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Strategic Human Resource Management

A Study on Indian Context

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CHAPTER-01

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Executive Summary

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Recently we have witnessed the amalgamation of several streams of management into the strategic management literature including epistemology, organizational learning, the resource based view, organizational capabilities and competitiveness and innovation and new product development (Frost, 2003; Grant and Baden Fuller, 1995). Other streams focus on nature and processes and examine the internal focus, which includes impact of strategic management concepts and frameworks that managers use to develop competitive strategy (Clark, 1997). Researchers have contended that the concept of strategic human resource management has evolved into a bridge between business strategy and the management of human resources (e.g. Butler et al., 1991; Lengnick-Hall and Lengnick-Hall, 1988; Lorange and Murphy, 1984). On the other hand, Truss and Gratton (1994) opine strategic human resource management as the overarching concept that links the management and deployment of individuals within the organization to the business as a whole and its environment. Ulrich (1997) further distinguished between strategic HR and HR strategy. He stated that strategic HR was the process of linking HR practices to business strategy. Thus, strategic HR deals with identifying the capabilities required of a business strategy and using HR practices to develop those capabilities.

On the other hand, he viewed HR strategy as building an agenda for the HR function and defining the mission, vision and priorities of the HR function. During the last decade, the personnel/HRM field has shifted from a micro focus on individual HRM practices to a debate on how HRM as a more holistic management approach may contribute to the competitive advantage of the organization (Fey et al., 2000). Researchers drawing largely on a behaviourist psychology perspective have addressed the link between human resource management practices and competitive advantage (Schuler and Jackson, 1987; Schuler and Macmillan, 1984). From this perspective, researchers have argued that human resource management practices can contribute to competitive advantage as far as they elicit and reinforce the set of role behaviours that result in lowering costs, enhancing product differentiation or both (Schuler and Jackson, 1987). This paper focuses on strategic HRM, as defined by Ulrich (1997), and the strategic role of HR linked to the organizational learning capabilities of the Indian managers. The study will now look at the field of HRM/HRD and the link to organizational learning capability.

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Introduction

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The SHRM literature is rooted in manpower (sic) planning, but it was the work of inuential management gurus, affirming the importance of the effective management of people as a source of competitive advantage, that encouraged academics to develop frameworks emphasizing the strategic role of the HR function and attaching the prex strategic to the term human resource management. Interest among academics and practitioners in linking the strategy concept to HRM can be explained from both the rational choice and the constituency-based perspective. There is a managerial logic in focusing attention on peoples skills and intellectual assets to provide a major competitive advantage when technological superiority, even once achieved, will quickly erode. Strategic human resource management is designed to help companies best meet the needs of their employees while promoting company goals. Human resource management deals with any aspects of a business that affects employees, such as hiring and firing, pay, benefits, training, and administration. Human resources may also provide work incentives, safety procedure information, and sick or vacation days.

Strategic human resource management is the proactive management of people. It requires thinking ahead, and planning ways for a company to better meet the needs of its employees, and for the employees to better meet the needs of the company. This can affect the way things are done at a business site, improving everything from hiring practices and employee training programs to assessment techniques and discipline.

Strategic human resource management is essential in both large and small companies. In small companies, this may be as simple as the owner or manager taking a little time every day to observe, assist, and assess employees, and provide regular reviews. Larger companies may have a whole department in charge of human resources and development. By meeting the needs of the employees in a way that also benefits the company, it is possible to improve the quality of staff members. Taking the effort to provide employees with the tools they need to thrive is worth the investment.

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CHAPTER-02

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Strategic HRM Meaning and Definition

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The field of strategic HRM is still evolving and there is little agreement among scholars regarding an acceptable definition. Broadly speaking, SHRM is about systematically linking people with the organisation; more specifically, it is about the integration of HRM strategies into corporate strategies. HR strategies are essentially plans and programmes that address and solve fundamental strategic issues related to the management of human resources in an organisation (Schuler, 1992). They focus is on alignment of the organisations HR practices, policies and programmes with corporate and strategic business unit plans (Greer, 1995). Strategic HRM thus links corporate strategy and HRM, and emphasises the integration of HR with the business and its environment. It is believed that integration between HRM and business strategy contributes to effective management of human resources, improvement in organisational performance and finally the success of a particular business. It can also help organisations achieve competitive advantage by creating unique HRM systems that cannot be imitated by others. In order for this to happen, HR departments should be forward-thinking (future-oriented) and the HR strategies should operate consistently as an integral part of the overall business plan. The HR-related future-orientation approach of organisations forces them to regularly conduct analysis regarding the kind of HR competencies needed in the future, and accordingly core HR functions (of procurement, development and compensation) are activated to meet such needs. Lengnick-Hall and Lengnick-Hall (1999: 2930) summarise the variety of topics that have been the focus of strategic HRM writers over the past couple of decades. These include HR accounting (which attempts to assign value to human resources in an effort to quantify organisational capacity); HR planning; responses of HRM to strategic changes in the business environment; matching human resources to strategic or organisational conditions; and the broader scope of HR strategies. For these writers, strategic HRM is a multidimensional process with multiple effects. Such writing also highlights the growing proactive nature of the HR function, its increased potential contribution to the success of organisations and the mutual relationships (integration) between business strategy and HRM.

Two core aspects of SHRM are: the importance given to the integration of HRM into the business and corporate strategy, and the devolvement of HRM to line managers instead of personnel specialists. Brewster and Larsen define integration as the degree to which the HRM
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issues are considered as part of the formulation of the business strategy and devolvement as the degree to which HRM practices involve and give responsibility to line managers rather than personnel specialists. Research in the field highlights a number of benefits of integration of HRM into the corporate strategy. These include: providing a broader range of solutions for solving complex organisational problems; assuring the successful implementation of corporate strategy; contributing a vital ingredient in achieving and maintaining effective organisational performance; ensuring that all human, technical and financial resources are given equal and due consideration in setting goals and assessing implementation capabilities; limiting the subordination and neglect of HR issues to strategic considerations; providing long-term focus to HRM; and helping a firm to achieve competitive advantage.

In similar vein, researchers have highlighted the benefits of devolvement of HRM to line managers. These include: highlighting certain issues that are too complex for top management to comprehend alone; developing more motivated employees and more effective control; local managers responding more quickly to local problems and conditions; resolving most routine problems at the grassroots level; affording more time for personnel specialists to perform strategic functions; helping to systematically prescribe and monitor the styles of line managers; improving organisational effectiveness; preparing future managers by allowing them to practise decision-making skills; and assisting in reducing costs by redirecting traditionally central bureaucratic personnel functions.

Despite the highlighted benefits of the devolution of HRM to the line management, it is still not widely practised in organisations. On the basis of earlier studies in the UK and their own indepth investigations into the topic, McGovern et al. suggest that devolution of responsibility for HRM to line managers is constrained by short-term pressures on businesses (such as minimising costs), the low educational and technical skill base of supervisors and a lack of training and competence among line managers and supervisors.

An important issue for top decision-makers is how to evaluate the extent to which both strategic integration and devolvement are practised in their organisations. The level of integration of HRM into the corporate strategy can be evaluated by a number of criteria: these include representation
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of specialist people managers on the board; the presence of a written people management strategy (in the form of mission statement, guideline or rolling plans, emphasising the importance and priorities of human resources in all parts of the business); consultation with people management specialists from the outset in the development of corporate strategy; translation of the people management strategy into a clear set of work programmes; the growing proactive nature of people management departments through the creation of rolling strategic plans (emphasising the importance of human resources in all parts of the business); through mission statements; by aligning HR policies with business needs through business planning processes; by use of participative management processes and committee meetings; and via HR audits.

The level of devolvement of HRM to line managers in an organisation can be evaluated on the basis of measures such as: the extent to which primary responsibility for decision-making regarding HRM (regarding pay and benefits, recruitment and selection, training and development, industrial relations, health and safety, and workforce expansion and reduction) lies with line managers; the change in the responsibility of line managers for HRM functions; the percentage of line managers trained in people management in an organisation; the feedback given to managers/line managers regarding HR related strategies; through consultations and discussions; the extent to which line managers are involved in decision- making; by giving the line managers ownership of HRM; and by ensuring that they have realised / accepted it by getting their acknowledgement.

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Stages of the Evolution of Strategy and HRM Integration


Greer (1995) talks about four possible types of linkages between business strategy and the HRM function / department of an organisation: Administrative linkage represents the scenario where there is no HR department and some other figurehead (such as the Finance or Accounts executive) looks after the HR function of the firm. The HR unit is relegated here to a paper-processing role. In such conditions there is no real linkage between business strategy and HRM. Next is the one-way linkage where HRM comes into play only at the implementation stage of the strategy. Two-way linkage is more of a reciprocal situation where HRM is not only involved at the implementation stage but also at the corporate strategy formation stage. The last kind of association is that of integrative linkage, where HRM has equal involvement with other organisational functional areas for business development. Purcell (1989) presents a two-level integration of HRM into the business strategy upstream or first-order decisions and downstream or second-order decisions: First-order decisions, as the name suggests, mainly address issues at the organisational mission level and vision statement; these emphasise where the business is going, what sort of actions are needed to guide a future course, and broad HR-oriented issues that will have an impact in the long term. Second-order decisions deal with scenario planning at both strategic and divisional levels for the next 35 years. These are also related to hardcore HR policies linked to each core HR function (such as recruitment, selection, development, communication). Guest (1987) proposes integration at three levels: First he emphasises a fit between HR policies and business strategy. Second, he talks about the principle of complementary (mutuality) of employment practices aimed at generating employee commitment, flexibility, improved quality and internal coherence between HR functions. Third, he propagates internalisation of the importance of integration of HRM and business strategies by the line managers.

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Strategic Planning Process

A good strategic planning process is iterative, incorporating internal and external information, various functional expertise, and cross-divisional management personnel throughout the year. Further, it aligns the entire organization with measurable metrics which are tracked and evaluated on a regular basis. It is important to establish an understanding of your organizations strategic planning process and the decision-making process associated with it. At every stage in
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the strategic planning process information will be analyzed in order to make decisions. Seek out those opportunities and offer information and insight that will enable those conversations. Strategic decisions will be made based on return on investment (ROI), economic profit or shareholder value creation, revenue growth, market share growth, margin, reputation or other factors. Companies also make decisions based upon short-term (sometimes quarterly) or longterm expectations, depending on the stage of growth and legal structure of the company. Once you understand the planning process and the decision-making criteria for your organization, you can begin to make inroads into the process. Your input into the process at every stage should be in alignment with the decision-making process of the company. In fact, your ability to align your conversations and actions with the process and decision-making criteria will at least get you on the long list of invitations to the table.

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Approaches to Strategic Human Resource Management


The four major approaches to Strategic Human Resource Management identify the differing views which are consolidated below:

1) Strategy-focused Approach: Authors Mathis& Jackson and Beer et al view HRM and SHRM to be identical. They define that HRM by its nature itself is strategic. The elements of HRM like training, recruitment, selection all of them operate as derivatives of requirements of strategy within the organization. Strategic planning suggests HRM planning. This view is not accepted by many of the scholars and view that HRM is strategic to some extent but not in all aspects.

2) Decision-focused Approach: Tichy et al defines that there are three management levels namely: strategic (long-term), managerial (medium-term) and operational (short-term). The author views that the HR functions performed at the strategic management level are SHRM. The managerial and operational level HR functions do not come under SHRM and would rather be considered as functional HRM activities.

3) Content-focused Approach: Torrington & Hall identifies that in the model of HRM process there are always some elements and in every such elements there are some strategic aspects that are referred to as SHRM. According to this approach the functional aspects of HRM elements can also be included with the organizations strategy leading to the emergence of SHRM.

4) Implementation-focused Approach: Miles & Snow view that organizations do have some competitive objectives that are achieved through some business strategies. In order to formulate and implement such strategies appropriate HRM systems are necessary and those HR systems are strategic in nature so called SHRM.

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Essential Elements of SHRM


1. Internally Transforming HR Staff and Structure: a. Transforming HR Staff: There exists a significant difference in the skills needed by HR staff in the traditional and strategic orientations to HRM. In traditional HRM staff had to be specialized in certain functional areas like training or recruitment interviewing. The strategic HRM role played by HR professional is change management, involving strategic planning, team building and having global perspective. Most HR units will face a significant transformation in order to manage human resources with a new strategic view. b. Transforming the Organizational Structure: In transforming the HR structure from traditional to SHRM, it is common for the organizational unit to restructure. The major issue in designing a new strategic HRM unit is to determine whether to centralize or decentralize HR function. The relevant structure for the HR function depends on the nature of the firms business, size of the firm and firms overall business strategy. In some organizations centralized structure for HR unit would be appropriate and in some highly decentralized HRM may be necessary. Regardless of which particular structure is used the key element in successful transformation from traditional HR function to SHRM is to find a structure that meets the pressing needs of business strategy and allow the HR unit provide services designed to help the firm achieve strategic objectives. 2. Enhancing Administrative Efficiency: Dave Ulrich suggested that one of the key roles of HR staff is to be administrative experts. As administrative experts, HR staff members must take an active role in reengineering administrative and other processes within the firm and find ways to share services more effectively throughout the organization. The objective is to increase HR service efficiency and save money. Several processes are needed to enhance the administrative expertise of HR units. The first focuses on: a. Improving administrative efficiency by targeting current processes for improvement, by examining the gaps between the as is process and what the system needs to be. b. Administrative efficiency can also be enhanced by the development of centralized HR services that are shared throughout an organization.

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c. The ultimate process involves HR staff to rethink how they create value to the firm in terms of value perceived by the customers rather than perceived by the provider of the program. 3. Integrating HR into the Strategic Planning Process: The strategic integration of HR requires strategic planning process and the involvement of HR managers in that process. The development of strategic plan involves top management, with the help of outside consultants, to go through and analyze the current and future condition of the organization. To achieve full integration, HR managers should not only have the ability to influence the development and selection of information used in decision making but should also have the ability to influence decision making. 4. Linking HR practices to Business Strategy and to one another: This issue of fitting HR practices to business strategy is becoming increasingly important and relevant HR issue for HR staff and line managers. HR fit involves making sure HR activities make sense and help the organization achieve its goals and objectives. The three aspects of HR fit are: a. Vertical Fit: This aspect of vertical fit concerns the coincidence between HR practices and overall business strategy. b. Horizontal Fit: This relates to the extent to which HR activities are mutually consistent. Consistency ensures that HR practices reinforce one another. c. External Fit: The third aspect concerns how well HR activities match the demands of the external environment. d. Resource Flexibility: is the extent to which a firm can apply its resources to a variety of purposes. It also involves the cost, difficulty, and time needed to switch resources from one use to another. e. Coordination Flexibility: concerns the extent to which an organization has decisionmaking and other systems that allow it to move resources fastly from one use to another. This task is accomplished by having an effective partnership between HR managers and line managers. 5. Developing a partnership with Line Management: Major changes are required to link the human resource function to the user organization. Most personnel functions are linked to the operational business activities. With the addition of new managerial and strategic activities, new linking mechanisms will be required as follows:
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a. Step 1: Provide the business with good human resource databases. These include environmental scanning of labor markets and social and economic issues that impact the long-term human resource context of the organization. b. Step 2: Alter the senior management role when it comes to human resource management issues so that these concerns receive quality attention. The managers need to be committed to weighing human resource issues with the same level of attention as that of other functions, such as finance, marketing, accounting, and production. c. Step 3: The line organization must alter its incentive and control systems so that the overall human resource function is managed. It will also be necessary for the organization to have ways of measuring the overall performance of the human resource function at the strategic, managerial, and operational levels. This will entail ongoing audits of the human resource function to determine how well it is doing in providing services to its clients. 6. Focusing on the bottom-line impact of HR and Measurement of that impact: In order to show how HR contributes to overall business success, the first requirement is to identify the means of measuring HRs performance. Most of suggested typologies relate to four basic approaches about HRM: a. Customer/stake holder approach to measure the HRM effectiveness involves identifying managers, unions, customers, and employees even the suppliers and company shareholders, that are direct users of HR products. b. HR impact: To evaluate the impact of HR programs, human resource units must develop a strategic framework for assessing the effectiveness of their services. The strategic objectives should be identified for functional units along with human resource activities needed to accomplish those objectives. c. Dollar value of HR programs: The third issue relates to the monetary costs and benefits of HR activities. Various dollar-value indices like: benefits as % of total compensation, return on HR investment, HR cost per sales dollar are used to asses HR. d. Benchmarking HR practices: This fourth aspect is important as it determines the true competitive advantage of HR, by assessing against the HR practices of key
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competitors and firms that demonstrate HR excellence. The benchmarking could be different types like Internal Benchmarking that deals with the firm comparing practices in one part of the organization against those in the internal units. Competitive benchmarking is conducted with external competitors in the same market. Generic HR benchmarking involves the comparison of HR processes that are same, regardless of the type of industry.

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SHRM Models

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The Matching Model

Early interest in the matching model was evident in Devanna et al.s (1984) work: HR systems and organizational structure should be managed in a way that is congruent with organizational strategy. This is close to Chandlers (1962) distinction between strategy and structure and his often-quoted maxim that structure follows strategy. In the Devanna et al. model, HRM strategystructure follow and feed upon one another and are influenced by environmental forces. Similarly, the notion of fit between an external competitive strategy and the internal HR strategy is a central tenet of the HRM model advanced by Beer et al. (1984, see Figure 1.5). The authors emphasize the analysis of the linkages between the two strategies and how each strategy provides goals and constraints for the other. There must be a fit between competitive strategy and internal HRM strategy and a fit among the elements of the HRM strategy (Beer et al., 1984, p. 13). The relationship between business strategy and HR strategy is said to be reactive in the sense that HR strategy is subservient to product market logic and the corporate strategy. The latter is assumed to be the independent variable (Boxall, 1992; Purcell & Ahlstrand, 1994). As

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Miller (1987, cited in Boxall, 1992, p. 66) emphasizes, HRM cannot be conceptualized as a stand-alone corporate issue. Strategically speaking it must flow from and be dependent upon the organizations (market oriented) corporate strategy. There is some theorization of the link between product markets and organizational design, and approaches to people management. Thus, for example, each Porterian competitive strategy involves a unique set of responses from workers, or needed role behaviours, and a particular HR strategy that might generate and reinforce a unique pattern of behaviour (Cappelli & Singh, 1992; Schuler & Jackson, 1987). HRM is therefore seen to be strategic by virtue of its alignment with business strategy and its internal consistency (Boxall, 1996).

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The Resource-based Model

This second approach to developing typologies of HR strategy is grounded in the nature of the rewardeffort exchange and, more specifically, the degree to which managers view their human resources as an asset as opposed to a variable cost. Superior performance through workers is underscored when advanced technology and other inanimate resources are readily available to competing firms. The sum of peoples knowledge and expertise, and social relationships, has the potential to provide non-substitutable capabilities that serve as a source of competitive advantage (Cappelli & Singh, 1992). The various perspectives on resource-based HRM models raise questions about the inextricable connection between work-related learning, the mobilization of employee consent through learning strategies and competitive advantage. Given the upsurge of interest in resource-based models, and in particular the new workplace learning discourse, we need to examine this model in some detail.

The genesis of the resource-based model can be traced back to Selznick (1957), who suggested that work organizations each possess distinctive competence that enables them to outperform their competitors, and to Penrose (1959), who conceptualized the firm as a collection of productive resources. She distinguished between physical and human resources, and drew
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attention to issues of learning, including the knowledge and experience of the management team. Moreover, Penrose emphasized what many organizational theorists take for granted that organizations are heterogeneous (Penrose, 1959, cited in Boxall, 1996, pp. 645). More recently, Barney (1991) has argued that sustained competitive advantage (emphasis added) is achieved not through an analysis of a firms external market position but through a careful analysis of its skills and capabilities, characteristics that competitors find themselves unable to imitate. Putting it in terms of a simple SWOT analysis, the resource-based perspective emphasizes the strategic importance of exploiting internal strengths and neutralizing internal weaknesses (Barney, 1991).

The resource-based approach exploits the distinctive competencies of a work organization: its resources and capabilities. An organizations resources can be divided into tangible (financial, technological, physical and human) and intangible (brand-name, reputation and know-how) resources. To give rise to a distinctive competency, an organizations resources must be both unique and valuable. By capabilities, we mean the collective skills possessed by the organization to coordinate effectively the resources.

According to strategic management theorists, the distinction between resources and capabilities is critical to understanding what generates a distinctive competency. It is important to recognize that a firm may not need a uniquely endowed workforce to establish a distinctive competency as long as it has managerial capabilities that no competitor possesses. This observation may explain why an organization adopts one of the control-based HR strategies.

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The Integrative Model

Bamberger and Meshoulam (2000) integrate the two main models of HR strategy, one focusing on the strategys underlying logic of managerial control, the other focusing on the rewardeffort exchange. Arguing that neither of the two dichotomous approaches (control- and resource-based models) provides a framework able to encompass the ebb and flow of the intensity and direction of HR strategy, they build a model that characterizes the two main dimensions of HR strategy as involving acquisition and development and the locus of control.

Acquisition and development are concerned with the extent to which the HR strategy develops internal human capital as opposed to the external recruitment of human capital. In other words, organizations can lean more towards making their workers (high investment in training) or more towards buying their workers from the external labour market (Rousseau, 1995). Bamberger and Meshoulam (2000) call this the make-or-buy aspect of HR strategy.

Locus of control is concerned with the degree to which HR strategy focuses on monitoring employees compliance with process-based standards as opposed to developing a psychological contract that nurtures social relationships, encourages mutual trust and respect, and controls the focus on the outcomes (ends) themselves. This strand of thinking in HR strategy can be traced

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back to the ideas of Walton (1987), who made a distinction between commitment and control strategies (Hutchinson et al., 2000).

HR Strategic Plan
Goals and Objectives

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Goal One: Promote and enhance our competitive total rewards package to recruit and
retain top talent.

Objectives: Create a total rewards message to educate HR partners, hiring managers, and recruits on the total value of the Virginia Tech employment package Work closely with management to reinforce the need for competitive compensation for individuals Virginia Tech wishes to attract and retain Fine tune benefits package within the Virginia higher education restructuring framework Focus on retirement planning and support for current and retired employees Define a minimum level of employee educational benefit across all senior management areas

Goal Two: Support the talent development of our employees through professional
development, career development, and improved performance management.

Objectives: Invest in professional development programs to improve leadership capabilities, job skills, and employee productivity Develop comprehensive career management tools, job enrichment strategies, and mentoring programs to help employees prepare for new opportunities Provide organizational consulting services to all senior management areas to spur improved organizational and individual performance

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Goal Three: Promote the achievement of work-life balance and wellness in our employee
community.

Objectives: Expand the use of flexible work arrangements through greater supervisory and employee awareness about the potential benefits to employees and departments Inform employees about the importance of education, awareness, self-care, and behavioral change in improving wellness and productivity Collaborate with individuals and departments, both on and off campus, to deliver a broader range of wellness programs and services for improved physical and mental health Assess the ongoing need for more child-care options based on analysis of local supply and demand

Goal Four: Deliver HR services, programs, and communications which are highly valued
by our prospective employees, current employees, and retirees.

Objectives: Target employee communications more effectively to meet employee information needs Leverage technology to streamline HR service processes and improve access to employee information Define HRs customer service promise and assess and improve customer satisfaction to a common standard through regular surveys Develop HR scorecard for central HR and senior management areas as an overall assessment and improvement tool Plan new office location so that it provides a productive work environment for improved service and program delivery

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Goal Five: Foster a diverse, inclusive community with a positive work environment.
Objectives: Develop a Building a Better Work Environment curriculum for supervisors Conduct regular organizational climate assessments and collaborate with senior managers to improve the campus work climate Partner with the Office of Diversity and Inclusion, senior managers, and department heads to promote and uphold our Principles of Community Educate the campus community on the prevention of harassment and discrimination and productive ways to resolve conflict Insure we promote our commitment to diversity and non-discrimination through our actions and in our outreach and employee recruitment efforts Assess and address reasons why talented people leave the Virginia Tech employee community

Goal Six: Compete for top talent with effective recruitment strategies and efficient
recruitment processes.

Objectives: Identify more proactive recruiting solutions for staff and AP faculty positions Build relationships with senior management areas by assigning them staffing specialists and developing recruitment strategies focused on their recruitment priorities Improve employee onboarding experience through three month check-up Design and implement a central hiring procedures portal for managers to use when hiring all job types Provide search support for AP faculty searches upon request

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Dimensions of
Strategic Human Resource Management (SHRM)

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In addition to focusing on the validity of the matching SHRM model and typologies of HR strategy, researchers have identified a number of important themes associated with the notion of SHRM that are discussed briefly here These are:

HR practices and performance Re-engineering organizations and work Leadership and strategic Human Resource Management Workplace learning Trade unions

Human Resource Management practices and performance Although most HRM models provide no clear focus for any test of the HRM performance link, the models tend to assume that an alignment between business strategy and HR strategy will improve organizational performance and competitiveness. During the past decade, demonstrating that there is indeed a positive link between particular sets or bundles of HR practices and business performance has become the dominant research issue. The dominant empirical questions on this topic ask What types of performance data are available to measure the HRM performance link? and Do high-commitment-type HRM systems produce above-average results compared with control-type systems? A number of studies have found that, in spite of the methodological challenges, bundles of HRM practices are positively associated with superior organization performance.

Re-engineering and Strategic Human Resource Management All normative models of HRM emphasize the importance of organizational design. As previously discussed, the soft HRM model is concerned with job designs that encourage the vertical and horizontal compression of tasks and greater worker autonomy. The redesign of work organizations has been variously labelled highperforming work systems (HPWS), business process re-engineering and highcommitment management. The literature emphasizes core features of this approach to organizational design and management, including a flattened hierarchy, decentralized decision-making to line managers or work teams, enabling information

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technology, strong leadership and a set of HR practices that make workers behaviour more congruent with the organizations culture and goals.

Leadership and Strategic Human Resource Management The concept of managerial leadership permeates and structures the theory and practice of work organizations and hence how we understand SHRM. Most definitions of managerial leadership reflect the assumption that it involves a process whereby an individual exerts influence upon others in an organizational context. Within the literature, there is a continuing debate over the alleged differences between a manager and a leader: managers develop plans whereas leaders create a vision. Much of the leadership research and literature tends to be androcentric in nature and rarely acknowledges the limited representation of ethnic groups and women in senior leadership positions. The current interest in alternative leadership paradigms variously labelled transformational leadership and charismatic leadership may be explained by understanding the prerequisites of the resource-based SHRM model. Managers are looking for a style of leadership that will develop the firms human endowment and, moreover, cultivate commitment, flexibility, innovation and change.

A number of writers make explicit links between learning, leadership and organizational change. It would seem that a key constraint on the development of a resource-based SHRM model is leadership competencies. Apparently, most re-engineering failures stem from breakdowns in leadership, and the engine that drives organizational change is leadership, leadership, and still more leadership. In essence, popular leadership models extol to followers the need for working beyond the economic contract for the common good. In contemporary parlance, the transformational leader is empowering workers. To go beyond the rhetoric, however, such popular leadership models shift the focus away from managerial control processes and innate power relationships towards the psychological contract and the individualization of the employment relationship.

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Workplace Learning and Strategic Human Resource Management Within most formulations of SHRM, formal and informal work-related learning has come to represent a key lever that can help managers to achieve the substantive HRM goals of commitment, flexibility and quality (Beer et al., 1984; Keep, 1989). As such, this growing field of research occupies centre stage in the soft resource-based SHRM model. From a managerial perspective, formal and informal learning can, it is argued, strengthen an organizations core competencies and thus act as a lever to sustainable competitive advantage having the ability to learn faster than ones competitors is of the essence here. There is a growing body of work that has taken a more critical look at workplace learning. Some of these writers, for example, emphasize how workplace learning can strengthen cultural control (Legge, 1995), strengthen the power of those at the apex of the organization (Coopey, 1996) and be a source of conflict when linked to productivity or flexibility bargaining and job control (Bratton, 2001).

Trade Unions and Strategic Human Resource Management The notion of worker commitment embedded in the HRM model has led writers from both ends of the political spectrum to argue that there is a contradiction between the normative HRM model and trade unions. In the prescriptive management literature, the argument is that the collectivist culture, with its them and us attitude, sits uncomfortably with the HRM goal of high employee commitment and the individualization of the employment relationship. The critical perspective also presents the HRM model as being inconsistent with traditional industrial relations, albeit for very different reasons. Critics argue that high-commitment HR strategies are designed to provide workers with a false sense of job security and to obscure underlying sources of conflict inherent in capitalist employment relations (Godard, 1994). Other scholars, taking an orthodox pluralist perspective, have argued that trade unions and the high performancehigh-commitment HRM model cannot only coexist but are indeed necessary if an HPWS is to succeed. What is apparent is that this part of the SHRM debate has been strongly influenced by economic, political and legal developments in the USA and UK over the past two decades.

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SHRM and Organisational Performance

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The concept of fit has emerged as central to many attempts to theorise about strategic HRM (Richardson and Thomson, 1999). Internal fit is the case when the organisation is developing a range of interconnected and mutually reinforcing HRM policies and practices. This implies that there exists a set of best HR practices that fit together sufficiently so that one practice reinforces the performance of the other practices. Synergy is the key idea behind internal fit. Synergy can be achieved if the combined performance of a set of HRM policies and practices is greater than the sum of their individual performances. In this regard, the importance of the different HRM policies and practices being mutually reinforcing is emphasised. External fit is the case when the organisation is developing a range of HRM policies and practices that fit the businesss strategies outside the area of HRM. This implies that performance will be improved when the right fit, or match, between business strategy and HRM policies and practices is achieved. As discussed above, specific HRM policies and practices are needed to support generic business strategies, for example Porters cost leadership, innovation or quality enhancement. Similarly, Miles and Snow (1984) relate HRM policies and practices with competitive product strategies.

Over the last decade or so the concept of fit has been further investigated by many scholars. An analysis of such work highlights that there are generally three modes of fit, or approaches to fit: universalistic, contingency, and configurational. The core features of these modes constitute the structure of the so-called strategic HRM / business performance models. The universalistic perspective or HRM as an ideal set of practices suggests that a specified set of HR practices (the so-called best practices) will always produce superior results whatever the accompanying circumstances. Proponents of the universalistic model emphasise that internal fit or horizontal fit or alignment of HR practices helps to significantly improve an organisations performance. Higgs et al. (2000) explain how a large number of HR practices that were previously considered to be distinct activities can all be considered now to belong in a system (bundle) of aligned HR practices.

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Considering that internal fit is central to universalistic models, the main question / problem is how to determine an HR system, that is, as a coherent set of synergistic HR practices that blend better in producing higher business performance. The methods used in developing such HR systems depend on the additive relationship (i.e. the case when the HR practices involved have independent and non-overlapping effects on outcome), and on the interactive relationship. However, in our opinion universalistic models do not explicitly consider the internal integration of HR practices, and consider them merely from an additive point of view. Emerging research evidence reveals the so-called portfolio effect, that is, how HR practices support and improve one another. However, it is important to remember that there can be countless combinations of practices that will result in identical business outcomes. This contributes to the concept of equifinality, in which identical outcomes can be achieved by a number of different systems of HR practices.

Support for the universalistic approach to strategic HRM is mixed as there are notable differences across studies as to what constitutes a best HR practice. Most studies focus on three mechanisms by which universal HR practices impact on business performance: (1) the human capital base or collection of human resources (skills, knowledge, and potential), that the organisation has to work with the organisations recruitment, selection, training and development processes directly affect the quality of this base; (2) motivation, which is affected by a variety of HR processes including recognition, reward, and work systems; and (3) opportunity to contribute, which is affected by job design, and involvement/ empowerment strategies. In addition, the best practices approach generally refers to the resource-based theory of firm and competitive advantage, which focuses on the role internal resources such as employees play in developing and maintaining a firms competitive capabilities. For a resource to be a source of competitive advantage it must be rare, valuable, inimitable and nonsubstitutable. Therefore, HR practices of the organisation can lead to competitive advantage through developing a unique and valuable human pool. The contingency or HRM as strategic integration model argues that an organisations set of HRM policies and practices will be effective if it is consistent with other organisational strategies. External fit is then what matters (Fombrum et al., 1984; Golden and Ramanujam, 1985; Schuler and Jackson, 1987; Lengnick-Hall and Lengnick-Hall, 1988; Guest, 1997). As
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discussed above, in this regard specific HRM policies and practices link with various types of generic business strategies. For example, the work of Schuler and Jackson (1987), mentioned above, suggests that the range of HRM policies and practices an organisation should adopt depend on the competitive product strategies it is following. Considering that external fit is the key concept of contingency models, the contingency approach refers firstly to the theory of the organisational strategy and then to the individual HR practices that interact with organisational strategy in order to result in higher organisational performance. The adoption of a contingency HRM strategy is then associated with optimized organisational performance, where the effectiveness of individual HR practices is contingent on firm strategy. The performance of an organisation that adopts HR practices appropriate for its strategy will be higher. The configurational or HRM as bundles model argues that to claim a strategys success turns on combining internal and external fit. This approach makes use of the so-called bundles of HR practices, which implies the existence of specific combinations or configurations of HR practices depending on corresponding organisational contexts, where the key is to determine which are the most effective in terms of leading to higher business performance.

Considering that both the internal and external fits are the key concepts of configurational models, the configurational approach refers firstly to the theory of the organisational strategy and then to the systems of HR practices that are consistent with organisational strategy in order to result in higher organisational performance. As indicated above, there are a number of strategies an organisation may choose to follow, such as Miles and Snows (1984) strategic typology that identifies the four ideal strategic types of prospector, analyser, defender and reactor.

With respect to the configurations of HR practices, scholars (such as Kerr and Slocum, 1987; Osterman, 1987; Sonnenfeld and Peiperl, 1988; Delery and Doty, 1996) have developed theoretically driven employment systems. Specifically, Delery and Doty (1996) propose the following two ideal type employment systems: the market type system, which is characterised by hiring from outside an organisation, and the internal system, which is characterised by the existence of an internal market. Because organisations adopting a defending strategy concentrate on efficiency in current products and markets, the internal system is more appropriate for this
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type of strategy. On the other hand, organisations pursuing a prospectors strategy are constantly changing, and the market system is more appropriate for this type of strategy. A possible third type of configurational strategy can be the analyser, at the midpoint between the prospector and the defender. In summary, according to this approach, if consistency within the configuration of HR practices and between the HR practices and strategy is achieved, then the organisation will achieve better performance.

With respect to these three models, there is no clear picture of which of these three key broad areas is the predominant one. It is worth repeating the words of Wood (1999: 409): If ones arm were twisted to make an overall conclusion on the balance of the evidence so far, one in favour of contingency hypothesis would be just as justified as the universal hypothesis. This is because any such conclusion would be premature because of conflicting research results but, more importantly, because the debate is still in its infancy.

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Linking Organisational Strategy and HRM Strategy [Theoretical Developments]

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The strategic fit or the hard variant of HRM Fibrin et al.s (1984) matching model highlights the resource aspect of HRM and emphasises the efficient utilisation of human resources to meet organisational objectives. This means that, like other resources of organisation, human resources have to be obtained cheaply, used sparingly and developed and exploited as fully as possible. The matching model is mainly based on Chandlers (1962) argument that an organisations structure is an outcome of its strategy. Fombrun et al. (1984) expanded this premise in their model of strategic HRM, which emphasises a tight fit between organisational strategy, organisational structure and HRM system. The organisational strategy is pre-eminent; both organisation structure and HRM are dependent on the organisation strategy. The main aim of the matching model is therefore to develop an appropriate human resource system that will characterise those HRM strategies that contribute to the most efficient implementation of business strategies.

The matching model of HRM has been criticised for a number of reasons. It is thought to be too prescriptive by nature, mainly because its assumptions are strongly guitarist. As the model emphasises a tight fit between organisational strategy and HR strategies, it completely ignores the interest of employees, and hence considers HRM as a passive, reactive and implementations function. However, the opposite trend is also highlighted by research. It is asserted that this model fails to perceive the potential for a reciprocal relationship between HR strategy and organisational strategy. Indeed, for some, the very idea of tight fit makes the organisation inflexible, incapable of adapting to required changes and hence misfitted to todays dynamic business environment. The matching model also misses the human aspect of human resources and has been called a hard model of HRM. The idea of considering and using human resources like any other resource of an organisation seems unpragmatic in the present world.

Despite the many criticisms, however, the matching model deserves credit for providing an initial framework for subsequent theory development in the field of strategic HRM. Researchers need to adopt a comprehensive methodology in order to study the dynamic concept of human resource strategy. Do elements of the matching model exist in different settings? This can be discovered by examining the presence of some of the core issues of the model. The main

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propositions emerging from the matching models that can be adopted by managers to evaluate scenario of strategic HRM in their organisations are: Do organisations show a tight fit between their HRM and organisation strategy where the former is dependent on the latter? Do specialist people managers believe they should develop HRM systems only for the effective implementation of their organisations strategies? Do organisations consider their human resources as a cost and use them sparingly? Or do they devote resources to the training of their HRs to make the best use of them? Do HRM strategies vary across different levels of employees?

The Soft Variant of HRM The Harvard model of strategic HRM is another analytical framework, which is premised on the view that if general managers develop a viewpoint of how they wish to see employees involved in and developed by the enterprise then some of the criticisms of historical personnel management can be overcome. The model was first articulated by Beer et al. Compared to the matching model, this model is termed soft HRM. It stresses the human aspect of HRM and is more concerned with the employeremployee relationship. The model highlights the interests of different stakeholders in the organisation (such as shareholders, management, employee groups, government, community and unions) and how their interests are related to the objectives of management. This aspect of the model provides some awareness of the European context and other business systems that emphasise co-determination. It also recognises the influence of situational factors (such as the labour market) on HRM policy choices.

The actual content of HRM, according to this model, is described in relation to four policy areas, namely, human resource flows, reward systems, employee influence, and works systems. Each of the four policy areas is characterised by a series of tasks to which managers must attend. The outcomes that these four HR policies need to achieve are commitment, competence, congruence, and cost effectiveness. The aim of these outcomes is therefore to develop and sustain mutual trust and improve individual / group performance at the minimum cost so as to achieve individual well-being, organisational effectiveness and societal well-being. The model allows for analysis of these outcomes at both the organisational and societal level. As this model
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acknowledges the role of societal outcomes, it can provide a useful basis for comparative analysis of HRM. However, this model has been criticised for not explaining the complex relationship between strategic management and HRM.

The Contextual Emphasis Based on the human resource policy framework provided by the Harvard model, researchers at the Centre for Corporate Strategy and Change at Warwick Business School have developed an understanding of strategy-making in complex organisations and have related this to the ability to transform HRM practices. They investigated empirically based data (collected through in-depth case studies on over twenty leading British organisations) to examine the link between strategic change and transformations, and the way in which people are managed. Hendry and associates argue that HRM should not be labelled as a single form of activity. Organisations may follow a number of different pathways in order to achieve the same results. This is mainly a function of the existence of linkages between the outer environmental context (socio-economic, technological, politico-legal and competitive) and inner organisational context (culture, structure, leadership, task-technology and business output). These linkages directly contribute to forming the content of an organisations HRM. To analyse this, past information related to the organisations development and management of change is essential. The main propositions emerging from this model are: What is the influence of economic (competitive conditions, ownership and control, organisation size and structure, organisational growth path or stage in the life cycle and the structure of the industry), technological (type of production systems) and socio-political (national education and training set-up) factors on HRM strategies? What are the linkages between organisational contingencies (such as size, nature, positioning of HR and HR strategies) and HRM strategies?

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The Issue of Strategic Integration Debates in the early 1990s suggested the need to explore the relationship between strategic management and HRM more extensively and the emerging trend in which HRM is becoming an integral part of business strategy. The emergence of SHRM is an outcome of such efforts. As mentioned above, it is largely concerned with integration and adaptation. Its purpose is to ensure that HRM is fully integrated with the strategy and strategic needs of the firm; HR policies are coherent both across policy areas and across hierarchies; and HR practices are adjusted, accepted and used by line managers and employees as part of their everyday work.

SHRM therefore has many different components, including HR policies, culture, values and practices. Schuler developed a 5-P model of SHRM that melds five HR activities (philosophies, policies, programs, practices and processes) with strategic business needs, and reflects managements overall plan for survival, growth, adaptability and profitability. The strategic HR activities form the main components of HR strategy. This model to a great extent explains the significance of these five SHRM activities in achieving the organisations strategic needs, and shows the interrelatedness of activities that are often treated separately in the literature. This is helpful in understanding the complex interaction between organisational strategy and SHRM activities.

This model further shows the influence of internal characteristics (which mainly consists of factors such as organisational culture and the nature of the business) and external characteristics (which consist of the nature and state of economy in which the organisation is existing and critical success factors, i.e. the opportunities and threats provided by the industry) on the strategic business needs of an organisation. This model initially attracted criticism for being over-prescriptive and too hypothetical in nature. It needs a lot of time to gain an understanding of the way strategic business needs are actually defined. The melding of business needs with HR activities is also very challenging, mainly because linkages between human resource activities and business needs tend to be the exception, even during non-turbulent times.

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Vital Role of Strategic Human Resource Management

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Strategic Human Resource Management (SHRM) idea is that human resources management is used to gain competitive advantage. SHRM practice is coupled with business strategy. SHRM elevates human resources management from micro level (individual personal level) to the macro level (business strategy level). SHRM includes analysis of business and socio-political environment. HR professionals must be aware of global business and social trends and should be able to perform environmental scanning.

SHRM also includes internal human resource analysis. HR professionals must analyze human resources against current and future business strategies and identify the gaps between them.

SHRM is also intended to assist management in the best use of internal labor market. Hence an absolute requirement for analysis would be effective use of computer based human resource information systems. SHRM includes organizational analysis and design. Hence HR professionals had to provide management not only with analysis, but also organization-design recommendations. Benchmarking against successful internal and external organizations is useful tool that helps in this process.

SHRM is part of the business plan. Strategic HR considerations are more important than the traditional planning elements. The strategic HR considerations are as follows: a) Is the organizational culture supporting the long-term business strategy? b) Is the organizations structure consistent with the business strategy? c) Is managements executive staffing adequate? Are skills adequate? d) Are the management-performance systems properly focused?

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Matching Business Strategy and HRM

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The above discussion summarizes the theoretical developments in strategic HRM and its linkages with organisational strategies. A number of clear messages emerge from the analysis. For example, strategic HRM models primarily emphasise implementation over strategy formulation. They also tend to focus on matching HR strategy to organisational strategy, not the other way. They also tend to emphasise fit or congruence and do not acknowledge the need for lack of such fit between HR strategies and business strategies during transitional times and when organisations have multiple or conflicting goals (also see Lengnick-Hall and Lengnick-Hall, 1999). This section further highlights the matching of HRM policies and practices to some of the established models of business strategies. Porters Generic Business Strategies and HRM Michael Porter (1980; 1985) identified three possible generic strategies for competitive advantage in business: cost leadership (when the organisation cuts its prices by producing a product or service at less expense than its competitors); innovation (when the organisation is able to be a unique producer); and quality (when the organisation is delivering high-quality goods and services to customers). Considering the emphasis on external-fit (i.e. organisational strategy leading individual HR practices that interact with organisational strategy in order to improve organisational performance), a number of HRM combinations can be adopted by firms to support Porters model of business strategies. In this regard, Schuler (1989) proposes corresponding HRM philosophies of accumulation (careful selection of good candidates based on personality rather technical fit), utilization (selection of individuals on the basis of technical fit), and facilitation (the ability of employees to work together in collaborative situations). Thus, firms following a quality strategy will require a combination of accumulation and facilitation HRM philosophies in order to acquire, maintain and retain core competencies; firms pursuing a costreduction strategy will require a utilization HRM philosophy and will emphasise short-run relationships, minimize training and development and highlight external pay comparability; and firms following an innovation strategy will require a facilitation HRM philosophy so as to bring out the best out of existing staff (also see Schuler and Jackson, 1987). In summary, according to the external-fit philosophy, the effectiveness of individual HR practices is contingent on firm

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strategy. The performance of an organisation that adopts HR practices appropriate for its strategy will then be higher. Business Life Cycles and HRM There is now an established literature in the field of HRM that highlights how possible contingent variables determine the HRM systems of an organisation (for a detailed review see Budhwar and Debrah, 2001; Budhwar and Sparrow, 2002). One among the long list of such variables is the life cycle stage of an organisation: introduction (start-up); growth (development); maturity; decline; and turnaround. Research findings reveal a clear association between a given life cycle stage and specific HRM policies and practices. For example, it is logical for firms in their introductory and growth life cycle stages to emphasise a rationalized approach to recruitment in order to acquired best-fit human resources, compensate employees at the going market rate, and actively pursue employee development strategies. Similarly, organisations in the maturity stage are known to recruit enough people to allow for labour turnover/ lay-offs and to create new opportunities in order to remain creative to maintain their market position. Such organisations emphasise flexibility via their training and development programmes and pay employees as per the market leaders in a controlled way. Accordingly firms in the decline stage will be likely to minimise costs by reducing overheads and aspire to maintain harmonious employee relations (for more details see Kochan and Barocci, 1985; Baird and Meshoulam 1988; Hendry and Pettigrew 1992; Jackson and Schuler 1995; Boxall and Purcell, 2003).

Typology of Business Strategies and HRM Miles and Snow (1978; 1984) classify organisations as prospectors (who are doing well and are regularly looking for more products and market opportunities), defenders (who have a limited and stable product domain), analyzers (who have some degree of stability but are on the lookout for possible opportunities) and reactors (who mainly respond to market conditions). These generic strategies dictate organizations HRM policies and practices. For example, defenders are less concerned about recruiting new employees externally and are more concerned about developing current employees. In contrast, prospectors are growing, so they are concerned about recruiting and using performance appraisal results for evaluation rather than for longerterm development.
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Generic HR Strategies Identifying the need to highlight the prevalence of generic HR strategies pursued by organisations in different contexts, Budhwar and Sparrow (2002) propose four HR strategies. These are: talent acquisition HR strategy (emphasises attracting the best human talent from external sources); effective resource allocation HR strategy (maximizes the use of existing human resources by always having the right person in the right place at the right time); talent improvement HR strategy (maxims the talents of existing employees by continuously training them and guiding them in their jobs and career); and cost reduction HR strategy (reduces personnel costs to the lowest possible level). Budhwar and Khatri (2001) examined the impact of these HR strategies on recruitment, compensation, training and development and employee communication practices in matched Indian and British firms. The impact of these four HR strategies varied significantly in the two samples, confirming the context specific nature of HRM. On the same pattern, there is a need to identify and examine the impact of other HR strategies such as high commitment, paternalism, etc. Such HR issues, which have a significant impact on a firms performance, are further examined in different chapters in this book.

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The Strategic Role of Human Resource Management

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The human resource management function has consistently faced a battle in justifying its position in organizations. At good times when there are enough budgets, firms easily justify expenditures on training, staffing, rewards and employee involvement systems, but when faced with financial difficulties, such HR systems get the earliest cutbacks. The advent of the subfield of strategic human resource management (SHRM), devoted to exploring HRs role in supporting business strategy, provided one opportunity for demonstrating its value to the firm. The birth of the field of strategic human resource management can be dated back to 1984, when Devanna, Fombrun and Tichy extensively explored the link between business strategy and human resources. HRM discipline has witnessed a great deal of change over the past 25 years. These changes represent two major transformations. The first is the transformation from being the field of personnel management to being the field of human resource management. The second is the transformation from being the field of human resource management to being the field of strategic human resource management. The first transformation incorporated helped the recognition that people are an important asset in organizations and can be managed systematically. The second transformation has built on the preceding knowledge base of the discipline. This transformation is based upon the recognition that, in addition to coordinating human resource policies and practices with each other, they need to be linked with the needs of the organization. Given that these needs are reflected in the strategies of the firm, this transformation of human resource management came to be known as strategic human resource management. Strategic human resource management is based upon the recognition that organizations can be more effective if their human resources are managed with human resource policies and practices that deliver the right number of people with the appropriate behaviours, the needed competencies and the necessary level of motivation to the organization. To put it another way, strategic human resource management is the creation of linkage or integration between the overall strategic aims of business and the human resource strategy and
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implementation. In principle, the processes and people within the company are managed in such a way as to foster the aims of the business strategy and create an integrated approach to managing the various human resource functions, such as selection, training and reward so that they complement each other. Strategic human resource management may bring a number of benefits to the organization: Contributing to the goal accomplishment and the survival of the company, Supporting and successfully implementing business strategies of the company Creating and maintaining a competitive advantage for the company Improving the responsiveness and innovation potential of the company Increasing the number of feasible strategic options available to the company Participating in strategic planning and influencing the strategic direction of the company as an equally entitled member of top management Improving cooperation between the HRM department and line managers

SHRMs spreading popularity owes much to the promise of greater organizational effectiveness achievable, through the development of internally consistent bundles of human resource strategies which are properly linked to business strategies. Researchers in the field of SHRM have increasingly relied on the resource-based view of the firm to explain the role of human resource practices in firm performance. Resource based view of strategy is that the strategic capability of a firm depends on its resource capability, especially its distinctive resources. Indeed, theoretical research on SHRM has suggested that systems of HR practices may lead to higher firm performance and be sources of sustained competitive advantage because these systems of practices are often unique, causally ambiguous, and difficult to imitate. HR practices can enhance firm performance when they are internally aligned with one another to manage employees in a manner that leads to competitive advantage.HR practices can create value for a firm when the individual practices are aligned to develop critical resources or competencies.

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Perspectives on SHRM and Organisational Performance

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The concept of fit has emerged as central to many attempts to theorise about strategic HRM (Richardson and Thomson, 1999). Internal fit is the case when the organisation is developing a range of interconnected and mutually reinforcing HRM policies and practices. This implies that there exists a set of best HR practices that fit together sufficiently so that one practice reinforces the performance of the other practices. Synergy is the key idea behind internal fit. Synergy can be achieved if the combined performance of a set of HRM policies and practices is greater than the sum of their individual performances. In this regard, the importance of the different HRM policies and practices being mutually reinforcing is emphasised. External fit is the case when the organisation is developing a range of HRM policies and practices that fit the businesss strategies outside the area of HRM. This implies that performance will be improved when the right fit, or match, between business strategy and HRM policies and practices is achieved. As discussed above, specific HRM policies and practices are needed to support generic business strategies, for example Porters cost leadership, innovation or quality enhancement. Similarly, Miles and Snow (1984) relate HRM policies and practices with competitive product strategies (defenders, prospectors, analysers, reactors).

Over the last decade or so the concept of fit has been further investigated by many scholars. An analysis of such work highlights that there are generally three modes of fit, or approaches to fit: universalistic, contingency, and configurational. The core features of these modes constitute the structure of the so-called strategic HRM / business performance models. The universalistic perspective or HRM as an ideal set of practices suggests that a specified set of HR practices (the so-called best practices) will always produce superior results whatever the accompanying circumstances. Proponents of the universalistic model emphasise that internal fit or horizontal fit or 1alignment of HR practices helps to significantly improve an organisations performance. Higgs et al. (2000) explain how a large number of HR practices that were previously considered to be distinct activities can all be considered now to belong in a system (bundle) of aligned HR practices.

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Considering that internal fit is central to universalistic models, the main question / problem is how to determine an HR system, that is, as a coherent set of synergistic HR practices that blend better in producing higher business performance. The methods used in developing such HR systems depend on the additive relationship (i.e. the case when the HR practices involved have independent and non-overlapping effects on outcome), and on the interactive relationship (i.e. the case when the effect of one HR practice depends on the level of the other HR practices involved). However, in our opinion universalistic models do not explicitly consider the internal integration of HR practices, and consider them merely from an additive point of view. Emerging research evidence (see Delery and Doty 1996) reveals the so-called portfolio effect, that is, how HR practices support and improve one another. However, it is important to remember that there can be countless combinations of practices that will result in identical business outcomes. This contributes to the concept of equifinality, in which identical outcomes can be achieved by a number of different systems of HR practices.

Support for the universalistic approach to strategic HRM is mixed as there are notable differences across studies as to what constitutes a best HR practice. Most studies focus on three mechanisms by which universal HR practices impact on business performance: (1) the human capital base or collection of human resources (skills, knowledge, and potential), that the organisation has to work with the organisations recruitment, selection, training and development processes directly affect the quality of this base; (2) motivation, which is affected by a variety of HR processes including recognition, reward, and work systems; and (3) opportunity to contribute, which is affected by job design, and involvement/ empowerment strategies. In addition, the best practices approach generally refers to the resource-based theory of firm and competitive advantage, which focuses on the role internal resources such as employees play in developing and maintaining a firms competitive capabilities. For a resource to be a source of competitive advantage it must be rare, valuable, inimitable and nonsubstitutable. Therefore, HR practices of the organisation can lead to competitive advantage through developing a unique and valuable human pool. The contingency or HRM as strategic integration model argues that an organisations set of HRM policies and practices will be effective if it is consistent with other organisational
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strategies. External fit is then what matters. As discussed above, in this regard specific HRM policies and practices link with various types of generic business strategies. For example, the work of Schuler and Jackson (1987), mentioned above, suggests that the range of HRM policies and practices an organisation should adopt depend on the competitive product strategies it is following. Considering that external fit is the key concept of contingency models, the contingency approach refers firstly to the theory of the organisational strategy and then to the individual HR practices that interact with organisational strategy in order to result in higher organisational performance. The adoption of a contingency HRM strategy is then associated with optimized organisational performance, where the effectiveness of individual HR practices is contingent on firm strategy. The performance of an organisation that adopts HR practices appropriate for its strategy will be higher. The configurational or HRM as bundles model argues that to claim a strategys success turns on combining internal and external fit. This approach makes use of the so-called bundles of HR practices, which implies the existence of specific combinations or configurations of HR practices depending on corresponding organisational contexts, where the key is to determine which are the most effective in terms of leading to higher business performance.

Considering that both the internal and external fits are the key concepts of configurational models, the configurational approach refers firstly to the theory of the organisational strategy and then to the systems of HR practices that are consistent with organisational strategy in order to result in higher organisational performance. As indicated above, there are a number of strategies an organisation may choose to follow, such as Miles and Snows (1984) strategic typology that identifies the four ideal strategic types of prospector, analyser, defender and reactor.

With respect to the configurations of HR practices, scholars have developed theoretically driven employment systems. Specifically, Delery and Doty (1996) propose the following two ideal type employment systems: the market type system, which is characterised by hiring from outside an organisation, and the internal system, which is characterised by the existence of an internal market. Because organisations adopting a defending strategy concentrate on efficiency in current products and markets, the internal system is more appropriate for this type of strategy.
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On the other hand, organisations pursuing a prospectors strategy are constantly changing, and the market system is more appropriate for this type of strategy. A possible third type of configurational strategy can be the analyser, at the midpoint between the prospector and the defender. In summary, according to this approach, if consistency within the configuration of HR practices and between the HR practices and strategy is achieved, then the organisation will achieve better performance.

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SHRM Impact on Organizational Performance

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Many organizations face a volatile market situation. In order to create and sustain competitive advantage in this type of environment, organizations must continually improve their business performance. Increasingly, organizations are recognizing the potential of their human resources as a source of sustained competitive advantage. Linked to this, more and more organisations are relying on measurement approaches, such as workforce scorecards, in order to gain insight into how the human resources in their organisation add value. The increasing interest in measurement is further stimulated by a growing number of studies that show a positive relationship between human resource management and organizational performance. The relationship between HRM and firm performance has been a hotly debated topic over the last two decades, with the great bulk of the primary scientific research coming from the USA and, to a lesser extent, the United Kingdom.[19] Both organizations and academics are striving to prove that HRM has a positive impact on bottom line productivity. The published research generally reports positive statistical relationships between the greater adoption of HR practices and business performance. Sample research on the link between HR and organizational performance can be seen in the following Table.
Data from 30 US strip mills used to assess impact on labour efficiency and scrap rate by reference to the existence of either a high-commitment strategy or a control strategy Analysis of the responses of 968 US firms to a questionnaire exploring the use of high performance work practices, the development of synergies between them and the alignment of these practices with the competitive strategy. An index of HR systems in 740 firms was created to indicate the degree to which each firm adopted a high-performance work system. Firms with a high commitment strategy had significantly higher levels of both productivity and quality than those with a control strategy.

Arthur (1990, 1992, 1994)

Huselid (1995)

Productivity is influenced by employee motivation; financial performance is influenced by employee skills, motivation and organizational structures.

Huselid and Becker (1996)

Firms with high values on the index had economically and statistically higher levels of performance.

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Becker et al (1997)

Outcomes of a number of research projects were analysed to assess the strategic impact on shareholder value of high performance work systems.

High-performance systems make an impact as long as they are embedded in the management infrastructure.

Patterson et al (1997)

HR practices explained significant variations in profitability and productivity (19% and 18% respectively). The research examined the link Two HR practices were between business performance particularly significant: (1) the and organization culture and the acquisition and development of use of a number of HR practices. employee skills and (2) job design including flexibility, responsibility, variety and the use of formal teams. A study of the impact of high performance work practices such as team working, appraisal, job rotation, broad-banded grade structures and sharing of business information in 623 UK aerospace establishments. An analysis of the survey, which sampled some 2,000 workplaces and obtained the views of about 28,000 employees. 835 private sector organizations were surveyed and interviews were carried out with 610 HR professionals and 462 chief executives.

Thompson (1998)

The number of HR practices and the proportion of the workforce covered appeared to be the key differentiating factors between more and less successful firms.

The 1998 Workplace Employee Relations Survey

A strong association between HRM and employee attitudes workplace performance.

exists both and

The Future of Work Survey, Guest et al (2000).

A greater use of HR practices is associated with higher levels of employee commitment and contribution and is in turn linked to higher levels of productivity and quality of services. The most successful companies had what the researchers called the big idea. The companies had a clear vision and a set of integrated values which were embedded, enduring, collective, measured and managed. Clear
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Purcell et al (2003)

A University of Bath longitudinal study of 12 companies to establish how people management impacts on organizational performance.

evidence existed between positive attitudes towards HR policies and practices, levels of satisfaction, motivation and commitment, and operational performance.

In a world in which financial results are measured, a failure to measure human resource policy and practice implementation dooms this to second-class status, oversight, neglect, and potential failure. The feedback from the measurements is essential to refine and further develop implementation ideas as well as to learn how well the practices are actually achieving their intended results. The assumption underpinning the practice of HRM is that people are the organizations key resource and organizational performance largely depends on them. If, therefore, an appropriate range of HR policies and processes is developed and implemented effectively, then HR will make a substantial impact on firm performance. Much of the research over the last two decades has attempted to answer two basic questions: Do HR practices make a positive impact on organizational performance?; If so, how is the impact achieved? The second question is the more important one. It is not enough to justify HRM by proving that it is a good thing. What counts is what can be done to ensure that it is a good thing. Guest et al. modeled the relationship between HRM and performance is shown. Although there are various stakeholders in an organization, the chief strategic goal of any business is higher financial performance or maximization of wealth for the shareholders. Financial performance of an organization depends to a large extent on effective operational performance. The operational performance of an organization is a function of people, process and technology. For effective interaction of people with technology and process, the people in the organization have to be competent enough, with the required knowledge, skill and abilities. Competence of the individual is an important factor that decides operational effectiveness in terms of providing quality products and services within a short time. HRM practices such as selection, training, work environment and performance appraisal may enhance the competence of employees for higher performance.
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Obviously, human resources rarely has a direct effect on firm performance. This is particularly true when the business logic of HRs effect requires that human resources drive firm performance through its contribution to effective strategy execution. HR professionals (and line managers) need to recognize that effective strategy execution is the basis of shareholder value and that effective strategy execution is a system of intermediate outcomes. Thinking like a strategy manager means recognizing the importance of the causal relationships between HR decisions and these intermediate outcomes that ultimately drive strategic success in organizations

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The practice areas covered by HR strategies that impact on performance are summarized in the following table-

HR Practice Area

How it Impacts
Matches people to the strategic and operational needs of the organization. Provides for the acquisition, development and retention of talented employees who can deliver superior performance, productivity, flexibility, innovation and high levels of personal customer service and who fit the culture and the strategic requirements of the organization. Wins war for talent by ensuring that the talented and well-motivated people required by the organization to meet present and future needs are available.

Attracting, developing and retaining high-quality people

Talent management Working environment core values, leadership, work life balance, managing diversity, secure employment

Job and work design

Learning and development

Managing knowledge and intellectual capital

Increasing motivation, commitment and role engagement

Develops the big idea, ie a clear vision and a set of integrated values. Makes the organization a great place to work. Provides individuals with stimulating and interesting work and gives them the autonomy and flexibility to perform their jobs well. Enhances job satisfaction and flexibility, which encourages high performance and productivity Enlarges the skill base and develops the levels of competence required in the workforce. Encourages discretionary learning, which happens when individuals actively seek to acquire the knowledge and skills that promote the organizations objectives. Develops a climate of learning a growth medium in which self-managed learning as well as coaching, mentoring and training flourish. Focuses on both organizational and individual learning and on providing learning opportunities and opportunities to share knowledge in a systematic way. Ensures that vital stocks of knowledge are retained and deals with improving the flow of knowledge, information and learning within the organization. Encourages people to identify themselves with and act upon the core values of the organization and willingly to contribute to the achievement of
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High-performance management

Reward management

organizational goals. Develops a climate of cooperation and trust, clarifying the psychological contract. Develops a performance culture that encourages high performance in such areas as productivity, quality, levels of customer service, growth, profits and, ultimately, the delivery of increased shareholder value. Empowers employees to exhibit the discretionary behaviours most closely associated with higher business performance such as risk taking, innovation, knowledge sharing and establishing trust between managers and subordinates. Develops motivation, commitment, job engagement and discretionary behaviour by valuing and rewarding people in accordance with their contribution.

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Chapter 3

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SHRM The Study in Indian Context

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The research literature reflects that the role of human resources and organizational learning capability has a conceptual relationship. There has been no attempt to study empirically the relationship of human resource roles and organizational learning capability. Ulrich (1997: 10) mentions the link between HRM practices and organizational capabilities, with learning capability being one of them. Further, he notes that managers should constantly ask themselves questions, such as how can HRM practices be designed to create the needed capabilities? Specifically in India, organizational learning capability has been empirically researched (Ramnarayan, 1998; Ramnarayan and Nair, 1993) referred to theoretically (Ramnarayan and Bhatnagar, 1993; Rastogi, 1998, 1999; Shukla, 1997) and as mechanisms (Pareek, 1988). It has been found that the link between the two variables has not been tested empirically. The current Indian literature contains arguments about the difference between personnel management and HRM and HRD (Budhwar, 2000; Budhwar and Sparrow, 1997), together with the re-labelling of job titles from personnel management to HRD executive (Balasubramanian, 1995; Dwivedi, 1997; Rao, 1999: 42; Rao et al., 2001; Venkata Ratnam and Srivastava, 1981). Saini (1997: 104) observes that a number of people from students to managers mistakenly think that personnel management and HRM are synonymous concepts. Further, hierarchy and inequality are entrenched i n Indias traditions and are often found in routine behaviour in the form of unequally placed caste and class groups (Jain and Venkata Ratnam, 1994). Because of this there is a continued dependence of one group on the other (for example, subordinates on superiors) and a general lack of local initiatives to tackle their own problems (Sinha, 1990). There is a strong influence of social, cultural, economic and political factors on HRM policies and practices in Indian organizations (Budhwar and Khatri, 2001).

The adoption of professionalized HRD practices in India is a recent phenomenon that has gained momentum in the past ten years (Krishna and Monappa, 1994; Rao et al., 1999, 2001). The general trend in Indian industry, due to the liberalization of the Indian economy, is encouraging for the strategic human resource management practices in general.

The study is relevant due to changes in the Indian economy and the resulting effect on the management of all resources therein. This change from a regulated environment to a free market environment has direct implications for SHRM practices in India (Krishna and Monappa, 1994; Rao, 1999). Since liberalization, the Indian organizations and the managers are dealing with issues of transformation and growth. Restructuring, reengineering, realignment of systems, structures, tasks and technology has all become imperative. The impact of restructuring, the economic transition to an open market, as well as increased competition from internal and external sources has put pressure on all functions of the organizations. There has been evidence of a general need among the managerial cadre to build capabilities, resources, competencies, strategies, macro as well as micro HRM activities, which translate into strategic HR roles and enhanced organizational learning capabilities. HRM specialists and the HRM departments are under severe pressure to bring about large-scale professionalized changes in their organizations in order to cope with the challenges brought about by economic liberalization (Rao et al., 2001; Som, 2002).

Foreign firms, which have started operating in India since the liberalization of the economy, do not confine their interventions to HRD, which Indian firms do, but undertake wider programmes and strategies of HRM (see Budhwar and Boyne, 2004). Some of the leading Indian organizations have also taken the initiative in this regard and have brought out newer issues in the strategic management of their human resources (Saini and Budhwar, 2004). Many experts (Ahluwalia, 1994; Das, 1996; Krishna and Monappa, 1994; Mathias, 1994; Sodhi, 1994; Thyagi, 1994) have discussed the implications

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of the new economic environment for organization and management structure, strategy, culture and values. They have suggested, for example, the need for improvement in quality, cost efficiency, corporate ethical practices, employee development, motivation and team functioning, strategic integration of the HRM function and greater involvement of line management in HRM. A core of empirical studies on HRM in India relevant to the new environment has been conducted using a variety of methods and theories (Amba-Rao et al., 2000; Sodhi, 1994; Sparrow and Budhwar, 1997; Tayeb, 1988). Budhwar (2000) highlights the need for research in the Asia Pacific region, specifically of the growing economies of Latin America, China and India, and a strong need to research the HR practices of these regions. Given this context, there is a need to conduct the current study.

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SHRM Adoption in Indian Organizations

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India, after decades of protectionism, has experienced a revolutionary change. The liberalization of the foreign investment climate in India during the 1990s has facilitated the integration of Indian economy with the global economy (Venkata Ratnam, 1998). India, from 1991, shifted from a regulated environment to a "free market economy". This liberalization has resulted in sudden and increased levels of competition for Indian organizations from multinational organizations, globalization and internationalization of domestic businesses, unbridled imports, concerns for total quality management, incentives to export, demographic changes in the employee profile, retraining and redeployment of workforce, focus on performance appraisal and performance based incentive systems and rightsizing (Budhwar and Sparrow, 1997; Som, 2002). A recently concluded study (Som, 2002) of Indian corporates reveals that out of eight items of rated change in the business environment over the past five years, the four largest perceived changes were: greater turbulence in the product market environment characterized by many unexpected changes, more intense competition, greater buoyancy and growth potential, and greater requirements for technological sophistication. The response to liberalization has created opportunities for technology upgrading and sophistication, resource mobilization from new sources, highly competitive input/output market, high growth and buoyant environment and

HRM issues associated with strategic initiatives of diversification, mergers and acquisitions, restructuring, joint ventures, strategic alliances and for overall internationalization of the economy (Som, 2002). Thus, with liberalization there is an increasing pressure on organizations in India to change from indigenous, costly, sub-optimal levels of technology to performance based, competitive and higher technology provisions.

This change from a regulated environment to a free market environment has direct implications for SHRM practices in India (Krishna and Monappa, 1994, Rao, 1999) and HRM specialists and the HRM departments are under severe pressure to bring about large-scale professionalized changes in their organizations in order to cope with the challenges brought about by economic liberalization (Rao et al., 2001; Som, 2002). Indian organizations have to develop the work-force capable of taking up the challenges thrown by the new economic environment. In this scenario, to manage organizations efficiently and to compete globally, adoption of SHRM practices has become more important than ever.
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To tackle such a challenging situation, Indian academics and practitioners have both advocated the adoption of the concept of human resource development (HRD). The adoption of professionalized HRD practices in India is a recent phenomenon, but has gained momentum in the past ten years (Rao et al., 1999, 2001; Krishna and Monappa, 1994). This HRD policy places special importance on targeting of recruitment of professional personnel, performance based management systems, performance appraisal, evaluation of training, retraining and redeployment, emphasis on communication, organizational development and the role of HR personnel and the HR Department (Som, 2002).

The last twenty years have seen radical changes take place in the human resource management (ne) personnel function in India (Rao, 1999, Rao et al., 2001). In a recent survey of the trends and emerging practices in SHRM, Belout, Dolan and Saba (2001) point to the importance of the adoption of SHRM practices. They point out that organizations are asking their HRM departments for innovative approaches and solutions to improve productivity and the quality of work life, while complying with the law in an environment of high uncertainty, energy conservation, and intense international competition. Rao et al (2001) in their in-depth HRD audit study of Indian organizations reports that HRD function in India is not well structured, is inadequately differentiated, and poorly staffed. In the light of the above mentioned scenario in Indian organizations the need for adoption of managerial innovation in general and innovative SHRM practices in particular in Indian organizations is a necessity.

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SHRM Adoption

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Organizational Restructuring and Ownership Structure as a driver of Innovative SHRM Adoption

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In the post liberalization scenario, organizational structures seem to be changing to cope with greater competition and to avail of growth opportunities afforded by liberalization and globalization (Som, 2002). Corporate restructuring, many involving the services of international management consultants has become far more frequent (Khandwalla, 2002). The major reason for restructuring appears to be the unsatisfactory corporate structure and business processes. Intensive scanning of the national and the international environment for growth opportunities was on the rise, and so was comprehensive strategy-making that was integrated with a human resource management strategy (Som, 2002). Economic and market pressures influenced the adoption of strategic HRM during the organizational restructuring process. Large, diversified family owned business houses, such as the Duncan Goenka Group, were regrouping their varied product lines spread over diverse companies into synergistic product clusters for sharper focus; some, such as Godrej, were graduating product divisions into strategic business units with more freedom to make financial and investment decisions and for entering into alliances; some, such as Modi Xerox, were converting functional departments into profit centers via the transfer pricing mechanism for greater bottom line consciousness in management; a few, such as Tata Consultancy Services and Wipro Infotech, in the business of executing projects, were resorting to the matrix structure in which staff members were grouped both by areas of core competencies and by principal markets or industries served (Khandwalla, 2002). Only large organizations with adequate financial power could undertake restructuring programs offered by the foreign consultants. The preferences seemed to be to try and increase organizational differentiation through decentralization (Som, 2002), and through setting up self-contained, autonomous units with bottom line responsibility, and try and increase integration through a system of apex coordination, use of coordinating committees and cross functional teams, internal communications participative decision making, shared vision, and institutionalisation of core values (Som, 2002).

Downsizing through voluntary retirement schemes, and SHRM development also seemed to be on the rise (Som, 2002). The SHRM systems of the corporates were characterized by rising
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emphasis on professionalism, skills development, incentives, accountability, flexibility and openness, and rightsizing (Som, 2002).

Legitimizing drivers of Innovative SHRM Adoption

Use of International Consultants by Indian Organizations


According to institutional theorists, executives tend to follow the social norms and try to mimic (DiMaggio and Powell, 1983) each other to secure their firms legitimacy. The rapid spread of SHRM innovations, particularly among Fortune 500 companies, can partially be explained as a phenomenon where organizations adopt new practices in order to appear more legitimate in their environments. DiMaggio and Powell (1983) view institutional isomorphism as "a constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions".

In the post liberalization scenario, in India, organizations are trying to be competitive by involving the services of international management consultants (Som, 2002). A study by Mukherjea et al., (1999) indicated that most of the largest 200 companies in India had been restructured or were being restructured by the same group of international consultants. The international consultants propound that SHRM strategies i.e. job rotation, training, redeployment, performance appraisal, compensation and reward mechanisms, succession, planning as key indicators for improvement. The services of a handful of international consultants operating in India depicts a higher level of adoption of innovative SHRM practices. The reasons are mainly because of the perception that foreign consultants offer better services and global benchmarks, therefore, the management approach and reaction to such consultants changes automatically. The consultants recommend cost optimization, recruitment of specialists, retraining and redeployment, performance based management systems and rightsizing to name a few from the bundle of SHRM recommendations, which, organizations try to implement to improve management skills.

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Organizational Culture for Innovative SHRM Adoption


Liberalized India, seems to be inducing significant cultural and management systems related changes in the corporate sector. The new rhetoric of corporate India seems to be change is the only constant, only quality ensures survival, people, not products, are paramount, and information is everything. The main challenges before the chief executives are seen to be to create flexible systems, to develop a culture of excellence, to facilitate teamwork and empower employees, and to speed up and decentralize data flows (Mukherjea et al, 1999).

There may still be a gap between rhetoric and reality. But the change in corporate culture and management seems to be increasingly compatible with a competitive market environment (Khandwalla, 2002). A common feature of strong culture organizations like TATA Group, Infosys and BPCL, Clariant (Som, 2002a) and others in India, is the influential role of top management in HRM issues and the organizational impact that the leaders in these organizations have on the adoption process of innovative SHRM practices. Peters and Waterman (1982) in their Search for Excellence demonstrate how philosophies of leaders, especially the founders, regarding the way employees should be treated has become institutionalized while they are alive and also after their departure. In the most direct sense organization leaders can determine the role of the HR function of the organization (Kane & Palmer, 1994). Organizational leadership can also have a significant impact in the development of innovation friendly cultures, providing a clear vision and sense of direction (Peters and Waterman, 1982) and a focus for innovative activity (Arad et al., 1997).

The majority of literature suggests that organizational cultures demonstrating high levels of internal communication, promoting interactive behaviours and an ability to deal with change will encourage innovative behaviour (Hauser, 1998). Recent research has also shown that the presence of existing effective or complementary SHRM practices tends to increase the adoption rate of additional high performance HR practices (Pil & McDuffie, 1996, Huselid, 1995; Huselid et al., 1997). It is argued that high performance HRM practices tend to foster innovation
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through the development of innovation values, encourage information sharing, goal setting and appropriate training and development (Arad et al., 1997).

Role of HRM department as a driver of Innovative SHRM Adoption


Kimberly (1981) tries to understand what makes managerial adoption in an organization more receptive than the other, and also how this innovation spreads in the population, i.e. diffusion of innovation. Kossek (1987, 1989) argues that major HRM innovations occur when senior management takes the lead and adoption of innovative SHRM practices is dependent on the nature of relationship of the HR Department with the CEO and the line managers. Legge (1978) commenting on the actions of the personnel practitioner in the innovation process suggests that adoption of an innovation by an organization depends largely on HR practitioners credibility with information and resource providers. HR Department and HR managers in these innovative organizations play a strategic role (Ulrich, 1997) linking the HR strategy with the business strategy of the organization. The characteristics of the role of HR managers and the HR Department in these organizations cannot be ignored in the process.

The knowledge possessed by an HR practitioner depends on the extent to which they undertake activities associated with professionalism. Activities undertaken by members of a profession should include amongst others, maintenance and development of an individual knowledge base, ensuring continued competence levels and membership of a professional institution (Hatcher & Aragon, 2000). The possession of a current knowledge base and the ability to research new developments via methods such as benchmarking and networking are widely acknowledged as key determinants in the adoption of innovation (Sanchez et al., 1999). The same is true for the HR Department. Considering that knowledge is the prime source of innovation or the motivation for innovation, one can argue that the companies that have cognitive knowledge of employees accumulated through academics acts as a stimulus for innovation. Awamleh (1994) in his study with civil services of Jordan tested the relationship between education and managerial innovation. The results from the regression revealed that there is an evidence of a positive relationship between innovation and education of the staff and the management. However, the degree of this interdependence is not clear, as it depends on the cultural and vocational conditioning of the staff as well. Som (2002) reported in his study of organizations in India that
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the role of the HR Department is positively correlated with organizational performance and the HR Department plays a significant role in the adoption of best practices within the organization.

However, it is worth mentioning that such employees if not taken care of, will utilize the industry cluster through networking in order to gain access to other companies where their innovative ideas would be adopted quickly for better rewards. It becomes imperative for original companies to recognize such employees and retain them to gain competitive advantage.

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