Strategic Human Resource Management:Concept, Importance, Model and Linking HR Processes to Business Strategy

Strategic Human Resource Management

Here we are going to learn what is strategic Human Resource Management? What is Human resource Planning? and also what is Strategic Human Resource Planning?
First of all we are going to discuss what is strategy?

“A strategy is a way of doing something. It includes formulation of a goal & set of action plans for accomplishment of that goal.”
It originated from the Greek word ‘Strategia’. That, means an art or science of being a general.

Strategic Management:

“Strategic management may be defined as the process of formulating, implementing and evaluating business strategies to achieve organizational objectives and goals” 

Strategic management involves four steps as given bellow:-

  1. Analyses the opportunities and threats or constrains that exist in external environment.
  2. Formulate strategies that will match organization’s strengths and weaknesses with the environmental threats & opportunities.
  3. Implement the strategies.
  4. Evaluate & control activities to ensure that the organization’s objectives are achieved.
Strategy formulation/types:
        Strategies are formulated at three levels:
(1)   Corporate level strategies: are focused on overall strategy for the company & it’s business & interests.
(2)   Business level strategies: Many organizations operate several businesses under the same or different names. Each of the businesses within the organization might have its own strategy.
(3)   Functional level strategies: Each business unit will consists of several departments, such as manufacturing, sales, finance, and HR. Functional level strategies identify the basic courses of action that each of the department must pursue in order to help the business unit to attain its goals. 

Strategic HRM

“ Strategic HRM is a set of distinct but interrelated practices, policies, and philosophies who’s goal is to enable & facilitate achievement of organizational strategy.
Ideally these practices, policies, and philosophies form a system that attracts, motivates, and trains employees who ensures the effective functioning and survival of the organization and its members.”

Human Capital
“it refers to the collective sum of the attributes, experience, knowledge, and commitment that employees choose to invest in their work
This intangible asset comprises of knowledge, education, vocational qualifications, professional certifications, work related experience, and competence of organizational employee”

Strategic Human Resource Planning

Strategic planning requires thinking about the future. In a perfect world, the strategic planner would establish an objective for five to ten years and then formulate plans for achieving the goals.

Strategy the formulation of organizational mission, goals, and objectives, as well as action plans (for achievement that explicitly recognize the competition and the impact of outside environment).  Strategy is the plan for how the organization intends to achieve its goals. The means it will use, the courses of action it will take, and how it will generally operate and compete constitute the organization’s strategy. 
We consider strategy an intended course of action a firm has selected to deal with a situation. This perspective views strategy as a rational process in which end are defined in measurable terms & resources are allocated to achieving those ends. In this context organizations would set objectives as “achieve 25% of market share by 2013”. or “ be a best health care facility in the country”. The organization then develops plans, which include HRM programmes, to achieve those goals.

Strategy planning: The systematic determination of goals & the plans to achieve them.

● Strategy plan: a written statement that that outlines the future goals of an organization, including long term performance goals.

● Strategy formulation: The entire process of conceptualizing the mission of an organization, identifying the strategy, and developing long-range performance goals.

● Strategy implementation : Those activities that employees and managers of an organization undertake to enact the strategic plan, to achieve the performance goals. Senior management typically sets the goals and has them approved by the board. Top management team determines those objectives through a process of environmental analysis & discussions.
● Execution of Strategy: Strategy formulation and implementation achieve the following:
1.      Define the vision, thus provide the organization with a sense of purpose, a mission, and a clear direction.
2.      Convert this vision into measurable objectives and performance targets.
3.      Determine the plan to achieve the strategy.
4.      Implement the plan in ways that are both effective And efficient.
5.      Measure the result against goals and revise plans in light of actual experience, changing conditions, new ideas, and new opportunities.

Strategic types :  Basic s Strategies can be classified into -
  (1) Corporate Strategies and
  (2) Business Strategies.
(1) Corporate Strategiesare focused on overall strategy for the company and its business & interests. Grouped within corporate strategies are three options: restructuring, growth and maintenance.
     Restructuring Strategies: This option includes 
               ▪Liquidation, and
      Growth Strategies: Growth can be achieved in several ways-
               ▪Incremental Growth
               ▪International growth
               ▪Mergers and acquisitions
        ● Maintenance Strategies: - For many reasons some executives wish to maintain the   statuesque. They do not wish to see their companies grow. The executive team is content to keep market share, doing what it has always been doing . HRM practice remain   constant.

(2) Business StrategiesStrategy seems to imply that only corporate-wide plans are made and these are used to manage and control the various units that exist within an organization. But many organizations operate several businesses   under the same or different names. each of the businesses within the organization might have its own strategy. For example, Alcan Aluminum operates two “divisions” or businesses, one that focuses on  primary metal and the other on fabrication. Each has a different business strategy, although the overall corporate strategy is survival & growth & Business strategy focuses on one line of strategy (in a diversified company), this strategy is the action plan for managing a single line of business. Business level strategy focus on the best ways to compete in a particular sector.

Concept of aligning HR practices, policies, And philosophies with organizational Strategy

Many organization had adopted a strategy but faced problems with HRM implications. In most cases unless the HRM strategy is appropriately formulated and skillfully implemented the success of the organizational strategy is at risk. What is needed to be done is the proper alignment of human resources policies with organizational strategies. Managers now understands the importance of matching the HRM practices with organizational goals. The strategic management of people within organizations affect important organizational outcome such as survival, profitability, customer satisfaction level, and employee performance. It is important that HR professionals appreciate the role of strategic planning  in their organizations and understand the language and terminologies of strategic planning  and business. HR managers have to use strategy terms to show how their HR policies & practices support  organizational strategies. HR professionals can work with other executives to implement HR practices that enable strategy.
Definition of Strategic HRM:

“Strategic HRM is a set of distinct but interrelated practices, policies, and philosophies who’s goal is to enable & facilitate achievement of the organizational strategy.Ideally these practices, policies, and philosophies form a system that attracts, motivates, and train employees who ensures the effective functioning and survival of the organization and its members.”
While managers recognize implicitly that marketing strategy must support the business strategy, there is not the same sense among managers that HR programmes can be aligned to support the organizational strategy. but human capital issues are at the top of the CEO agenda. They are also emphasizing on priorities like attraction, retention, innovation, needing HR input. Achieving organizational excellence must be the work of HR.

Human capital:
“It refers to the collective sum of the attributes, experience, knowledge, and commitment that employees choose to invest in their work.
 This intangible assets comprises of knowledge, education, vocational qualifications, professional certifications, work related experience, and competence of an organization’s employees”.

Work force management issues are often cited as a threat to an organization’s ability to execute strategy. HRM strategy so must match the business strategy. There is a profound need to align all HR functional practices with corporate strategy, not only solving the problems of labour surpluses and shortages or labour demand & supply forecasting, compensation management. Management of organizations are now suggesting an approach to HR strategy that calls for tailoring human resource policies and practices to the organizational needs of the future. The proliferation of bankruptcies, mergers, and restructuring has affected our views of employees in a profound way and highlighted the the need for the input HR professionals in formulating policy.

The importance of Strategic HRM Planning

 Executives are demanding that that the HR department move from articulating perceived value (“training builds employee skills”) to demonstrating real value    (an external client can see real value).As a game player on the corporate team the focus of HR must be on scoring points, not just coaching, training, or counting the number of players. The value of HR will be seen in its ability to deliver the behaviours needed to enable the organization’s strategy.

There are two reasons why Strategic HR planning is so important-
·         Employees help an organization achieve success because they are strategic resources. And
·         The planning process itself results in improved goal attainment.

1) Employees as Strategic  Resources:
● An organizations employees can provide a firm with a competitive advantage
● HR programmes represent an investment in human capital & this capital is difficult to duplicate or imitate.  
●HR can deteriorate like other resources & skill and knowledge can become obsolete, so human capital has to be replenished through education & training.
●The value of employees as a resource must be placed within strategic frame work. A strategy itself can become obsolete, making current employee skills obsolete, so employees need to change change/develop job behaviors to match new organization strategy.
●Human assets must be managed & matched to the organizational strategy.

2) Improved goal attainment:
A second advantage of managing human resources well is that the possibility of achieving organizational goals is increased.
Strategic HRM can improve an organization’s performance. The goals of these HRM strategies are to shape employee behavior so that it is consistent with the direction the organization identifies in its strategic plans. Clear strategies provide direction to employees, provide them  mission & goals  to accomplice.
It can increase motivation & performance, lowered absenteeism and turnover And provide stability, satisfaction & involvement.

Linking HR Processes to Strategy

Strategic HRM must facilitate the formulation and implementation of corporate and business-level strategies. Senior managers must focus on issues such as: What are the HR implications of adopting a strategy. The basic premise is that every HR policy and practice must directly support the organization’s strategy and objectives. HR plans are developed as an afterthought and separately from organizational strategy. They are not relevant to the business and are seen as important only by the HR people. No other unit or level is committed to these plans.
It has long been recognized that HR policies and practices must be linked to the firm’s overall strategy. 
Aligning HR strategy with business strategy can be done in one of these ways:
·   Start with organizational strategy and then create HR strategy.
· Start with HR competencies and then craft corporate strategies based on these competencies.
·  Do a combination of both in a form of reciprocal relationship.     
● Corporate Strategy Leads to HR Strategy:
A traditional perspective of HR planning views HRM programs as following from corporate strategy. Corporate strategy drives HR strategy. In other words, personnel needs are based on corporate plans. If a firm decides to compete on the basis of offering low-cost products, HR policies and practices must align and be based on low labour costs. Employees are considered means to an end, not part of the strategy formulation equation.
But another perspective reverses this view, suggesting that employee competencies determine the business strategy.

● HR Competencies Lead to Business Strategy:
A competing view states that an organization cannot implement a strategy if it does not have the human resources necessary. In the late 1990s, companies were scrambling to find high-tech workers in order to enable them to launch web-based services and products.
The critical question is, is it easier to change HR to fit the strategy or should you change the strategy to fit the human resource pool? Small businesses seem to choose the latter course. The owners of very small businesses quickly recognize that, if an employee has a certain capability, it can be exploited to develop new products or services. Diversity management efforts are currently building on this theme.

But this “skills determine strategy” outlook relies too heavily on employee capabilities and not enough on environmental analysis.

The reality is closer to the concept of reciprocal inter-dependencies.
● HR Strategy and Corporate Strategy:
An emerging perspective sees HR strategy as contributing to business-level strategy, and vice versa. Increasingly, in large firms, senior HR vice-presidents are asked not only to review business plans to ensure consistency with HR strategy, but also to provide input to this strategy based on HR strengths and weakness.
In this context, an organization chooses a business strategy, such as being a leader in innovative products, based on its in-house, highly educated, trained employees who have been socialized to value creativity. Simply phrased, an organization develops its employees and then capitalizes on their skills; the employees then learn new skills, and so it continues. In many ways, HR strategy generates the business strategy, and business strategy determines HR strategy. This concept of reciprocal interdependence is widely accepted in the HR strategy literature.

● HR becomes a Business Partner:
The key point here is the concept of concurrent strategy formulation. Strategy development, based on environmental analysis, is conducted at the same time that HRM issues are considered. HR issues do not solely determine strategy, nor does strategy unilaterally determine HR practices. The HR senior management team moves from outsider status to insider status. HR managers must understand the numbers language of business or the outcome expectations of nonprofit organizations. They must be able to understand analyses presented by marketing, financial, and operational managers. Cost-benefit assessments of options within the HR domain. For example, if the low-cost strategy depends on hiring personnel at minimum wage, HR managers have to develop strategies to deal with rapid training and high turnover rates. This option will have to be compared with outsourcing, use of robots, or even increasing wages to reduce the costs of turnover. The HR manager has become a partner and problem solver. Linkages between the HR manager and other managers, both formal and informal, ensure that this partnership role is enacted.

● Strategic Partnering:
Human resource professional recognize the need to play a more strategic role within the organization. HR managers defined their new role as one blending their HR technical skills with an in-depth understanding of the business and its goals.
Why do executives ignore HR’s contribution to strategy? Some argue that it is because management is not satisfied with HR services in general; that “people” issues belong only to HR, These attitudes are changing, however, as organizations realize the impact that HRM strategy can have on organizational effectiveness and as HR managers develop the internal relationships to ensure that the strategy is effective. Nevertheless, only one-third of HR managers stated that they played a major role in strategic planning.

Ways to become involved in the Strategic Planning Process

 ● Members in the Executive Team:
In order to involve HR in the strategic planning process, ensure that the person responsible for HRM is included as part of the executive team, occupying a position at the vice-presidential level. Most large organizations now position the most senior HR person at the executive vice-president level. More importantly, studies in the United Kingdom and Australia show that companies who included the HR director on the executive team experienced twice the growth in earnings per share compared to those who did not.

● Review/React Linkage:
However, this control or veto option is too passive. Linkages have to be made at earlier stages. HR managers should be supplying information about employee capabilities, be part of the strategic planning committee, and be documenting implications of strategic thrusts.

● Integrative Linkage:
In a truly integrative linkage, as exhibited in some companies, the interaction between the members of the executive committee and the HR director are frequent, and the HR director is involved in strategic decisions, even when the HR implications are not readily apparent. In some cases, the credibility of the HR department is so high that the CEO, vice-chair, and other top officials have all held the position of HR director as part of their career development.

Organizations are more responsive to integrative linkages when the environment is turbulent (increased competition, rapid technological change, and changing labour market demographics), resulting in difficulties recruiting the right kinds of people. Organizations with multiple divisions demanding different types of strategies, and therefore different HR practices for each division, also tend to elevate the role of HR. A culture or CEO with a strong belief in the asset value of employees will also result in more attempts at linking HR strategies with corporate strategies. The credibility of the HR director also influences the probability of a linkage. HR managers who were able to deliver information about labour supply, or critical personnel capabilities, in a quantifiable way were deemed more credible.
To illustrate how HR is aligned with strategies in real companies, Box 2.7 describes how United Parcel Service aligns its HR strategy with its low-cost-provider business goal, and box 2.8 illustrates HR alignment with a differentiation strategy at Frost. 

Characteristics of an Effective HRM Strategy

 The purpose of HR strategy is to capitalize on the distinctive competencies of the organization and add value through the effective use of human resources.

It appears that effective HRM strategies include the following: external and internal fit, and a focus on results.

External and Internal Fit:
 Fit is an important consideration when designing HR programs. We look at two types of important fit: fitting HR strategy to organizational strategy (external fit, and linking the various HR programs to other functional areas and to each other (internal fit).

External Fit:
HR programs must align with or fit the overall strategy of the organization. If the business strategy is to differentiate the organization from its competitors based on superior service, then selection and training programs should be developed to hire and train people in the skills and attitudes necessary to deliver superior service. Fit with other functional strategies is as important as fit with corporate strategies. HR senior management must be included in strategy discussions to be sure this happens.

Internal Fit:
We look at two types of internal fit: a fit with other functional areas, such as marketing, and a fit among all HR programs. Fit with other functional areas is important. If the marketing department is developing an advertising plan that promises 24-hour access to customer service representatives but the HR plan does not include compensation differentials for shift work, the overall marketing strategy might fail.

As HR programs must fit with other functional areas, so too do they have to be consistent with each other. That is, training, selection, and appraisal must work together to support a strategy. If the training department decides to teach employees to use the Internet to handle customer service, the staffing department must hire people who either are computer literate or who have the kinds of intelligence that enable them to learn computer skills rapidly.

Focus on Results: The hard work of deciding on strategy is not its formulation but its implementation and the tracking of results. Many HR managers do not have the resources or skills to measure results to see if the goals have been achieved. Unless the strategy contains performance measures – that is, is results oriented – it will be difficult to know how successfully the strategy was implemented.

The Strategic HR Planning Model

The model we are using is based on generic corporate and business strategies linked with complex bundled HR policies and practices. (Most of the requests we receive from CEOs and executive vice-presidents of HR are of this nature: “Our organization is merging with another. How will this affect HR? What changes in our HR policies and practices do we need to make?”

The steps in the strategic model are the following:

·  Monitor, identify, and analyze external environmental factors influencing issues for the organization in order to develop strategies. Included in this are those factors that influence an organization’s human resource capabilities
·   Develop a tentative corporate or business strategy.
· Assess the relative strengths and weaknesses of the organization’s human resources, using forecasting and analysis techniques. Determine the KSAs of an organization and the capacity to learn and change. Identify the competitive advantages of the HR department.
· Develop strategic plans for each division that are consistent with the overall strategic thrust and that ensure a fit with related components across functional areas.
· Identify HR policies and practices that will increase the likelihood of achieving the strategy and implement them.
·  Measure results and modify plans as necessary.

Thus, at the most senior levels of the corporation, HR professionals move from a policing role to the role of strategic partner. They will understand strategies and business needs and create the kind of human resource competencies that build competitive advantage.   

                                                                           Thank You       

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