appointed CEO, Clive Warren, announced a major change in the company’s business
strategy that would lead to a transformation of business operations and HR practices in
Europe’s largest airline company.
Background
During the early 1980s, civil aviation was a highly regulated market and competition was
managed through close, if not always harmonious, relationships between airlines, their
competitors and governments. National flag carriers dominated the markets and market
shares were determined, not by competition, but by the skill of their governments in
negotiating bilateral ‘air service agreement’. These agreements established the volume and
distribution of air traffic and thereby revenue. Within these markets AN dominated other
carriers. Despite the emergence of new entrants, in 1983 AN’s share of the domestic
market, for instance, increased by 60 per cent.
The competition
In the middle of the 1980s, Air National’s (AN) external environment was subjected to two
sets of significant changes. First, in 1986, AN was privatized by Britain’s Conservative
government. This potentially reduced the political influence of the old corporation and
exposed the new company to competitive forces. Preparation for privatization required
painful restructuring and ‘downsizing’ of assets and the workforce, driven largely by the
need to make the company attractive to initially sceptical investors.
Paradoxically, however, privatization also offered significant political leverage which AN
was able to deploy to secure further stability in its key product markets. It was this factor,
rather than the stimulus of market competition, that gave senior management the degree
of stability and security to plan and implement new business and HRM strategies. The
second set of pressures, potentially more decisive, were generated by prolonged economic
recession and the ongoing deregulation of civil aviation in Europe and North American.
With these environmental forces, AN attempted to grow out of the recession by
adopting a low-cost competitive strategy and joining the industry-wide price war. Bradley
Smith, CEO, when he displayed the following overhead transparency (Exhibit 2.1) to his
senior management team (SMT) in April 1986 stated that ‘this strategy requires us to be
aggressive in the market place and to be diligent in our pursuit of cost reductions and cost
minimization in areas like service, marketing and advertising’.
Broad target Cost leadership Differentiation
Competitive
scope
Focused
Narrow target Cost focus
differentiation
Lower cost Differentiation
Competitive
advantage
Exhibit 2.1 Air National’s strategic choices
The low-cost competitive strategy failed. Passenger numbers slumped by 7 per cent
during 1988 contributing to a pre-tax loss. Following the appointment of a new CEO, AN
changed its competitive strategy and began to develop a differentiation business strategy
(Porter, 1980) or what is also referred to as an ‘added-value’ strategy.
Air National’s new competitive strategy

Under the guidance of the newly appointed CEO, Clive Warren, Air National prioritized
high-quality customer service and ‘re-engineered’ the company. Management structures
were reorganized to give a tighter focus on operational issues beneath corporate level. Air
National’s operations were divided into route groups based on five major markets (see
Exhibit 2.2).
CORPORATE
M ANAGEM ENT
Group 1 Group 2 Group 3 Group 4 Group 5

North Pacific India Europe Domestic
America
Exhibit 2.2 Air National’s management structure
Each group was to be headed by a general manager who was given authority over the
development of the business with particular emphasis on marketing. The company’s
advertising began also to emphasize the added-value elements of AN’s services. New brand
names were developed and new uniforms were introduced for the cabin crews and point-
of-service staff.
AN’s re-engineering also aimed at cutting the company’s cost base. Aircraft and
buildings were sold and persistently unprofitable routes either suspended or abandoned
altogether. AN’s overall route portfolio was cut by 4 per cent during 1989 alone. Labour
costs offered the most significant potential savings and, with 35 000 employees AN’s re-
engineering included ‘one of the biggest redundancy programmes in British history’. Once
the redundancy programme was underway the company was able to focus on product
development, marketing, customer service, and HR development. The company’s
sharpened focus on the new ‘customer first’ programme prompted a major review of the
management of employees and their interface with customers.
Air National’s HRM strategy

The competitive and HRM strategies pursued by AN in the wake of this re-engineering
process are congruent with those SHRM models that emphasize empowerment and
employee development. As the CEO, Clive Warren, stated in a TV interview:
In an industry like ours, where there are no assembly lines or robots, people are our
most important asset and our long-term survival depends upon how they work as
part of a team. This means that, to get superior performance, managers have to care
about how they live and develop, not just about how they work and produce.
The key features of leadership style associated with the adopted strategies were more
formally illustrated by AN’s Director of Human Resources, Elizabeth Hoffman, to the SMT
(Exhibit 3). In the closing part of her presentation, Elizabeth Hoffman outlined the need
for a new approach to managing AN’s employees: ‘We must emphasize to our managers
that they must give up control if our employees are to improve their performance.’
As part of the ‘new way of doing things’, demarcations between craft groups, such as
avionics and mechanical engineers, were removed and staff were organized into teams of
multiskilled operatives led by team leaders. Even those middle managers who supported
the new re-engineered workplace found this approach to managing their subordinates
uncomfortable at times, as one maintenance manager acknowledged:
The hard part is having to share power. No matter how you rationalize it, after a
while you want to just make your own decisions and follow it through. I confess that
my own thinking tends to be hierarchical in certain situations… I like to be able to
say yes or no without having to confer all the time and seek consensus from the
team. So there are some real disadvantages for me in this new regime we have, but
I realize it’s the right way to go.
CORPORATE Differentiation competitive strategy

LEVEL Corporate values recognising contribution of AN employees
Effective voice for HR at the strategy table
HR POLICY Priority given to security of employment

LEVEL Investment in workplace learning
Competitive and equitable pay policies
WORKPLACE Broad task design and self-managed teams

LEVEL Emphasis on employee empowerment and self-accountability
Climate of co-operation, commitment and trust
Exhibit 2.3 Key characteristics of Air National’s strategic HRM and

empowering–developmental approach
AN instituted a series of customer service training seminars and invested in training and
development. The senior management also developed a ‘strategic partnership’ with the
unions. At the onset of the re-engineering process Clive Warren and Elizabeth Hoffman
undertook to ‘open the books’ to the unions and established team briefings and regular,
formal consultation meetings with union representatives. A profit-related pay system was
also launched with the full support of the unions. In addition, the senior management held
major training programmes, designed and delivered by leading business school academics,
on the importance of trust, motivation and ‘visionary’ leadership.
Running parallel to these developments was the company’s concurrent objective of cost
reductions. Between 1988 and 1992, AN shed 37 per cent of its workforce with nearly 25
per cent going in 1988. Job cuts were managed entirely through voluntary severance and
redeployment. However, the requirement to sustain and improve performance in the face
of such job losses produced a preoccupation with productivity levels and attempts to alter
shift patterns at times provoked conflict. Disputes were resolved quickly and usually by the
company reminding employees of AN’s commitment to job security, training and
development, and through senior management ‘throwing money at the problem’.
Reviewing the last decade, Clive Warren considered that AN had been ‘transformed by
re-engineering’. Deep in debt in the late 1980s, Air National went into profit in the first
quarter of 1997. The company’s aircraft were flying to 164 destinations in 75 countries
from 16 UK airports. AN accounted for 70 per cent of UK scheduled domestic and
international passenger traffic and ‘is now the largest international air passenger carrier in
the world’, said Warren.
Task
You are a HR consultant employed by a rival national airline to investigate Air National’s
competitive and HRM strategy. Prepare a written report on the following questions:
1. What factors enabled Air National’s senior management to take a strategic approach to
its business and to adopt an empowering–developmental approach to HRM?
2. How useful is the concept of ‘strategic choice’ in understanding the linkage between Air
National’s competitive and HR strategies?
3. To what extent do re-engineering principles affect management development and
practices?
Notes
1. F.A. Jaljers, Chairman of the Board of Unilever.
2. Aktouf, O. (1996) Traditional Management and Beyond, Montreal: Morin, p. 91.
3. The case is based on Trevor Colling (1995) ‘Experiencing turbulence: competition, strategic choice
and the management of human resources in British Airways’, Human Resource Management Journal,
5(5): 18–32.

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chapter two

Strategic human resource

If a global company is to function successfully, strategies at different levels need to

In th e first ch ap ter we exam in ed th e th eoretical d ebates on th e n atu re an d sign ifi-

Figure 2.1 The three traditional poles of a strategic plan

M odel of strategic management

We are th e blin d p eop le an d strategy form ation is ou r elep h an t. Sin ce n o on e h as h ad

HRM in practice 2.1

Japanese forced into HR strategy rethink

In th e d escrip tive an d p rescrip tive m an agem en t texts, strategic m an agem en t ap p ears

1. organ ization ’s d irection

STEP 1 M ission and Goals

STEP 2 Environmental Analysis

STEP 3 Strategic Formulation

STEP 4 Strategy Implementation

STEP 5 Strategic Evaluation

Figure 2.2 The strategic management model

Th e first step in th e strategic m an agem en t m od el begin s with sen ior m an agers

wh y th ey are m ad e (McLou gh lin an d Clark, 1988). Th e n otion of strategic ch oice also

[W ]h en in corp oratin g strategic ch oice in a th eory of organ ization s, on e is recogn izin g

In a p olitical m od el of strategic m an agem en t, it is n ecessary to con sid er th e d istri-

Su ch strategies d eterm in e th e typ e of bu sin esses a corp oration wan ts to be in an d

Establish in g in vestm en t p riorities an d steerin g corp orate resou rces in to th e m ost

HRM : philosophy, policies, programs, practices,

Figure 2.3 Hierarchy of strategic decision making

Business-level strategy and HRM

Human resource strategy

Environmental influences Business strategy

Figure 2.4 Environment as a mediating variable for HRM strategies

th e h ierarch y of th e strategic d ecision -m akin g m od el, th e HRM strategy is in flu en ced

Strategic human resource management

Alth ou gh th e roots of th e strategic literatu re on HRM are in ‘m an p ower’ [sic] p lan -

exp lain ed by th e p ressu re to en h an ce th e statu s of HRM p rofession als with in com p a-

The matching strategic HRM model

in th is book argu ed th at ‘HR system s an d organ ization al stru ctu re sh ou ld be m an aged

Figure 2.5 Devanna et al.’s matching model of strategic HRM

(Boxall, 1996). In th e m atch in g m od el, th e relation sh ip between bu sin ess strategy

Limitations with the matching model

The resource-based model

Internal analysis External analysis

Resource-based model Environmental models of

im p ortan ce of in tern al ‘Stren gth s’ an d ‘Weakn esses’. Th is m od el, su m m arized in

Firm resource • History

between th e n u m erou s cogn itive an d affective biases ch aracteristic of h u m an s an d

Limitations with the resource-based model

ad d ition , An glo–North Am erican m an agem en ts h ave p laced m ore em p h asis on n on -

Dimensions of strategic HRM

In ad d ition to focu sin g on th e valid ity of th e m atch in g an d th e resou rce-based SHRM

Re-engineering and strategic HRM

Ham m er an d Ch am p y argu e for a n ew ap p roach to organ ization al d esign , work

Leadership and strategic HRM

Workplace learning and strategic HRM

Trade unions and strategic HRM

Yet o t h er in d u st rial relat io n s sch o lars, t akin g a m o re t rad it io n al ‘o rt h o d o x p lu ralist ’

HRM and organizational performance

t ices, rat h er t h an an en t ire ‘syst em ’. Seco n d , research o n t h e o u t co m es o f n ew HRM

m en t arran gem en ts associated with th e n ew HRM m od el h ave su p erior ou tp u t an d

evidence on the HRM–organizational performance link is promising but, as Guest (1997)

Chapter case study

Air National: Strategic Choice in the New

Broad target Cost leadership Differentiation

Lower cost Differentiation

Exhibit 2.1 Air National’s strategic choices