Strategic Human

Resource Management

Professor Mohammad Khasro Miah Ph.D.

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HRM 660 Summer 2015

Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?

Business(es) to be in and market positions

to stake out?

Buyer needs and groups to

Outcomes to achieve?

serve?

3. How do we get there?

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What is Strategy?

A companys strategy consists of the set of

competitive moves and business approaches
that management is employing to run the
company

Strategy is managements game plan to

Attract and please customers

Stake out a market position

Conduct operations

Compete successfully

Achieve organizational objectives

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Why Are Strategies Needed?

To proactively
shape how a
companys
business will
be conducted

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To mold the
independent actions
and decisions of
managers and
employees into a
coordinated,
company-wide
game plan

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Developing a Strategic Vision

First Task of Strategic Management

Involves thinking strategically about

Firms future business plans
Where to go
Tasks include
Creating a roadmap of the future
Deciding future business position
to stake out
Providing long-term direction
Giving firm a strong identity
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Missions vs. Strategic Visions

A mission statement
focuses on current
business activities -who we are and
what we do

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Current product and

service offerings
Customer needs
being served
Technological and
business capabilities

A strategic vision
concerns a firms future
business path -- where
we are going

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Markets to be pursued
Future technologyproduct-customer
focus
Kind of company that
management is
trying to create
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Examples: Mission and Vision Statements

Microsoft Corporation

Empower people
through great software
anytime, anyplace, and
on any device.

People can be our most

important asset if we make the
HR function our strategic
partner

HRM

HRM can be defined as a specific combination of HR

practices, work structures, and processes that
maximizes employee knowledge, skill, commitment,
and flexibility.
It composed of many interrelated parts that
complement one another to reach the goals of an
organization, large or small.

Set of activities directed at attracting, developing,

and maintaining an effective workforce capable of
achieving the firms objective.
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The Meaning of Strategy

A critical factor that affects Firm Performance;

A factor that contributes to Competitive Advantage in
markets;
Having a long-term focus;
Plans that involve the top executives and/or board of
directors of the firm;
A general framework that provides a perspective for
selecting specific policies and procedures;

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Strategic Human Resource

Management

SHRM is the process of linking the human

resource function with the strategic
objectives of the organization in order to
improve performance.

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THE ESSENCE OF STRATEGIC HRM

Achieve integration or fit between HR and business strategies
is achieved
Take a longer-term view of where HR should be going and how
to get there
Decide how coherent and mutually supporting HR strategies
should be developed and implemented How members of HR
function should adopt a strategic approach

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KEY CONCEPTS OF STRATEGIC HRM

The resource-based view

This states that it is the range of resources in an organization, including its human
resources, that produces its unique character and creates competitive advantage.
Competitive advantage will be achieved if the organizations resources are
valuable, rare, inimitable, and non-substitutable.
The resource-based view of the firm provides a conceptual basis, if we needed
one, for asserting that key human resources are sources of competitive
advantage. Boxall (1996)
Strategic fit

Wright and Snell (1998) wrote that: The primary role of strategic HRM should be
to promote a fit with the demands of the competitive environment. In more detail,
Schuler (1992:18) stated that: Strategic human resource management is largely
about integration and adaptation. Its concern is to ensure that: (1) human
resources (HR) management is fully integrated with the strategy and strategic
needs of the firm (vertical fit); (2) HR policies cohere both across policy areas and
across hierarchies (horizontal fit); and (3) HR practices are adjusted, accepted
and used by line managers and employees as part of their everyday work.
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PERSPECTIVES ON SHRM
The universalistic perspective
The contingency perspective
The configurational perspective
(Delery and Doty, 1996)

The universalistic perspective some HR practices are better than others

and all organizations should adopt these best practices. There is a
universal relationship between individual best practices and firm
performance.
The contingency perspective to be effective, an organizations HR
policies must be consistent with other aspects of the organization. The
primary contingency factor is the organizations strategy. This can be
described as vertical fit.
The configurational perspective this is an holistic approach which
emphasises the importance of the pattern of HR practices and is
concerned with how this pattern of independent variables is related to the
dependent variable of organizational performance.
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The Future of the Human

Resource Function
Pre-1910
Production
Centered

19101930
Birth of
the HR
Function

19301960
HRs
Childhood

19601980
HRs
Teenage
Years

198020000
Maturing of
HR Function

The next decade: The practice of HRM faces many

Challenges and offers many opportunities.
HR professionals recommend:
HR function take a more strategic position within the firm

Executives understand that HR activities are important for survival

HR managers should report directly to the CEO
HR
managers become CEOs HRM
themselves.
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Sources of Sustainable Competitive

Advantage

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Valuable to the firm in that it exploits

weaknesses or neutralizes threats;
Must be rare among competitors;
Must be difficult for competitors to imitate;
Must not be easily substitutable;

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HR is a key lever in addressing

these challenges!
The New Competitive Environment

Shortened product life-cycles

Erosion of patent protection
Decreased regulation and protected markets
Increased access to capital markets
Increasing importance of innovation, both process and
product

HR is a key lever in addressing

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An integrated approach to people resourcing

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HR strategy: the integration of HR activities to

manage performance

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HR & Competitive Advantage

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The International Motor Vehicle Study, a worldwide

research study of the automobile industry conducted at
MIT showed that people-centered practices were
associated with almost twice the productivity and quality
as conventional mass production.
Similar studies in steel, apparel, and semiconductors,
sponsored by the Alfred P. Sloan Foundation, reveal
similar positive effects for people-centered practices.

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Prominent HR Issues
in the 21stCentury United States

Widespread corporate restructuring

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Increases in contingent work

New work organizations
Growing diversity

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Behaviors Driven by HR

Recruitment and Turnover

Commitment to Organization

Loyalty
Effort

Innovation
Attitude towards customers
Ability to do the job (skills)

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A MODEL OF HUMAN RESOURCES

Pay
Selection
Socialization
Equity
Opportunity

motivation
effort

productivity
Training
Selection

Monitoring
Pay

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capacity

Work organization
control

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Human Resource Management

Strategy
Why is HR critical to firm performance?
85% of all firms in the US are service firms.
Service is delivered by people.
Low quality HR leads to low quality customer
service.
In the 21st century effective knowledge
management translates into competitive
advantage and profits.
Knowledge comes from a firms people.
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Human Resource Management

Strategy
What is unique about Human Resource Management?

HR is multidisciplinary: It applies the

disciplines of Economics (wages, markets,
resources), Psychology (motivation,
satisfaction), Sociology (organization
structure, culture) and Law (min. wage, labor
contracts, EEOC)
HR is embedded within the work of all
managers, and most individual contributors
due to the need of managing people
(subordinates, peers and superiors) as well
as teams to get things done.

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HR CHOICES: FUNCTIONAL

Individual work v. team work

Pay for job v. pay for individual v. pay for
group v. pay for need
Make or buy skills
Promote form within v. recruit at all levels
Job security v. no commitments

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HR CHOICES: PHILOSOPHY

Motivate by money v. peers v. the work

Egalitarianism v. meritocracy
Assume shirking v. assume inherent
desire to do good work
Centralized v. decentralized control

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WHY DIFFERENT CHOICES ARE MADE

EXTERNAL FACTORS

External Labor Market

Government Policy
Business and
Union organization

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INTERNAL FACTORS
Technology/Work
Organization
Business Strategy/
Markets Values

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SOME TECHNICAL CONSIDERATIONS

Degree of proximity
Degree of skill specificity
Degree of coupling across worker tasks
Ease of monitoring
Ambiguity of worker tasks
Importance of creativity/discretion

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MOTIVATIONS

LOAFING/FREE RIDING
OUTPUT RESTRICTION
CRAFT PRIDE
ORGANIZATIONAL COMMITMENT
GIFT EXCHANGE
MONEY=EFFORT

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Business organizations engage in generic

strategies that often fit into some strategic
type.
One example is Cost, Differentiation and or
Focus. ( M. Porter, 1980)
Another is Defender, Analyzer, Prospector,
or Reactor. ( Miles and Snow ,1978)

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Porters Generic Strategies

Michael Porter has argued that a firms strengths
ultimately fall into one of two headings:
cost advantage and
differentiation.
By applying these strengths in either a broad or
narrow scope, three generic strategies result:
cost leadership,
differentiation, and
focus.
These strategies are applied at the business unit
level.
They are called generic strategies because they are
not firm or industry dependent.
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Cost Leadership Strategy

This generic strategy calls for being the low
cost producer in an industry for a given level
of quality. The firm sells its products either at
average industry prices to earn a profit higher
than that of rivals, or below the average
industry prices to gain market share.

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Differentiation Strategy
A differentiation strategy calls for the development of a
product or service that offers unique attributes that
are valued by customers and that customers
perceive to be better than or different from the
products of the competition.
The value added by the uniqueness of the product
may allow the firm to charge a premium price for
it.
Because of the products unique attributes, if
suppliers increase their prices the firm may be able
to pass along the costs to its customers who cannot
find substitute products easily.
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Focus Strategy
The focus strategy concentrates on a narrow
segment and within that segment attempts to
achieve either a cost advantage or
differentiation.
A firm using a focus strategy often enjoys a
high degree of customer loyalty, and this
entrenched loyalty discourages other firms
from competing directly.
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The concept of Generic Strategies is that

Competitive Advantage is at the heart of any
Strategy
Texas Instruments and North-West Airlines
Are two low-cost firms that fell into this trap

NWA

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# recognized its problems in time;

# instituted efforts to improve
marketing;
# passenger service;
# service to travel agents to make
its product more comparable;
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However, generic strategy is only small part

of SM.

Second aspect of SM is the process of developing strategies for

achieving the company's goals in light of its current environment.
Business organization engage in generic strategies, but they also
make choices about such things as ;
How to scare off competitors;
How to keep competitors weaker;
How to react to and influence pending legislation;
How to deal with various stakeholders and special interest
groups;
How to lower production costs, how to raise revenues,
What technology to implement;
How many and what types of people to employ;
Each of these decisions may present competitive challenges that
have to be considered.
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strategic management appears

as a cycle in which several activities follow
and feed upon one another.
The strategic management process is
typically broken down into five steps:

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Mission and goals;

Environmental analysis;
Strategic formulation;
Strategy implementation;
Strategy evaluation;

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Figure 1: illustrates how the five steps interact. At the corporate level, the
strategic management process includes activities that range from
appraising the organizations current mission and goals to strategic
evaluation.

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First step in the strategic management model begins with

senior managers evaluating their position in relation to the
organizations current mission and goals.
Environmental analysis looks at the internal organizational
strengths and weaknesses and the external environment
for opportunities and threats. The factors that are most
important to the organizations future are referred to as
strategic factors and can be summarized by the acronym
SWOT Strengths, Weaknesses, Opportunities and
Threats.
Strategy formulation involves senior managers evaluating
the interaction between strategic factors and making
strategic choices that guide managers to meet the
organizations goals.
Strategy implementation is an area of activity that focuses
on the techniques used by managers to implement their
strategies.
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A Model of the Strategic Human Resource Management process

Strategy formulation

Strategy implementation

External analysis
Opportunities
Threats

Mission

Goals

Strategic
choice

Strengths
Weaknesses

Human
resource
Needs
Skills
Behaviors
Culture

Recruitment
Training
Performance
Management
Labor relations
Employee
relations

Firm
Performance
Productivity
Quality
Profitability

Human resource
Capability

Skills
Abilities
Knowledge

Emergent strategies
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Job analysis
Job design
Selection
Development
Pay structure
Incentives
Benefits

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Human resource
Actions

Behaviors
Results
(Productivity
Absenteeism,
turnover)

Strategy evaluation

Internal
analysis

HR practices

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Four levels of integration seem to exist between the

HRM function and the strategic management
function:

Administrative linkage:
Lowest level of integration
Simply engages in administrative work
HRM department is completely divorced from any component of the SM process
One-way linkage:
recognize the importance of human resources in implementing the strategic
plan
Two-way linkage:
Strategic planning team informs the HRM function of the various strategies the
company is considering
Analyze the results of this analysis to the strategic planning team
Strategic plan is passed on to the HRM executive , who develops programs to
implement it.
Integrative linkage:
dynamic and multifaceted
The HRM function is involved in both strategy formulation and strategy
implementation

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Linkage of Strategic Planning and HRM

Administrative
linkage

Strategic
Planning

HRM
function

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One-way
linkage

Strategic
Planning

HRM
function

Two-way
linkage

Interactive
linkage

Strategic
Planning

Strategic
Planning

HRM
function
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function

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External analysis
Opportunities
Threats

Mission

Strategic
Choice

Goals

Internal analysis
Strengths
Weaknesses

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Five major components of the SM process are relevant to strategy

formulation

Goals:

Organization mission:

what an organization hopes to achieve in the medium-to long

term future
The mission statement is often accompanied by a statement of a companys
vision and / or values.

External analysis:
Consist of examining the organizations operating environment to identify the

strategic opportunities

a)

customer markets that are not being served,

technological advances that can aid the company,
labor pools that have not been tapped,

b)

c)

a)
b)
c)
d)

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Threats
potential labor shortage,
new competitors entering the market,
pending legislation that might adversely affect the firm,
competitors technological innovations,

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Internal analysis
Attempts to identify the organizations strengths weaknesses. It focuses on the
quantity and quality of resources available to the organization

Financial,

capital,

technological, and

human resources.
Organizations have to honestly and accurately assess each resource to decide whether it
is a strength or a weakness

Strategic Choice:

External and internal analysis combined constitute what has come to be called the SWOT
( strengths, weaknesses, opportunities, threats) analysis. The strategic managers compare
these alternatives ability to

attain the organizations strategic goals;

then they make strategic Choice.

The strategic choice is the organizations strategy; it describes the ways the organization will attempt
to fulfill its mission and achieve its long-term goals.

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How Human Resource Involved in Strategy

Formulation?

Many of the opportunities and threats in the external environment are

people related
Potential labor shortages
Competitor wage rates
Government regulations
Firms internal strengths and weaknesses also requires input from the HRM
function;
One third of the total growth in U.S. GNP between 1943 and 1990 was the
result of increases in human capital
Recent number of research work has supported the need to have HRM
executives integrally involved in strategy formulation

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Strategy Implementation
Organizational
Structure
Types of
information

Task design

Product
Market
strategy

Performance
Reward
systems

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Selection, training
and
development people

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HRM has primary responsibility for three of

these five implementation variables:
task, people, and reward systems. In addition, HRM can directly
affect the two remaining variables : org. Structure and
information
1. for the strategy to be successfully implemented, the tasks must be
designed and grouped into jobs in a way that is efficient and effective.
2. the HRM function must ensure that the organization is staffed with
people who have the necessary knowledge, skill, and ability to
perform their part in implementing the strategy.

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Strategy Implementation
Recruitment
Job analysis
Training
Job design
Performance
Selection
Management,
Developmental
Labor relations
Pay structure
Employee relations
Incentives
Benefits

Strategic
choice

Firm
Performance

Human resource
Needs
Skills
Behavior
Culture

Productivity
Quality
Profitability

Human resource
Capability
Skills
Ability
Knowledge

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Human resource
Action
Behavior
Results
(Productivity,
Absenteeism,
Turnover)

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The low-cost leadership strategy attempts to increase the

organizations market share by having the lowest unit cost and price
compared with competitors.
The simple alternative to cost leadership is differentiation strategy.
This assumes that managers distinguish their services and products
from those of their competitors in the same industry by providing
distinctive levels of service, product or high quality such that the
customer is prepared to pay a premium price. With the focus
strategy, managers focus on a specific buyer group or regional
market.
This allows the firm to choose from four generic business-level
strategies low-cost leadership, differentiation, focused
differentiation and focused low-cost leadership in
order to establish and exploit a competitive advantage within a
particular competitive
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Miles and Snow (1984) have identified four modes

of strategic orientation:
Defenders: Defenders are companies with a limited
product line and a management focus on improving the
efficiency of their existing operations. Commitment to
this cost orientation makes senior managers unlikely to
explore new areas.

Prospectors: Prospectors are companies with fairly

broad product lines that focus on product innovation and
market opportunities. This sales orientation makes
senior managers emphasize creativity over efficiency.

Analyzers: Analyzers are companies that operate in at

least two different product market areas, one stable and
one variable. In this situation, senior managers
emphasize efficiency in the stable areas and innovation
in the variable areas. HRM 660 Summer 2015
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Reactors are companies that lack a consistent strategy

structureculture relationship. In this reactive orientation, senior
managements responses to environmental changes and
pressures thus tend to be piecemeal strategic adjustments.
Competing companies within a single industry can choose any
one of these four types of strategy and adopt a corresponding
combination of structure, culture and processes consistent with
that strategy in response to the environment.
The different competitive strategies influence the downstream

functional strategies.

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Functional-level strategy

Functional-level strategy pertains to the major functional

operations within the business unit, including research and
development, marketing, manufacturing, finance and HR.
This strategy level is typically primarily concerned with
maximizing resource productivity and addresses the question,
How do we support the business-level competitive
strategy?
Consistent with this, at the functional level, HRM policies and
practices support the business strategy goals.

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Human Resource Management

Strategy
Why is HR critical to firm performance?
85% of all firms in the US are service firms.
Service is delivered by people.
Low quality HR leads to low quality customer
service.
In the 21st century effective knowledge
management translates into competitive
advantage and profits.
Knowledge comes from a firms people.
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HR Strategy: Strategic Fit

Corporate Strategy
Business Strategy
HR Strategy

Training

Rewards

HR System
(Performance Mgmt.)
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HR Strategy: HR System
Internal Fit
HR Strategy
Goal Setting
Appeal

Performance
Measurement
Coaching

Rewards

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Performance Evaluation

Performance Management System

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HR Strategy: Context of HR
System
1. The Five Factors Influencing the HR
System

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External Environment
Social: social values, roles, trends, etc.
Political: political forces, changes. Ex. Bush
presidency and its agenda for Social Security.
Legal: laws, court decisions, regulatory rules.
Economic: product, labor, capital, factor
markets.
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HR Strategy: Context of HR
System
4. Organization Strategy

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What are a firms distinctive competencies?

What is the basis that competitive strategy be
sustained?
What are a firms strategic objectives?

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