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Topic 1: Why is it important for management to integrate organizational strategy and

HRM? How can this be achieved? What difficulties are likely to be encountered in this?
Provide real world examples where appropriate.

Table of contents

Introduction...............................................................................................1

Part I- The importance of integrating Organizational Strategy and Human Resource


Management..............................................................................................1

1. Definition of Organizational Strategy...........................................2


2. Definition of HRM.......................................................................4
3. The importance of integrating Organizational strategy and Human Resource
Management..................................................................................5

Part II- Some ways to conduct this integration.........................................6

Part III- Difficulties in achieving this integration...................................10

Conclusion..............................................................................................11

Endnotes..................................................................................................11

References...............................................................................................11
Introduction

A rapid changing economic environment has become the norm for most organizations.
To compete, they must continually improve their performance by reducing costs,
innovating products and processes as well as improving quality and productivity.
Besides, there is also a substantial body of theoretical literature linking organizational
strategy, human resource (HR) practices, and performance1, which helps to achieve the
highest profits for a company. This literature typically suggests that HR practices should
be used to complement and support an organizational strategy. More specifically, the
reward system should be aligned to motivate employee performance that is consistent
with the firm's strategy: attract and retain people with the knowledge, skills, and abilities
required to realize the firm's strategic goals, and create a supportive culture and
structure2. Furthermore, the literature argues that alignment of the reward system with
organizational strategy helps to determine organizational effectiveness. A review of the
literature which links organizational strategy and human resource management by Becker
and Gerhart (1996) suggests the human resource system can be a unique source of
competitive advantage, especially when its components have a high degree of internal
and external fit. Another review by Gomez-Mejia and Balkin (1992) contends that the old
model of compensation (with pay structures based on job analyses, descriptions,
specifications, and classifications) is no longer effective in today's business environment.
They conclude modern organizations must align their reward system practices (in HRM)
with their organizational strategy in order to achieve higher levels of performance at both
the individual and organizational level.

Therefore, the role of human resource (HR) decisions is very important in creating and
sustaining organizational performance and unique competitive advantage of each
company.

The purpose of this paper is to exam the importance of integrating HRM with
organizational strategy; how to conduct that integration as well as what difficulties are
likely to be encountered in this.
Part I- The importance of integrating Organizational Strategy and Human Resource
Management

In the first part of the discussion, we focus on the link between Organizational Strategy
and Human Resource Manager. First of all, to understand why organizational strategy
should be integrated with HRM, we should learn more about what organizational
strategy and HRM is.

1- Definition of Organizational Strategy

After searching on Google for “organizational strategy”, I did not find much essential
information for what I need. One major reason is that this term has yet come into
practical business use.

So what is the real definition of the “organizational strategy” anyway?

Organizational strategy is a clear definition of how the organization needs to change-


overtime- in order to be able to deliver the strategy of the enterprise and an actionable
plan of how to make the transformation. This requires both the thinking and analysis to
compare current state to desired state and define the gap, and the execution capabilities to
make the requisite changes happen3.

In other words, Organizational Strategy is the goals, plans, the strategies and the detailed
actions that each organization choose to fulfill its mission and achieve its long-term
goals.
Figure 1. Organizational Strategy Development (Source: www.charlesmore.com)

Figure 1 describes the position of Organizational Strategy in the Business Strategy


system. In fact, every company needs to have a Business Strategy (the company’s
strategy) to survive and be prosperous in a competitive market. Business Strategy
contains two separate yet interdependent parts named Organizational Strategy and Other
Strategic Initiatives. Imagine an enterprise as a human body, then the brain is
Organizational Strategy. The brain’s role is a control center for every body’s vital activity
necessary to survive. In this case, Other Strategic Initiatives is all activities involved in
human’s survival.
Figure 2: Organizational Strategy Key Considerations (www.charlesmore.com)

Figure 2 show the five key elements influencing Organizational Strategy which are:
Organizational Design, Capabilities Requirements, Talent Management Practices,
Organizational Culture and Organizational Competitiveness.

2- Definition of HRM

Human Resource Management (HRM) refers to the policies, practices and systems that
influence employees’ behavior, attitudes and performance. Many companies refer to
HRM as involving ‘people practices’.

HRM practices include: determining human resource needs (HR planning), attracting
potential employees (recruiting), choosing employees (selection), teaching employees
how to perform their jobs, preparing them for the future (learning and development),
rewarding them (compensation), developing their performance (performance
management), creating a positive work environment (industrial relations and occupational
health and safety).
3- The Importance of Integrating HRM with Organizational Strategy

Organizations have a number of resources at their disposal that they can use in order to
compete with other companies. These resources are physical (for example, plant,
equipment, technology, and geographical location); organizational (for example, the
structure, planning, controlling and coordinating systems; and group relations); and
human (for example, the experience, skill and intelligence of the employees). These
resources, under the control of the company, provide the company with competitive
advantage4. Two of the three classes of resources (organizational and human) are directly
tied to the human resource function.

As you know, the role of human resource management is to ensure that a company’s
human resource provide it with a competitive advantage (in Figure 2, one of
organizational strategy key considerations is Organizational Competitiveness). Therefore,
to be maximally effective, the HRM function must be integrally involved in the
company’s strategic management process5. Moreover, the company’s strategic
management process includes the Business Strategy which contains mainly the
Organizational Strategy (Figure 1). In other words, integrating HRM with
Organizational Strategy also means integrating HRM function with the business’s
strategic management process, which helps promote effectively the company’s
competitiveness in the market.

Actually, we can see a lot of real world examples in which these companies fail to realize
the importance of integrating HRM with organizational strategy and finally result in poor
strategic decisions. One famous example is that PepsiCo in the 1980s acquired the fast-
food chains of Kentucky Fried Chicken, Taco Bell and Pizza Hut in an effort to increase
its customer base. However, it failed to adequately recognize the differences between its
existing workforce (that is, mostly professionals) and that of the fast-food industry (that
is, lower-skilled people and high school students) as well as its ability to manage such a
workforce (which is HR’s main task). This was one reason that PepsiCo, in 1998, ‘spun
off the fast-food chains’. In essence, it had made a decision about ‘where to compete’
(the organizational strategy) without fully understanding what resources it would take to
compete in that market (that is the workforce or the human resource)6.

Another failure example is Boeing. The aerospace firm’s consumer products division was
in a ‘price war’ with Airbus Industries, forcing it to move away from its traditional
customer service strategy towards emphasizing cost reduction7. The strategy was a
success at the sales end- as Boeing received large numbers of orders for aircraft from
firms such as Singapore, Delta, Continental and Southwest Airlines. It had recently,
however, gone through a large workforce reduction (thus, it did not have enough people
to fill the orders) and it did not have the production technology to enable the necessary
increase in productivity. The result of this failure to address the importance of Human
Resource Management in making a decision about ‘How to compete’ (one of the
missions of the Organizational Strategy) resulted in the firm’s inability to meet delivery
deadlines and the ensuing penalties it had to pay to its customers.
Part II- Some ways to conduct this integration

As mentioned above, the Organizational Strategy is the main part in the strategic
management process, which has two distinct yet interdependent phases: strategy
formulation and strategy implementation. Thus, if the companies want to successfully
integrate HRM with Organizational Strategy, they should know how to incorporate the
HRM functions with the strategic management process. The second part of this paper will
introduce readers to some ways to conduct this alignment.

According to K. Golden and V. Ramanujam, there are four levels of integration seeming
to exist between the HR function and the strategic management function:
“administrative linkage”, “one-way linkage”, “two-way linkage” and “integrative
linkage”8.

In administrative linkage (the lowest level of integration), the HR function’s attention is


focused on day-to-day activities. This level of integration is not recommended because
the HR department simply engages in administrative work unrelated to the company’s
core business needs.

In one-way linkage, the firm’s strategic business planning function develops the strategic
plan and then informs the HR function of the plan. One disadvantage of this form is that
it prevents the company from considering HRM issues while formulating the strategic
plan, which leads to strategic plans that the company cannot successfully implement.

In two-way linkage, the problem which appears in one-way linkage has been solved. This
integration allow for the consideration of HRM issues during the strategy formulation
process. The strategic planning function and the HR function are interdependent in the
two-way linkage.
Integrative linkage is the highest level of integration. It is strongly recommended to
companies who are finding a way to successfully implement their organizational strategy.
Companies with integrative linkage have their HR functions built right into the strategy
formulation and implementation process, which means the HR functions are involved in
both strategy formulation and strategy implementation.

One successful example of this integrative linkage is the Virgin Blue. Bruce Highfield,
HR director of Virgin Blue said ‘HR has been involved in designing the people side of
the business to match the business model. I’ve been blessed because HR is intimately
involved with the business.’ Virgin Blue’s story illustrates how people, culture and HR
management practices are recognized as important influences on the way business is done
in the company. Employee behavior, motivation and commitment are recognized as
critical to the success of Virgin Blue.

Now let’s take a deeper insight into how to integrate HR functions into the strategy
formulation and strategy implementation.

1- During strategy formulation, the strategic planning group decides on a strategic


direction by defining the company’s mission, goals, its external opportunities and threats,
and its internal strengths and weakness. The group then generates various strategic
alternatives and compares the ability of those alternatives to achieve the company’s
mission and goals.
External
analysis
- Opportunities
- Threats

Strategic
Mission Goals
Choice

Internal
analysis
- Strengths
- Weaknesses

HR Input

Figure 3. Strategy Formulation

(Source: Adapted from Helen De Cieri, Robin Kramar, 2008, ‘Human Resource
Management in Australia: Strategy, People, Performance’, Third Edition, Chapter 2, page
61, Figure 2.3)

Figure 3 depicts 5 key major components of the Strategy Formulation- Mission, Goals,
External analysis, Internal Analysis and Strategic Choice. All these 5 components require
input from HR function.

2- During strategy implementation, the organization enacts the strategy that has been
chosen. This consists of structuring the organization, allocating resources, ensuring that
the firm has skilled employees in place, and developing reward systems that align
employee behavior with the organization’s strategic goals.
Organizationa
l structure

Types of Task
informatio Design
n
Product
market Performance
strategy
Selection,
Reward training, and
systems developmen
t of people

Figure 4. Variables to be considered in strategy implementation

(Source: Adapted from Helen De Cieri, Robin Kramar, 2008, ‘Human Resource
Management in Australia: Strategy, People, Performance’, Third Edition, Chapter 2, page
67, Figure 2.4)

As we can see in Figure 4, HRM has primary responsibility for three of the five
implementation variables: task design; the selection, training and development of people;
and reward systems. In addition, HRM can also directly affect the two remaining
variables: organizational structure; and types of information and information systems.

The following are the tasks HRM need to do step by step in the implementation process.

HRM’s processes Implementation variables


Analysis and design of work Task design
Recruitment and selection

Learning and Development The selection, training and development of


people
Employee development and career
management
Performance management
Reward systems
Pay structure, incentives and benefits
3- A final component to the strategic management process is that of strategy evaluation
and control. In this process we could see emergent strategies appear as well as recognize
the critical nature of human resources in competitive advantage.

It is extremely important for the firm to constantly monitor the effectiveness of both the
formulation and implementation strategy. Therefore, it is also necessary for the company
to evaluate the contribution of HR activities to the operation of an organization.
III- Difficulties in achieving this integration

Some challenges the company is likely encounter in this integration are: Role
Misunderstanding and Wrong HR allocations.

Mission misunderstanding in this situation means the HR does not understand


completely their missions in the system and sometimes is lost in the middle of all the
work stuffs. When integrated, the HR will have to be in charge of more tasks, including
some new and more challenging ones. Usually the HR does not have enough information
or knowledge about other relating work in the integration system, which is why they get
the wrong idea of their missions.

Wrong HR allocation is a term to describe a situation where human resource of a


company is allocated unevenly. As a result of misunderstanding their missions, HR
professionals could easily allocate their human resource in the wrong positions, which
causes waste of time, money and competitiveness.

So what can help company to prevent these problems? All they need is providing some
training courses for HR professionals. Once these managers can fully understand what
their roles in the integration are, what they need to do and how they can do it, these
people can run the HR’s missions more smoothly and more professionally.

Conclusion

To conclude, in today’s world- where over 70% of the value of the most companies is
now considered to be intangible- knowledge, methods, capabilities, relationships, brand-
the importance of HRM in a firm’s strategic management process is increasingly
recognized. Therefore, the earlier the integration of HRM and organizational strategy is
carried out, the bigger profits the company will receive in the long-term future.
Endnotes

1 (Balkin and Gomez-Mejia. 1987; Hambrick and Snow, 1989; Lawler, 1986a;
Lawler, 1986b; Ulrich and Lake. 1990; Waldman, 1994, Zingheim and Schuster, 2000).

2 (Galbraith. 1973; Kilmann, 1989; Nadler and Tushman, 1988).

3 Edward Ferris, Charlesmore Partners International, 2008, ‘So what is


organizational strategy anyway?’, Executive Insight Thought Leaders on the subject of
Organizational Strategy.

4 J. Barney, 1991, ‘Firm resources and sustained competitive advantage’, Journal of


Management, 17, pp. 99-120.

5 L. Dyer, ‘Strategic human resource management and planning’, in K. Rowland


and G. Ferris (eds), 1985, Research in Personnel and Human Resources Management,
JAI Press, Greenwich, CT, pp. 1-30.

6 Helen De Cieri, Robin Kramar, 2008, ‘Human Resource Management in


Australia: Strategy, People, Performance’, Third Edition, Chapter 2, page 57.

7 F. Biddle and J. Helyar, 1998, ‘Behind Boeing’s woes: Chunky assembly line,
price war with Airbus’, The Wall Street Journal, 24 April, pp. A1, A16.

8 K. Golden and V. Ramanujam, 1985, “Between a dream and a nightmare: on the


integration of the human resource function and the strategic business planning process”,
Human Resource Management, 24, pp. 429- 51.

References

Matthew R. Fairholm, Ph.D., (2009), ‘Leadership and Organizational Strategy’, The


Innovation Journal: The Public Sector Innovation Journal, Vol. 14 (1), article 3.

Edward Ferris, ‘So what is organizational strategy anyway?’, Executive Insight Thought
Leaders on the subject of Organizational Strategy.
Brian Becker; Barry Gerhart, (Aug., 1996), ‘The impact of Human Resource
Management on Organizational Performance: Progress and Prospects’, The Academy of
Management Journal, Vol. 39, No. 4, pp. 779- 801.

Seyed Reza Seyedjavadin, Mashallah Hossein Zadeh, (June 2009), ‘HR strategy and its
aligning with organizational strategy and human capabilities’, Iranian Journal of
Management Studies, Vol. 2, No. 2, pp. 5- 29.

Helen De Cieri, Robin Kramar, 2008, ‘Human Resource Management in Australia:


Strategy, People, Performance’, Third Edition.