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Aligning HR with strategy
HR’s emerging role –
formulation & implementation of strategy
 HR field has dramatically changed in the last
few years
 Importance of HR dept. to involve in the
strategic planning. E.g. designing reward
structure – finance dept + HR dept. + top
 Competitive advantage
Transition from HRM  SHRM
 Changes in market
conditions, economic
conditions, labour markets,
industrial structure and
international competition 
importance HR as a
competitive advantage.
 HR strategy is defined as the
set of ideas, policies and
practices that management
adopts to achieve a people
management perspective.
Transition from HRM  SHRM
 Schuler (1992) developed a ‘5-P model’ of SHRM
that melds five HR activities (philosophies,
policies, programs, practices and processes) with
strategic business needs, and reflects
management’s overall plan for survival, growth,
adaptability and profitability.
 Philosophy: Organization’s attitude towards its HR
& how they should be treated & the role they should
play in the success of the business. Found in its
values/mission statement  culture. e.g creating
value through leadership & excellence@ Pepsi-cola
 Policies: guidelines about mgmt. of people NOT
HR policy manual
‘5-P model’ of SHRM contd.
 Programs: coordinated HR efforts to initiate
and sustain strategic organizational change.
 Practices: deal effectively with performance
problems, encourage creativity in workplace, form
work teams & involve employees in decision
 Processes: involves identification, formulation
and implementation of HR activities to meet
strategic goals of organ.
The 5-P Model


HR Philosophy Express how to treat and value people

HR Policies Establishes guidelines for action on people-

related business issues and HR Programs

HR Programs Coordinates efforts to facilitate change to

address major people related business issues
HR Practices Motivates needed role behaviors

HR Process Defines how these activities are carried out

Traditional HR Vs strategic HR

Traditional HR Strategic HR
Specialize Change according to external needs of
Formulate rules & procedures; strict Good communication; flexible rules &
implementation regulations
HR policies interdisciplinary
Transactional; short term objectives Transformational; change agent
People as means to do work People as intellectual assets –
competitive advantage
Changes are slow Proactive & systemic changes
Traditional HR Versus Strategic HR
Linking Corporate and HR Strategies
Translating Strategy into
HR Policy and Practice

Basic Model
of How to
HR Strategy
and Actions
with Business
Roles of SHRM

1. Strategic role : formulating business decisions,

translating corporate strategy into HR strategy &
training employees to focus on customer needs.
2. Information & decision-making role: HR dept
informs and advices about best practices life efficiency
in customer service or new product development or
taking decisions on employee problems.
3. Strategic HR functional role : select, design and
implement planning & appraisal systems for
4. Administrative: implement policies and procedures;
improve administrative system;
Barriers to Strategic HR
 Short-term mentality / focus on current performance
 Lack of technical knowledge
 Inability of HR to think strategically
 Failure to understand general manager’s role as an
HR manager
 Difficulty in quantifying many HR outcomes
 Perception of human assets as high-risk investments
 Resistance (of employees) to change
Models integrating Strategy & HR
 Two models are important
 Model of best practice
 Model of strategic change

 Model of best practice

 Tyson and Doherty developed a model of best practice

that helps in analyzing best practices according to
requirements. These outcomes are based at three
 Strategic level
 Operational level
 Business process level
Model of best practice
 Recruiting and selecting employees with
desired competencies
 Value of the approach  effectiveness and
 Effectiveness defines as extent to which the
HR Dept. give importance to org. objectives
 Efficiency defined by the achievement of the
objectives in a cost effective manner.
Strategic level
 Implement major
 Identify programs and
policies  integrate
with production/
service delivery
Operational level
 Competencies are
created to give
competitive advantage.
 Develop sound
recruitment and
retention strategies
 Performance assessment
and training
Business process level
 Employees should be
involved in framing
 Policies  fair and
 Equal weightage to all
Models of strategic change
 A flexible model for integrating strategic
change was developed at Harvard university.
 This model was called “The Map of HRM
 Legitimate interest of shareholders and
stakeholders in organization aligned with HR
and Business strategy

Map of HRM territory

• Stakeholder mgmt.
• Employee groups
• Govt. Community HRM policy
• Employee
outcomes Long term
• Influence
• HR • Commitment consequence
• flow • Competence • Individual well-
Situational • Reward • Congruence being
• Cost • Organiza.
factors systems
• work systems • Effectiveness
• Workforce • Social well-being
• Business strategy
• Mgmt. philosophy
• Labout market
• Unions
• Technology
• Law & societal values
Propositions of Guest
 Guest, HR expert, has developed a set of
propositions based on the Harvard Model:
 Strategic integration - HRM issues with strategic
 High commitment - to org. goals

 High quality - goods & services

 Flexibility - ability of org. to adjust to changing

business environment
Integrative model
 Hendry & Pettigrew’s integrative approach
that integrates all modes of HRM like staffing,
recruitment & training.
 This model is called “Model of strategic
change and HRM”
 This model explores implications of employee
relations on various approaches to strategic
Model of strategic change and HRM
Outer context
• socioeconomic
• technical
• political

Inner context
• Culture, Structure
• Politics / Leadership
• Task-technology
• Business outputs

Business strategy content HRM context

• Role
• Objectives • Definition
• Product-market
• Organization
• Strategy & tactics
• HR output

HRM content
• HR flows
• Work systems
• Reward systems
• Employee relations
Storey’s Model – Ideal type
 How org’s transformed are being from
personnel into HRM
 Classified into four areas
 Beliefs& assumptions – about tasks to be
completed, nature of human relations
 Strategic concepts – key corporate planning

 Line mgmt. – mgmt. skills

 Key levers – selection, job design, pay, training &

Economic indicators of HRM
 By developing policies and programs after
aligning biz strategy with HR foll. Objectives
will be achieved:
 Competitive work practices
 Global practices

 Effective remuneration & performance policies

that can motivate employees
 Effective succession planning thro’ recruitment &
selection strategies
Invest perspective of HR
 Employee Costs Vs biz. Advantage
 Potential benefits of training
 Calculate man-hours lost
 Value based mgmt.
Factor affecting investment-
oriented organizations
1. Management values – people as assets
2. Attitude towards risk – training as risk
3. Employee skills – retention strategies
4. Cost benefit analysis – experience &
5. Outsourcing – focus on core competency –
competitive advantage
Human capital accounting
 American accounting association (1970) defines it as the
human resources identification and measuring process
and also its communication to the interested parties.
 Rensis Likert (1967) first used the term Human asset
accounting – now replaced by Human resource
 Likert designed a human capital balance sheet –
investments in replacements and development were
balanced with losses thro’ attrition and amortization
What is Human resource accounting ?

 HRA is a management
tool which is designed to
assist senior management
in understanding the long
term cost and benefit
implications of their HR
decisions so that better
business decisions can be
 According to Likert (1971), HRA serves the following
purposes in an organisation:
 It furnishes cost/value information for making management
decisions about acquiring, allocating, developing, and
maintaining human resources in order to attain cost-
 to monitor effectively the use of human resources;

 It provides a sound and effective basis of human asset control -

whether the asset is appreciated, depleted or conserved;
 helps in the understanding the financial consequences of
various HR practices.
Flamholtz’s approach
 An individual's conditional value is the present worth of the
potential services that could be rendered if the individual
stays with the org. for X years.
 Conditional value refers to the combination of
productivity, transferability and promotability.
 Conditional value when multiplied with probability factor
(time a person will stay with the org.) will give the expected
realizable value.
 Realizable value gives a measure of a person’s value -
increases as the individual’s learning increases.
Sources of employee value
 Two major sources :
 Productivity

 Added Value
 Productivity is the level of output generated
by a given level of input.
 Added value can be defined as the wealth
created through the efforts of the enterprise
and its people.
 Measure productivity and compare with industry
 ^ in productivity leads to increase in sales, profits
which increases the performance of the
 Limitations – This method assumes same average
costs for all employees. Also temporary basis
employees cannot be accounted for.
 Should take into account total cost of contributing
Added value thro’ rewards and
 Tie pay to individual performances.
 Base pay – decided on basis of seniority of
performance - with variable element (determined on
the basis of individual performance) and an incentive
(if the person performs exceptionally well).
 Incentives motivate individuals
 Stock options aim to distribute benefits of achieving
capital growth & to align employee rewards with that
of the shareholders.
Adding value thro’ attrition & recruitment

 Labor turnover is calculated by taking the

 no. of employees leaving in a time period/ avg.
no. of people leaving over a time period.
 does not indicate the reason for attrition
 Lost time and company spent on recruiting
and training
 Conduct exit intercviews
 Recommended HR audits for calculating value
of HR
 Four factors
 Quality of procedures and practices
 Cost benefit analysis

 Ability of staff to perform tasks effectively

 Customer satisfaction