Chapter 4: STRATEGY FORMULATION
INTRODUCTION
The formulation strategy is best described as a
process for developing a sense of direction and
ensuring a strategic fit. It has been described as a
logical step by step affair, the outcome of which is a
formal written statement that provides a
descriptive guide to the organizations
interventions. Many people still believe and act as
if this was the case, but it is a misrepresentation of
reality. This is not to dismiss completely the idea of
adopting a systematic approach as a described
below-it has its uses as a means of providing an
analytical framework for strategic decision making
and a represent for monitoring the implementation
of strategy.
IMPORTANCE OF HUMAN RESOURCE
MANAGEMENT TO STRATEGY
Perhaps the most of significant feature of HRM is
the importance attached to strategic integration,
which flows from top management vision and
leadership and which requires the full commitment
of people to it.
Improved HRM can play a key role in the
organizations competitive strategy and in the
organizational competitive strategy and inn the
development of distinctive capabilities. There are
following ways given that help the organizational
performance through HR.
1. Attracting, developing and retaining high
quality people: 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.
2. Talent management: Ensures that the talented
ands well motivated people required by the
organization to meet present and future needs
are available.
3. Working environment-Core values, leadership,
and work-life balance, managing diversity,
secure employment: Develops the big idea, i.e.
a clear vision a set of integrated values. Makes
the organization a great place to work.
4. Job and work: provides individuals with
stimulating and interesting work and gives
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
them the autonomy and flexibility to perform
these jobs well. Enhances job satisfaction and
flexibility, which encourages greater
performance and productivity.
5. Learning and development: Enlarges the skill
base and develops the levels of competition
requires 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.
6. Managing knowledge and intellectual capital:
focuses on both organizational and individual
learning and provides learning opportunities
and opportunities to share knowledge in a
systematic way. Ensures vital stock of
knowledge is retained and improves the flow
of knowledge, information and learning within
the organization.
7. Increasing engagement, commitment and
motivation: encourages people to identify
themselves with organization and act upon the
core values of the organization and willingly to
contribute to the achievement of organizational
goals. Develops a climate of cooperation and
trust, clarifies the psychological contract.
8. High-performance management: develops a
management culture that encourages high
performances in such areas as productivity,
quality levels of customer services, growth,
profits, and ultimately, the delivery of
increased shareholder value.
9. Reward management: develops motivation,
commitment and job engagement by valuing
them in accordance with their contribution. The
people and practices which are aligned with
future strategic needs, produce superior
organizational performance and there s a need
for every organization to build a coherent
human resource strategy and link that to
organizations overall strategy.
THEORETICAL FOUNDATIONS
Strategic HRM is an approach that defines how the
organizations goals will be achieved through
people means of hr strategies and integrated hr
policies and practices.
Other definitions of Strategic HRM include:
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 Chapter 4: STRATEGY FORMULATION

Strategic HRM is concerned with seeing the
people of the organization as a strategic
resource for the achievement of competitive
advantage (Hendry and Pettigrew, 1986)

A set of processes and activities jointly shared
by human resources and line managers to solve
people related business problems (Schuler and
Walker, 1990)

The macro-organizational approach to viewing
the role and function of HRM in the larger
organization (Butler et al, 1991)

The pattern of planned human resource
deployments and activities intended to enable
an organization to achieve its goals (Wright
and McMillan 1992)

Strategic HRM focuses on actions that
differentiate the firm from its competitors.

The central premise of strategic human
resource management theory is that successful
organizational performance depends on a close
fit or alignment between business and human
resource strategy.
Given these definitions of strategic human resource
management a comprehensive framework is
organized to have the knowledge of how human
resource practices are affected by strategic
considerations.
Six theories are given in a theoretical framework,
which shows how the human resource of
organizations are affected by various strategic
considerations-

The first, the resource based view, explains
practices that provide competitive advantage,
such as the unique allocation of the firms
resources, organizational culture and
distinctive competence.
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj

The second influence, a behavioral view, based
on contingency theory, explains practices
designed to control and influence attitudes and
behaviors.

The third draws on cybernetics system: This
view explains the adoption or abandonment of
practices resulting from feedback on
contributions to strategy when viewed from
this perspective, training program might be
adopted to help the organizations pursue a
strategy and would be updated according to
feedback.

The fourth, an agency/transaction cost view,
explains why company use control systems,
such as performance evaluation and reward
systems.
The other two theories provide explanations for
personal practices that are not driven strategy
considerations.

Resource dependence and power theories
explains practices caused by power and
political influences such as legislation,
unionization, control of resources, and
expectations of social responsibility.

The final influence, institutional theory,
explains that practices, such as the use of
inappropriate performance evaluation
dimensions, may exist because of
organizational inertia than conscious or
rational decision making.
STRATEGY
Strategic planning/strategy formulation process
Competitive strategy in business units
Competitive strategy at the business level is also
very important for making human resource
strategy or for the development of human
resources.
Michael Porter has given a framework for the
competitive analysis of the firm in the environment,
which is affected by five forces or we can say five
threats by the competitors.
These are:-
1. Rivalry among the competing firms
2. Threat of substitutes
3. Bargaining power of suppliers
4. Bargaining power of customers
5. Threat of new entrant
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 Chapter 4: STRATEGY FORMULATION
Also, to analyze the internal environment to find
out the strength and weakness of the business unit
value chain analysis is used which have both
primary and support activities in the firm.
Primary activities like:-
In-bound logistics
Out-bound logistics
Operations
Marketing and sales
Services
Support activities like:-
Human resources
Technology
Infrastructure
helps the organizations to know its resources and
to have the competitive advantage in order to
compete in the market.
The 3 types of strategies which are given by Porter
to compete in the market are:-
Low-cost leadership strategy
Differentiation strategy
Focus (Cost/Differentiation) strategy
All these different strategies are important for the
business to assess the human resources needs and
its wants in the organization and to formulate the
appropriate strategy as per these strategies.
PLANNING IN STRATEGIC BUSINESS UNITS
When business unit is planning for its various
functions and making its strategies, here HR plays
a vital role in contributing in its planning process
i.e. in the strategy formulation process.
For the operation of every function, the human
resource requirement is assessed and hence HRM
has to provide the staffing need for each alternative
strategy. The assessment of HR requirement is
submitted to top management to make decisions
and also in many organizations the vice president
of hr department would be a member of executive
committee to make decisions for these planning
proposals.
HUMAN RESOURCE STRATEGY
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
HUMAN RESOURCE PLANNING OR
STAFFING PLANNING
It is necessary to know the actual amount of human
resources available in the organization and the
need to develop the human resources to carry out
various strategies of the organization which are
formulated from time to time. What is the demand
for HR, what the supply is and how to match the
demand and supply are few strategic
considerations while doing HR planning.
INTERNATIONAL STRATEGY
Globalization is a process of worldwide integration
of strategy formulation, implementation, and
evaluation activities. Strategic decisions are made
based on the impact upon global profitability of the
firm, rather than on just domestic or other
individual considerations.
A global strategy seeks to meet the needs of the
customers’ worldwide, with the highest value at
the lowest cost. This may mean locating production
in countries with the lowest labor cost or abundant
natural resources locating research and complex
engineering, countries where skilled scientists and
engineers can be found, and locating marketing
activities close to the markets to be served.
Global strategy includes-designing, producing and
marketing products with global needs in mind
instead of considering individual countries alone. A
global strategy integrates actions against
competitors into a world wide plan.
Monitoring globalization in our industry is as
important strategic-management activity. Knowing
how to use the information for ones competitive
advantage is even more important. e.g. firms may
look around the world for the best technology and
select one that has the most promise for the largest
number of markets. When firms design a product,
they design it to be marketable in as many
countries as possible. When firms manufacture
product, they select the lowest cost source which
may be Japan for semiconductors, Sri-Lanka for
textiles and Malaysia for simple electronics and
Europe for precision machinery. Multinational
companies design manufacturing systems to
accommodate world markets.
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 Chapter 4: STRATEGY FORMULATION
There are four kinds of international strategies:-
1. Multinational strategies
2. Multidomestic strategies
3. Global strategies
4. Transnational strategies
1. Multinational strategies
Companies operate in countries chosen for their
individual profit potential. All activities related to
design; production and marketing are then
performed in each of these countries.
2. Multidomestic strategies
They customize the product and its marketing to
the unique preferences of each country.
3. Global strategies
Produce standardize products with different
activities such as design and production being
located in different countries depending on labor
costs, skills or other strategic advantages.
4. Transnational strategies
Companies compete in the global marketplace
through the use of networks and strategic alliances.
A global strategy is having an implication of
human resources. For global strategy, it is
important to locate all the activities of the
organization where best labor is available at lowest
cost and skills. Another implication is that with
global strategy, a company can have strikes or labor
related problems.
STRATEGIC ALLIANCES
In order to gain competitive advantages in
production and marketing, the companies are
entering into strategic alliances with the foreign
companies. But, the companies which outsource
their manufacturing, for them strategic alliances are
extremely dangerous. Companies which pursue
this strategy, they have finished off their important
skill areas or distinctive competencies.
Although in short-run it can be attractive strategy
but in long term the alliance partner doing the
manufacturing can become the dominant player.
So, the companies that have licensed foreign
companies to use their manufacturing technologies
have placed themselves at future disadvantages.
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
Human resource managers must need to know the
following measures for preventing the alliances
partner to take us to disadvantages:-
1. Understanding the real aspiration of alliance
partner
2. Keeping in mind the original purposes of the
alliance
3. Avoiding a false sense of assurance provided
by legal control since the real key is knowledge
transfer.
SUSTAINABLE GLOBAL COMPETITIVE
ADVANTAGES
Sustainability refers to the ability of a company to
survive and exceed in dynamic competitive
environment. Companies in today’s global
economy use mergers and acquisitions, growth and
downsizing to successfully compete.
With greater globalization of markets, it will
become more difficult for companies that do no
human resource planning to compete with other
countries that have taken advantage of such
strategy and planning contributions. Companies
rely on skilled workers to be productive, creative
and innovative to provide high quality customer
service.
To meet the sustainability challenge, companies
must engage in human resource management
practices that address short-term needs but help to
ensure the long-term success of the firm.
GLOBALLY COMPETENT MANAGERS
Globally competent managers are needed in order
to have the broad cultural knowledge and global
understandings of the business. They should be
flexible to live in different cultures and they should
also know the languages of various nations in order
to have the effective communication skills. They
should also develop an egalitarian of colleagues
from other countries. In order to have such
managers, HR managers must hire them from
selecting individuals from all over world and
develop them through transnational assignments.
LOCATION OF PRODUCTION FACILITIES
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 Chapter 4: STRATEGY FORMULATION
Companies that build facilities in a number of 1. Group oriented, long-term appraisal systems.
different countries, attempts to capitalize on labor 2. Generalized skill development and broad
production and distribution costs in different career paths
locations. Lower production costs can be gained by 3. Compensation approaches accentuating
shifting production from higher cost locations to internal equity
lower cost locations. For e.g. some of the US major 4. Flexible compensation package including stock
automobile companies have plants all over the ownership.
world. They continue to shift their production from Quality enhancement strategies
the US, where labor unions have gained high 1. Employment security
wages for their members, to Maquiladora facilities 2. Guarantees
in Mexico, where the wages are substantially lower. 3. Extensive training programs
4. Participative decision making
So it is evident from the above discussions that Cost reduction
company’s human resource strategy cannot be 1. Performance appraisal system, emphasizing
developed in isolation to those of global results in the short-terms
competitors. Companies must have seen the 2. Virtually no training programs
regulatory environments of countries in which they 3. Very specialized jobs
wish to manufacture and sell their products in 4. Narrow and specialized career paths
order to determine human resource implications. 5. Procedures for continual tacking of wages rates
in the labor markets

STRATEGY-DRIVEN ROLE BEHAVIORS AND STRATEGIC HUMAN RESOURCE ACTIVITY

PRACTICES TYPOLOGY

Various roles and responsibilities can be performed

by HR department depending on the different
competitive strategies pursued by the organization.
For e.g. we can take 3 types of competitive
strategies perused by the forms:-
1. Innovation
2. Quality enhancement
3. Cost reduction

To know the employees role behaviors for all the 3

kinds of strategies the following things, we have to
understand:
For successful implementation of
1. Innovation strategy: - employees need to be
cooperative, highly creative, oriented toward
the long term, risk taker and comfortable with
ambiguity.
2. Quality enhancement strategies: - employees
need to emphasis on production or service The type of individual human resource activities
processes, risk reduction and predictability. may be better understood through application of a
3. Cost reduction strategies: - focused on short conceptual typology developed by Alan Speaker,
term, risk averse, predictable results oriented Senior vice president at Synhrgy HR Technologies.
and comfortable working by themselves. The typology categorizes the activities of human
resources into a 2x2 matrix. It has two dimensions:
Also for these different sets of strategies, different
The extent of activities to which they are
human resources practices are required relational or transactional.
Innovation strategy
Their strategic value i.e. whether their strategic
Appropriate role behavior will be obtained with value is high or they have low strategic value.

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 Chapter 4: STRATEGY FORMULATION
Transactional or relational continuum
At its one end are the activities that are mostly
administrative and impersonal. They require less
interpersonal skill and they can be.
At it’s another end, are activities that require highly
interpersonal skills, ability and sensitivity.
High or low strategic value continuum
At its one end are activities that have direct
business impact on firm’s ability to improvement
its competitive advantage or strategy.
At it’s another end that have indirect and less
strategic impact.
It is important to note that strategic value of
activities changes according to changing
circumstances of the firm.
Various quadrants are:
1. Low strategic value/transactional quadrant: -
The activities present in this quadrant do not
have direct impact on the firms strategies like:
low cost, quality enhancement, product
innovation. But these activities are important to
employees for their information regarding
paychecks, benefits and medical claims.
But if these activities are performed poorly then
HR executives become more concerned and
they quickly get into trouble. It is good to
outsource such activities.
2. The upper right quadrant
The SHRM can make its greatest contributions
out here. Activities in this quadrant have the
more direct impact on the firms strategy for e.g.
if the firm has poor relations with its unionized
workers then there will be restrictive work
rules and no flexible work arrangements, hence
the firm will face difficulty in implementing
low-cost strategy. These activities are not
favorable for firm to outsource, as they provide
for competitive advantage to the firm, and for
some trusting relationships are also required.
3. High strategic value/transactional quadrant
These activities affect more to the firm’s
strategies. These are several planning related or
design activities. Planning is necessary to
ensure the availability of important people to
implement the firms’ strategies in the future.
Non-compliance to the governmental
regulations can incur financial liabilities to the
firm for the successful implementation of its
strategies.
4. Low strategic value/relationship quadrant: -
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
Activities in this quadrant have little impact on
firms’ strategies. These activities require
substantial relationship skills such as trust,
confidentiality and genuine concern for
employee welfare.
CLASSIFYING HUMAN RESOURCE TYPES
Greater understanding of industrial and strategic
differences can be obtained by examining different
classifications of strategic types. Interestingly,
principles of enlighted management suggest that
companies should develop their employees, strive
towards providing employment security, and seek
to have supplies of internal candidates prepared for
promotion when vacancies occur.
Systematic differences in utilization of human
resource practices may be explained by a typology
of career systems developed by Jeffrey Somerfield
and Mary Peiperl. Companies in this typology are
classified as
1. Clubs
2. Base-ball teams
3. Academics
4. Fortresses
1. Clubs
When the strategy is to be the low-cost
producer, the focus is on cost control.
Companies in this category compete by
increasing their efficiency in controlling costs,
maintaining quality and providing customer
services. Types of companies in the club
category include airlines, banks, utilities and
governmental agencies. Club personnel policies
emphasize development and training, as
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 Chapter 4: STRATEGY FORMULATION
employees are hired in only at entry level,
talent is developed within the organization,
and higher-level vacancies are filled by
promotions from within.
2. Baseball team
Companies in this category persue on
innovation strategy. Hewlett-Packard is an
example of a successful company in this
category. Under this framework, instrument
banks, broadcasting companies, software
developers, entertainment companies and
biological research companies fit this category.
In addition to providing training, they also
tend to train their employees in skills that
apply beyond their present jobs.
The baseball team brings in talent at any level
within the organization and doesn't place much
emphasis on development. Career path often
involves interorganizational moves as
individuals take jobs with other companies as
they develop and command greater
compensation, responsibility and professional
stature.
3. Academy
Academies are somewhat of a hybrid in that
they are both product innovators and
competitors in long run production roles. They
attempt to exploit niches in the market place.
Types of companies in this category include
manufacturers of electronics, pharmaceuticals,
consumer product and automobiles. Texas
instrument is an example of a successful
academy. The personnel policies of the
academy which follows a focused strategy fall
between the two extremes of club and
basketball teams. In this category there is
substantial emphasis on development but some
outsides are hired to fill higher-level positions.
4. Fortress
Companies in this category are in highly
competitive markets and are at the mercy of
their environments. e.g. hotels, retailing,
publishing, textiles and natural resources.
Because companies in this category are
essentially reactive, there are few systematic
strategies implications.
NETWORK ORGANIZATIONS AND
STRATEGY
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
The network organizations may be viewed as a
central hub surrounded by a network of outside
specialists rather than being housed under one roof
or located within one organizations, services such
as accounting, designing, manufacturing,
marketing and distribution are outsourced to
separate companies that are connected
electronically to central office. Organizational
partners located in different parts of the world may
use networked computers or internet to exchange
data and information so rapidly and smoothly that
a closely connected network of suppliers,
manufacturers and distributors can look and act
like one seamless company.
Essentially network organizations retain for
themselves only those activities in which they have
expertise. With a network structure, the hub
maintains control over processes in which it has
world-class or different-to-imitate capabilities and
then transfers other activities along with the
decision making and control over them-to other
organizations. The idea is that a firm can
concentrate on what it does best and contract out
every thing else to companies with distinctive
competences in those specific areas, enabling the
organizations to do more with less.
A simplified network structure for premiere plus
publishing a publisher of travel and recreation
books.
Premiere's small staff focuses its energy on
acquisitions finding authors who have written or
want to write manuscripts that would make a
contribution to premieres list of high quality travel
books. Everything else is outsourced.
One strategic implication of network organization
is that lead firms will have needs for employees
who have the entrepreneurial skills required for the
broker activities of establishing the network. Project
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 Chapter 4: STRATEGY FORMULATION
management experience access functional areas
may help develop the kinds of skill needed.
- The internal entrepreneurship skills need to
establish networks may also be developed.
- Large teams of staff specialists and
administrations' are not needed.
- Also, employee loyalty can be weak in network
organizations because of concerns over job security.
Employees may feel that they can be replaced by
contract services.
In addition, it is more difficult to develop a
cohesive corporate culture.
- Turnover may be higher because emotional
commitment between the organization and
employees is low.
- With changing products, markets, and partners,
the organization may need to reshuffle employees
at any time to get the correct mix of skills and
capabilities.
Strengths of network organizations
1. Enables even small organizations to obtain
talent and resources worldwide.
2. Gives a company immediate scale and reach
without huge investments in factories,
equipment or distribution facilities.
3. Enable the organizations to be highly flexible
and responsive to changing needs.
4. Reduces administrative overhead costs.
Weakness of network organizations
1. Managers do not have hands-on control on
many activities and employees.
2. Requires a great deal of time to manage
relationships and potential conflicts with
contract partners.
3. There is a risk of organizational failure if a
partner fails to deliver or goes out of business.
4. Employee's loyalty and corporate culture might
be weak because employees feel they can be
replaced by contract services.
ORGANIZATIONAL LEARNING
STRATEGIES FOR CREATING A LEARNING
CULTURE
A learning culture is one in which learning is
recognized by top management , line managers and
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
employees generally as essential organizational
processes to which they are committed and in
which they engage continuously. It is described by
Reynolds (2004) as a 'growth medium' that will
encourage employees to commit to a range of
positive discretionary behavior including learning
and that has the following characteristics
'empowerment not supervision, self managed
learning not instructions, long-term capacity
building not short-term fixes. '
Discretionary learning according to Sloman (2003)
happens when individuals actively seek to acquire
the knowledge and skills that promote the
organizations objectives.
The steps required to create a learning culture as
proposed by Reynolds (2004) are:
1. Develop and share the vision
2. Empower employees
3. Provide employees with a supportive learning
environment
4. Use coaching techniques to draw out the talents
5. Guide employees through their work
challenges.
6. Recognize the importance of managers acting
as role models
7. Encourage networks
8. Align systems to vision
ORGANIZATIONAL LEARNING STRATEGIES
Organizations can be described as continuous
learning systems and organizational learning has
been defined by Mazdick (1994) as process of co-
coordinated systems change, with mechanisms
built in for individuals and groups to access, build
and use organizational memory, structure and
culture to develop long-term organizational
capacity.
Organizational learning strategy aims to develop a
firm's resource-based capability. This is in
accordance with one of the basic principles of
human resource management, namely that it is
necessary to invest in people in order to develop
the human capital required by the organization and
to increase its stock of knowledge and skills. As
stated by Ehrenberg and Smith (1994), the human
capital theory indicates that "the knowledge and
skills a worker has which comes from education
and training, including the training that experience
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 Chapter 4: STRATEGY FORMULATION
brings-generates a certain stock of productive
capital.
Five principles of organizational learning have
been defined by Harrison (1997)
1. The need for a powerful and cohering vision of
the organization to be communicated and
maintained across the workforce in order to
promote awareness of the need for strategic
thinking at all levels.
2. Within the framework of vision and goals,
frequent dialogue, communications and
conversations are major facilitators of
organizational learning.
3. The need to develop strategy in the context of a
vision that is not only powerful but also open-
ended and unambiguous. This will encourage a
search for a wide rather than a narrow range of
strategic option will promote lateral thinking
and will orient the knowledge creating
activities of employees.
4. It is essential continuously to challenge people
to re-examine what they take for granted.
5. It is essential to develop a conducive learning
and innovation climate.
LEARNING ORGANIZATION STRATEGY
The process of organizational learning is related to
the process of a learning organization, which Senge
(1990) describes as an organization that is
continually expanding to create its future.
It has been defined by Wick and Leon (1995) as an
organization that continually improves by rapidly
crating and refining the capabilities required for
future success.
Peddler (1989) defines learning organization as
organization that facilitates the learning of all its
members and continuously transforms itself.
Burgoyne (1994) has pointed out learning
organization have to be able to adapt to their
context and develop their people to match the
context.
Gravein (1993) suggest that learning organizations
are good at doing five things.
1. Systematic problem solving, which rests
heavily on the philosophy and methods of the
quality movement. Its underlying ideas include
relying on scientific method, rather than
guesswork, for diagnosing problems. Data
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
rather than assumptions are required as the
background to decision making what quality
practitioners call 'fact-based management.'
2. Experimentation: this activity involves the
systematic research for and testing of new
knowledge.
3. Learning from past experiences: learning
organizations review their success and failures;
assess them systematically and record the
lessons react in a way that employees find open
and accessible. This process has been called
'Santayana principle' quoting the philosopher
George Santayana, who coined the phrase'
those who cannot remember the past are
condemned to repeat it'
4. Learning from others: sometimes the most
powerful insights come from looking outside
ones immediate environment to gain a new
perspective. This process has been called 3i's
for steal ideas shamelessly. Another more
acceptable word for it is benchmarking- s
disciplined process of identifying the best-
practice organization and underlying the
extents to which what they are doing can be
transferred with, suitable modifications, to ones
own environment.
5. Transferring knowledge quickly and efficiently
throughout the organization by seconding
people with new expertise or by education and
training programs as long as the latter are
linked explicitly with implementation.
INTEGRATION OF STRATEGIC PLANNING
AND HUMAN RESOURCE PLANNING
The integration of business strategy and human
resource strategy and planning is particularly
important for long-range planning efforts. One of
the recent studies of 115 strategic business units
within fortune 500 corporations found that between
49 and 69% of companies had some link between
HRM and strategic planning process. Four levels of
integration seem to exist between HRM function
and the strategic planning function:- administrative
linkage, one-way linkage, two-way linkage and
integrative linkage.
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 Chapter 4: STRATEGY FORMULATION
Fig: linkages of Strategic planning and HRM
1. Administrative linkage
In administrative linkage (the lowest level of
integration), the HRM functions attention is
focused on day-to-day activities. The HRM
executive has no time or opportunity to take a
strategic outlook toward HRM issues. The
company's strategic business planning function
exists without any input from the HRM
department. Thus in this level of integration, the
HRM department is completely divorced from any
component of the strategic management process in
both strategy formulation and strategy
implementation. The department simply engages in
administrative work unrelated to the company's
core business needs.
2. One-way-linkage
In one-way-linkage, the firm's strategic business
planning function develops the strategic plan and
then informs the HRM function of the plan. Many
believe this level of integration constitutes strategic
HRM- i.e., the role of HRM function is to design
systems and/or programs that implement strategic
plan.
3. Two-way-linkage
The two-way linkage allows for consideration of
human resource issues during the strategy
formulation process. This integration occurs in
three sequential steps:-
a) The strategic planning team informs the HRM
function of various strategies the company is
considering.
b) Then HRM executives analyze the human
resource implications of the various strategies,
presenting the results of this analysis to the
strategic planning team.
c) Finally after the strategic decision has been
made, the strategic plan is passed on to HRM
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
executive, who develops programs to
implement it. The strategic planning function
and HRM are interdependent in two-way
linkage.
4. Integrative linkage
Integrative linkage is dynamic and multifaceted,
based on continuing rather than sequential
interactions. I most case the HRM executives is an
integral member of the senior management team.
Companies with integrative linkage have their
HRM functions built right into the strategy
formulation and implementation processes.
Thus, in strategic HRM, the HRM function is
involved in both strategy formulation and strategy
implementation. The HRM executive gives strategic
planners information about the company's human
resource capabilities, and these capabilities are
usually a direct function of the HRM practices.
Benefits of integrating human resource planning
with strategic planning
1. Generates more diverse solutions to complex
organizational problems
2. Ensures consideration of human resources in
organizational goal setting processes
3. Ensures considerations of human resources in
assessment of organizations abilities to
accomplish goals and implement strategies
4. Reciprocal integration prevents strategy
formulation based on personal
rigidness/preferences
5. Facilitates concurrent considerations of
strategic plans and managerial succession
THE HUMAN RESOURCE MANAGER AND
STRATEGIC PLANNING
It is impossible to portray what vastly different role
HRM must play today compared to 20 or even 10
years ago. HRM has traditionally played a largely
administrative role-simply processing paperwork
plus developing and administering, hiring,
training, appraisal, compensation and benefits
systems and all of this has been unrelated to the
strategic direction of the firm. In the early 1980's,
HRM look on more of a one-way linkage role,
helping to implement strategy. Now strategic
decision makers are realizing the importance of
people issues and so are calling for HRM to become
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 Chapter 4: STRATEGY FORMULATION
the "source of people expertise" in the firm. This
requires that hr managers possess and use
knowledge of how people can do play a role in
competitive advantage as well as policies,
programs, and practices that can leverage the firms
people as a source of competitive advantage. This
leads to an entirely new set of competencies for
today's strategic hr executives.
In the future hr professional will need four basic
competencies to become partners in the strategic
management processes.
1. Business competence
Knowing the company's business and
understanding its economic and financial
capabilities. This calls for logical decisions that
support the company's strategic plan. The hr
executive must be able to calculate the sot and
benefit of each alternative decision in terms of
its dollar impact. The hr executive must be fully
capable of identifying the social and ethical
issues attached to HRM practices.
2. Professional/technical knowledge
Professional/technical knowledge of state-of-
the-art of HRM practices in areas such as
staffing, development, rewards, organizational
design and communication. New selection
techniques, performance appraisal methods,
training programs, and incentive plans are
consistently being developed. Some of these
programs can provide value, whereas others
may be no more than the products of today's
HRM equivalent of snake oil. HR executives
must be able to critically evaluate the new
techniques offered as state-of-the-art HRM
HUMAN RESOURCE MANAGEMENT, MBA 3rd Semester, Birganj Public College, Birganj
programs and use only those that will benefit
the company.
3. Management of change process
Management of change process such as
diagnosing problems, implementing
organizational changes and evaluating results.
Every time a company changes its strategy in
even a minor way, the entire company has to
change. These changes result in conflict,
resistance and confusion among the people
who must implement the new plans or
programs. The hr executives must have the
skills to oversee the change in a way that
ensures its success.
4. Integration competence
Integration competence means the ability to
integrate the other 3 competency to increase the
company's value.
This entails seeing now all the functions within
the HRM area fit together to be effective and
recognizing that changes in any one part of the
HRM package are likely to require changes in
other parts of the package. e.g. a health care
company in Texas was attempting to fill a
position in the x-ray department. It was able to
identify the qualified candidates for the
positions, but none of the candidates accepted
the offer. It was not until the company
examined its total package (pay, benefits,
promotion, opportunities and so on) and
changed the compensation of the package that
it was able to fill then position.
The new strategic role of HRM presents both
opportunities and challenges. HRM functions
of the future must consist of individuals who
view themselves as business people who
happen to work in an HRM function rather
than HRM people who happen to work in a
business.
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