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Liberalization and industrialisation has paved 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. 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). 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). Strategic Human Resource Management (SHRM) has received a great deal of attention in recent years, most notably in the fields of Human Resource Management (HRM), Organizational Behavior, and Industrial Relations. An area that demands greater understanding is that of Strategic Human Resource Management (SHRM). SHRM is concerned with top managements attention and approach to HRM as a critical strategic dimension affecting firm performance; which is the objective of this article. Strategic human resource management (SHRM) enhances productivity and the effectiveness of organizations. Their implementation in organizations has proven that when organizations employ such personnel practices (mentioned in this paper) they are more able to achieve their goals and objectives. This article first describes what the word Strategy means and shifts its focus on HRM at a strategic level highlighting its importance in the present day organizations. The paper then highlights what best practices (as a result of strategic planning) the organizations can adopt that would ensure them of success.

What are Strategies?

Strategy is a multi-dimensional concept going well beyond traditional competitive strategy concepts. Strategies are broad statements that set a direction. Strategies are a specific, measurable, obtainable set of plans carefully developed with involvement by an institution's stakeholders. These action statements are linked to an individual or individuals who are accountable and empowered to achieve the stated result in a specific desired timeframe. They are patterns of action, decisions, and policies that guide a group toward a vision or goals. 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.

Companies who work hard to meet the needs of their employees can cultivate a work atmosphere conducive to productivity. Human resource management is the best way to achieve this. Being able to plan for the needs of employees by thinking ahead can help to improve the rate of skilled employees who chose to remain working for a company. Improving the employee retention rate can reduce the money companies spend on finding and training new employees. When creating a human resources plan, it is important to consider employees may want or need and what the company can reasonably supply. A larger company can usually afford training and benefit programs that smaller companies cannot afford to offer. This does not mean that a smaller company should not engage in strategic human resource management. Providing specialized on-site training, even if provided by senior members of the company, and offering one-on-one assessment and coaching sessions, can help employees reach peak performance rates. An important aspect of strategic human resource management is employee development. This process begins when a company is recruiting and interviewing prospective employees. Improved interviewing techniques can help to weed out applicants that may not be a good match for the company. After being hired on, a strong training and mentoring program can help a new member of the staff get up to speed on company policies and any current or ongoing projects they will be working on. To help employees perform at their best, a company can follow up with continual training programs, coaching, and regular assessment. Investing in the development of its employees can allow a company to turn out more consistent products. 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.

Approaches of the SHRM,


attempts to link Human Resource activities with competency based performance measures attempts to link Human Resource activities with business surpluses or profit

These to approaches indicate two factors in an organisational setting. The first one is the human factor, their performance and competency and the later is the business surplus. An approach of people concern is based on the belief that human resources are uniquely important in sustained business success. An organization gains competitive advantage by using its people effectively, drawing on their expertise and ingenuity to meet clearly defined objectives. Integration of the business surplus to the human competency and performance required adequate strategies. Here the role of strategy comes into picture. The way in which people are managed, motivated and deployed, and the availability of skills and knowledge will all shape the business strategy. The

strategic orinetation of the business then requires the effective orinetation of human resource to competency and performance excellance. Benefits of SHRM 1. Identifying and analyzing external opportunities and threats that may be crucial to the company's success. 2. Provides a clear business strategy and vision for the future. 3. To supply competitive intelligence that may be useful in the strategic planning process. 4. To recruit, retain and motivate people. 5. To develop and retain of highly competent people. 6. To ensure that people development issues are addressed systematically. 7. To supply information regarding the company's internal strengths and weaknesses. 8. To meet the expectations of the customers effectively. 9. To ensure high productivity. 10. To ensure business surplus thorough competency Barriers of SHRM Barriers to successful SHRM implementation are complex. The main reason is a lack of growth strategy or failure to implement one. Other major barriers are summarized as follows: 1. Inducing the vision and mission of the change effort. 2. High resistance due to lack of cooperation from the bottom line. 3. Interdepartmental conflict. 4. The commitment of the entire senior management team. 5. Plans that integrate internal resource with external requirements. 6. Limited time, money and the resources. 7. The statusquo approach of employees. 8. Fear of incompetency of senior level managers to take up strategic steps. 9. Diverse work-force with competitive skill sets. 10. Fear towards victimisation in the wake of failures. 11. Improper strategic assignments and leadership conflict over authority. 12. Ramifications for power relations. 13. Vulnerability to legislative changes. 14. Resistance that comes through the legitimate labour institutions. 15. Presence of an active labour union. 16. Rapid structural changes. 17. Economic and market pressures influenced the adoption of strategic HRM. 18. More diverse, outward looking approach.

HR Practitioners Role The HR managers have keen role in the effective planning and implementation of the policies and decisions that in tune with the business changes. They should act as strategic partners and be proactive in their role than mere reactive, passive spectators. The HT managers should

understand how far their decisions contribute to business surplus incorporating human competency and performance to the organisation. Strategic HR managers need a change in their outlook from seeing themselves as relationship managers to strategic resource managers. 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. A crucial aspect concerning SHRM is the concepts of fit and flexibility. The degree of fit determines the human resource system's integration with organization strategy. It is the role of HR Managers to ensure this fit in between Human Resource System with the Organization Strategy.

The human resource management that aims to improve the productive contribution of individuals while simultaneously attempting to attain other societal and individual employee objectives has undergone drastic change with the passing of years. We all know that HRM is concerned with the "people" & keeping the fact in mind that HRM helps in acquiring, developing, stimulating & retaining the outstanding employees as it gives both effectiveness & efficiency to the working of the organization, it has been started being used strategically & is now termed as Strategic human resource management. The changing role of HRM: The role of human resource management is changing & is changing very fast, to help companies achieve their goals. HRM has gone through many phases from hiring & firing to relationship building, from there to legislation role, & now its role is shifting from protector & screener to strategic partner & as a change agent. Defining SHRM: o Organizational use of employees to gain or keep a competitive advantage against competitors. o Involves aligning initiatives involving how people are managed with organizational mission and objectives. In today's flattened, downsized & high-performing organizations, highly trained & committed employees not machines are often the firm's competitive key.

Perhaps the most drastic change in HR's role today is its growing involvement in developing & implementing the company's strategy. In order to understand the modern aspect of HR i.e. SHRM, lets discuss the terms which would help us in understanding the concept: o Core Competency can be defined as - A unique capability in the organization that creates high value and that differentiates the organization from its competition. o Mission Statement explains purpose and reason for existence; it is usually very broad, but not more than a couple of sentences & it serves as foundation for everything organization does. o Strategy: the company's plan of how it will balance its internal strengths & weaknesses with external opportunities & threats in order to maintain a competitive advantage, earlier this role was performed by the line managers, but now it is carried by the HR manager. Strategies increasingly depend on strengthening organizational competitiveness & on building committed work teams, & these put HR in a central role. In the fast changing, globally competitive & quality oriented industrial environment, it's often the firm's employees its human resources who provide the competitive key. And so now it is a demand of the time to involve HR in the earlier stages of development & implementing the firm's strategic plan, rather than to let HR react to it. That means now the role of HR is not just to implement the things out but also to plan out in such a manner that the employees can be strategically used to get edge over the competitors, keeping in mind the fact that this is the only resource (HUMANS), which cannot be duplicated by the competitors. The Strategic Management Process includes: Determining what needs to be done to achieve corporate objectives, often over 3 - 5 years Examining organization and competitive environment Establishing optimal fit between organization and its environment Reviewing and revising strategic plan The Stage in the Process of Strategic Management: Mission statement- Business definition and future plan for success. Environmental analysis- OT analysis and preparing to meet environmental pressures. Organizational self-assessment- SW analysis and chalking road map for attaining goals. Establishing goals and objectives- Laying concrete figures that will help in benchmarking the performance. These benchmarks will lead to the development of strategy that will decide how the company intends to meets its environmental challenges with given environmental and resource constraints in the time to come.

Benefits of a Strategic Approach to HR: * Facilitates development of high-quality workforce through focus on types of people and skills needed * Facilitates cost-effective utilization of labor, particularly in service industries where labor is generally greatest cost * Facilitates planning and assessment of environmental uncertainty, and adaptation of organization to external forces * Successful SHRM efforts begin with identification of strategic needs * Employee participation is critical to linking strategy and HR practices * Strategic HR depends on systematic and analytical mindset * Corporate HR departments can have impact on organization's efforts to launch strategic initiatives Human Resources Life Cycle:

The above diagram is divided into four different colours each indicating a separate stage of HR life cycle. Each stage has specific actions or steps that form respective stage for e.g. in third stage there are six different steps involved such as step 3 to step 8. These four stages cover all actions

or functions pertaining to HR manager's job and they are related with strategic plan of the organisation. The cycle starts with laying down a strategic plan, linking HR functions in it, and it provides the basis for Manpower planning and internal mobility. The Manpower planning will lead to the function of acquiring right people for the right job and in accordance recruitment as well as selection exercise will be designed and tools selected. For e.g. if a automobile company decides to launch a new four-wheel model in the time to come their focus will be on Research and Development and then on Market Testing and last but foremost production and after sales. This new plan will act as the guideline for the company and will help in determining how many people do we need and what qualifications they should posses and how many of them can be kept on full-time rolls and as permanent employees. The next Stage is for sustaining and retaining those who are hired and making sure that they work efficiently and help the company move in the selected direction. They should also facilitate the smooth movement of the company in the desired direction and should result in achievement of corporate goals and objectives effectively and efficiently. Employee's performance should be rated and compared with the benchmarks, recorded deviations are to be corrected, and precautionary measures for the future are implemented. In last stage the separation or farewell to those who are non-performing or may be to those who have completed their job or task i.e. project teams, is bided. Factor Linkages of HR Plans and Strategies:

Given diagram presents various factors that have an impact on HR plans and Strategy and how are they interlinked with each other. Their interactions and impact on each element and the resulting change in HR Plan and policy is also indicated clearly.

The table given above takes into consideration two of the generic strategies and the strategic focus required to generate each of these competitive advantages along with HR strategy and activities needed to be done by HR Department to help the organization in generating these strategic advantages and to move successfully towards desired goals and objectives. To understand these linkages we can look at them as tasks and steps needed to be taken in order to complete the tasks. The selected strategic focus should be very clear and well integrated into organizational policy and clearly communicated to HR Department to help in drafting suitable HR strategy and last in carrying out all activities. Conclusion: Ideally HR & top management work together to formulate the company's overall business strategy; that strategy then provides the framework within which HR activities such as recruiting & appraising must be crafted. If it is done successfully, it should result out in the employee competencies & behavior that in turn should help the business implement its strategies & realize its goals. According to an expert "the human resources management system must be tailored to the demands of business strategy". In order to be successful the employees should be developed in such a manner that they can be the competitive advantage, & for this the human resource management must be an equal partner in both the formulation & the implementation of the corporate & competitive strategies. Conclusion As global business competition shifts from efficiency to innovation and from enlargement of scale to creation of value, management needs to be oriented towards the strategic use of human resources. Strategic human resources management practices enhance employee productivity and the ability of agencies to achieve their mission. Integrating the use of personnel practices into the strategic planning process enables an organization to better achieve its goals and objectives. Combining human resource practices, all with a focus on the achievement of organizational goals and objectives, can have a substantial affect on the ultimate success of the organization. To manage future operations effectively, it is essential that companies produce "business leaders" and "innovators" through SHRM Approach.

CH: SHR Evaluation

Human Resource PlanningHuman Resource PlanningHuman Resource Planning SocietyTradeMagazine/JournalBusinessHuman resources and labor relationsCOPYRIGHT 2003 Human Resource Planning Society0199-8986Copyright 2003, Gale Group. All rights reserved.200303012003March261Cabrera, AngelCabrera, Elizabeth F.41(10)Cabrera, Angel^Cabrera, Elizabeth F.Strategic Human Resource evaluation.9918000Business Personnel ManagementHuman resource departments EvaluationHuman resource management EvaluationEvaluationHuman resource departments EvaluationHuman resource management Evaluation Every day more organizations recognize that their people are a source of competitive advantage. As a result, HR departments are evolving from playing a merely administrative role to becoming "strategic partners" responsible for contributing to the achievement of business objectives. This evolution requires that new ways of defining and assessing HR success be developed. Traditional operational measures of internal efficiency are not sufficient. HR departments must now be able to demonstrate the value of their strategic contributions. This article describes a framework for HR evaluation that can help assess the impact of HR on the organization's business objectives. It then presents information that HR directors from 72 companies in Spain provided regarding their HR evaluation practices, as well as the roles realized by their HR departments. The findings illustrate the current state of HR evaluation and show how, as HR departments assume more strategic responsibilities, their evaluation systems become increasingly sophisticated. Traditionally, many human resource departments measured their accomplishments by how busy they had been (Cascio, 1991): how many people they had recruited or interviewed, how many hours of training they had provided, or how many grievance procedures they had handled. This practice responded to a view of HR as an administrative support function needed to carry out personnel-related activities. This conception of the HR function is changing as organizations begin to realize the potential competitive value of their people (Wright, et al., 1994). More and more organizations are making conscious efforts to design HR practices that allow them to develop the strategic value of their people. This new approach, referred to as strategic human resource management (SHRM), calls for an expanded HR role that includes strategic as well as administrative functions (Boxall, 1996; Kane, 1996; Purcell, 1995; Schuler, 1992). Changing the focus of HR also requires that new ways of defining and assessing HR success be developed. According to Ulrich (1998), the modem HR function encompasses four complementary roles. The first role, administrative excellence, is important because it is an immediate way of contributing to the overall efficiency of the organization and it helps build the credibility that HR needs to assume other influential roles. The second role HR professionals must realize is that of employee champion. Recognizing the value of committed, motivated employees, HR must play the critical role of employee advocate. The HR department must be the employees' voice in management discussions and should initiate actions that address employees' issues and concerns.

Two additional roles modern HR departments must realize are those of strategic partner and change agent. Being a strategic partner calls for an ongoing evaluation of the alignment between current HR practices and the business objectives of the firm, and a continuing effort to design policies and practices that maximize this alignment. HR professionals must help determine how the company's current culture, competencies, and structure must change in order to support the organization's strategy. At the same time, the HR department should play a key role in implementing and managing these changes, assessing potential sources of resistance to change, and collaborating with line managers to overcome these barriers (Exhibit 1). The first two roles mentioned, those of administrative expert and employee champion, are of a day-to-day, operational nature, whereas the roles of strategic partner and change agent represent the emerging strategic dimension of the HR function. In a similar fashion, the roles of administrative expert and strategic partner deal with processes, while the employee champion and change agent roles focus on people. If this strategic turn in the HR function is taking place, one should expect to see a parallel trend in the way in which the HR department evaluates its own performance. While traditional measures may indicate the level of operational efficiency, the impact of specific HR programs (or sets thereof) on the firm's strategic objectives must also be assessed in order to evaluate the new strategic roles. According to Ulrich (1997a, p. 5) this new focus "should be on the deliverables not on the doables." In fact, there is a growing body of research that focuses on studying the link between SHRM and firm performance (Becker & Gerhart, 1996; Dyer & Reeves, 1995; Guest, 1997; Huselid, 1995; Ichniowski, et al., 1997; Patterson, et al., 1997; Tyson, et al., 1997; Youndt, et al., 1996). Despite the growing academic interest in the strategic impact of SHRM, recent research (Cabrera & Cabrera, 2001) indicates that many firms may still be limiting their assessment of HR to activity and efficiency figures and that little eff ort is being paid to evaluating the effectiveness of HR with respect to key business objectives. This article presents data collected from the HR directors of 72 companies in Spain to describe the state of HR evaluation. The purpose is to discover whether these companies, which represent a number of different industries, attempt to assess the strategic contribution of human resources. The study also examines the extent to which these HR departments realize each of the four roles advocated by Ulrich. Finally, the possibility is explored that firms' inclination to evaluate their HR function strategically is conditioned by the roles their HR departments realize. In the next section a general framework for strategic HR evaluation that is currently surfacing in the field of SHRM is described. Then the information provided by the HR directors regarding their evaluation practices and the HR roles that their departments emphasize are presented. Finally, the implications of the findings are discussed and some directions for future research are suggested. Strategic HR Evaluation Framework SHRM is based upon the belief that critical organizational capabilities or behaviors are necessary for achieving a particular business strategy. For instance, a high-tech firm pursuing an innovation strategy will likely require a staff composed of highly committed, creative people working in

self-managed teams in a culture that tolerates mistakes. These organizational capabilities are achieved through the individual and collective behavior of an organization's employees, which is influenced, in turn, by the organization's HR practices (Cabrera & Bonache, 1999; Lado & Wilson, 1994). So, once the behavior patterns necessary for achieving business objectives are identified, an HR system should be designed that attempts to develop these key capabilities (Yeung & Berman, 1997). In light of this, in evaluating an organization's HR function, both the extent to which current behaviors are contributing to the achievement of the organization's strategic objectives and the extent to which current HR practices are encour aging the desired behaviors must be assessed. Traditional HR measures of operational efficiency do not provide this information. Some new approaches to the evaluation of HR have been introduced recently. Boudreau and Ramstad (1997) discuss the importance of separating the impact that HR practices have on internal process efficiency from the impact that HR has on employee behaviors and strategic results. They propose a model containing the following three levels of HR evaluation: (1) what HR does, (2) what HR makes happen, and (3) business success. Thus, in addition to traditional operational measures of HR activities, they argue that measures are needed that show the direct effects HR practices have on employee behavior and attitudes and that show how these combined changes produce strategic results. In their recommendations for improving HR evaluation, the authors highlight the importance of developing explicit models that specify the links between HR practices, employee behaviors, and firm results. This approach to HR evaluation fits well with current models of strategy and management control that move beyond the traditional financial-only focus. For instance, according to the balanced scorecard, a popular framework of management control proposed by Kaplan and Norton (1992, 1996), traditional financial measures need to be complemented with measures of organizational performance from three other perspectives: customer, internal business processes, and learning and growth. The balanced scorecard also attempts to link all measures through a cause-and-effect chain; thus, it acts as a management, rather than measurement, system by helping managers to better understand how different measures are related and how they ultimately contribute to financial results (Bontis, et al., 1999). The specific measures an organization includes in its balanced scorecard depend on its strategy and the nature of its activities. Typical financial measures may include revenue growth and cost improvements. Client measures are usually concerned with customer satisfaction or market share. The internal business processes perspective includes the more traditional measures of operational efficiency such as cycle times and specific process costs. Finally, the learning and growth perspective often includes measures of employee satisfaction and skills. Thus, the balanced scorecard recognizes that the sustainability of a firm's competitive advantage is not a function of its current financial results, but of its internal operations, its market and client positioning, and the intellectual capital of its workforce. It provides a holistic information base that allows managers to concentrate simultaneously on both current and future strategy (Mooraj, et al., 1999). The field of management accounting has also adopted a more strategic focus by linking lowerlevel measures to higher-level organizational goals. The practice of strategic performance

measurement requires that management accountants first identify an organization's primary or strategic objectives. The organization's stakeholders often play a role in this process. Next, secondary objectives, which are expected to help the organization achieve its primary objectives, are delineated. Both primary and secondary objectives can be either financial or nonfinancial. Then these lower-level objectives are tied to individual performance goals. Consequently, individual performance measures reflect contributions to organization success (Atkinson, 1998). Hauser and Katz (1998) suggest that understanding the linkages between measures at different levels is a crucial step in the design of effective evaluation systems. Each of the aforementioned approaches includes a consideration of these linkages. The specific evaluation of these links is what makes evaluation strategic. Exhibit 2 presents an HR evaluation framework that builds on this idea by classifying diverse HR measures into five distinct types: 1. Measures of HR practices and the HR function in general. These include the more traditional, operational measures of efficiency, such as cost, ratio of offers to number of applicants, hours of training per employee. 2. Measures of organizational capabilities that HR practices should develop and encourage. Included here are measures of employee behavior, attitude, and skills. 3. Measures of the impact of HR practices on organizational capabilities. 4. Measures of the impact of organizational capabilities on strategic business results, including, for example, financial results or customer satisfaction. 5. Direct measures of the impact of HR practices on strategic results. To reiterate, having good independent indicators of HR efficiency or of employee skills or of financial results is necessary but not sufficient for an organization to evaluate how HR is contributing to its business objectives. Knowing that an increase in employee satisfaction has taken place from one year to the next does not necessarily identify the practice or set of practices that might be responsible for such an improvement. Nor does it provide information regarding the extent to which such an improvement might impact the organization's strategic objectives. And this knowledge is necessary to identify useful courses of action in the future. So, for an evaluation system to be able to guide action, it must incorporate an assessment of the causal links connecting indicators at different levels. There must be measures of the impact of HR practices on capabilities and of these, in turn, on strategic results. In fact, researchers interested in the SHRM-firm performance link are turning their focus toward trying to understand the exact processes by which HR practices affect performance (Gardner, et al., 2000; Guest, et al., 2000). That is, they are trying to identify the specific causal links. Practical examples of exploring these links include predictive validity, a measure of the impact of a particular HR practice (typically a selection procedure) on an organization's capabilities (individual performance or competence). Or utility analysis techniques, which combine

predictive validity with estimates of the dollar value of performance to estimate the effects of specific practices on key business outcomes (Cabrera & Raju, 2001). Theory Versus Practice There has long been a gap between the development of research prescriptions for the evaluation of HR and the actual evaluation of HR in practice. Tsui and Gomez-Mejia (1988) surveyed 900 HR executives, of whom only 70 (8%) responded that they carry out some type of HR evaluation. And of these, the majority (87%) uses indirect or informal evaluation methods. There also seems to be a gap between theory regarding the new strategic role of HR and actual HR practices. Walker (1999, p. 12) laments: "companies too often set their sights too low, and end up with human resource strategies that are too functional, too operational, too narrow, and too generic." Thus, it is becoming more clear that the HR function should play an active role as a strategic partner in today's organization (Ulrich, 1997b) and that the success of HR in realizing this role can only be determined through a nontraditional approach to HR evaluation. Nonetheless, there is reason to question whether either of these is actually occurring in practice. In a series of interviews with a small number of HR executives in Spanish banks, we found that the majority of the banks use traditional measures to evaluate their HR function (Cabrera & Cabrera, 2001). All of the executives interviewed cited the use of numerous measures of internal operating efficiency; however, few reported attempts to measure the strategic impact of their HR practices. Two of the banks assessed the impact of HR practices on organizational capabilities. Only one cited the use of a measure of the impact of HR practices on strategic results, specifically that of the impact of an employee training program on client satisfaction. So, it appears that, contrary to current-day recommendations, organizations may not actually be attempting to evaluate strategically the payoffs of their HR investments. The purpose of this study was to determine whether the findings from our study of banks are representative of companies in general. We also wanted to see if differences between company HR evaluation practices are related to the roles realized by their HR departments. We expected that the amount and type of HR evaluation would be related to the degree of development of the two strategic roles: strategic partner and change agent. These roles imply that the HR department has a responsibility to contribute to the achievement of strategic business objectives. Thus, in organizations where HR plays a strategic role, the HR department is more likely to be held accountable for its contributions and will, therefore, be more concerned with HR evaluation. The Reality of HR Evaluation and Roles An exploration of the current state of HR evaluation and the possible relationship between HR roles and evaluation was carried out by asking the HR directors of 72 companies in Spain about their HR evaluation practices and the role played by their HR department. The HR directors represent companies from agriculture, utilities and construction, manufacturing, retail and transportation, and professional and financial services (Exhibit 3). The firms have an average of 4,337 employees, ranging from 180 to 96,000.

The directors were asked the extent to which their department uses each of the five types of measurement included in our HR evaluation framework. That is, the amount to which they measure: (1) the efficiency of their HR function, (2) their organizational capabilities (competencies, satisfaction, and performance), (3) the impact of their HR practices on organizational capabilities, (4) the impact of organizational capabilities on strategic results, and (5) the impact of their HR practices on strategic results. They were also asked to what extent their department realizes each of the four roles proposed by Ulrich: administrative expert, employee champion, strategic partner, and change agent.

HR Evaluation
According to their responses, these companies focus most of their efforts on the first two types of measurement (Exhibit 4). They tend to measure the efficiency of their HR function and specific organizational capabilities. Looking more closely at the kind of organizational capabilities that are typically measured, the firms appear to be more concerned with measuring employee competencies and performance than with assessing employee satisfaction (Exhibit 5). Returning to the five types of measurement, much less attention is paid to measuring the impact that HR practices have on organizational capabilities and the impact of these capabilities on strategic results. Finally, the types of measures that are least used are those that evaluate the direct impact of HR practices on strategic business results. In order to ascertain possible reasons why these companies do not tend to measure the links between their HR practices and outcomes such as organizational capabilities or strategic results, we asked the HR directors whether they believe it is possible to determine the strategic impact of HR practices and whether they think it is important. Interestingly, while a majority of the directors (94.3%) agree that it is important to measure the impact of HR practices on strategic results, only 40 percent believe it is possible to determine this impact. Thus, it appears that many of these organizations do not measure the strategic impact of their HR practices, not because they do not think they should, but rather because they do not know how.

HR Roles
As mentioned previously, the differences between companies in terms of amount and type of HR measurement may be related to differences in the roles that the HR departments realize. It may be more likely that organizations in which the HR department plays a more strategic role engage in more strategically focused measurement practices. Exhibit 6 presents the correlations between types of HR measures and HR roles. The four HR roles and the different types of measures are all highly correlated. So, the degree of development of each of the HR roles appears to be associated with the development of the other three roles; this development correlates with most of the measurement types as well. In fact, role development, calculated as the average of the four roles, correlates significantly with all types of measures: efficiency of HR practices (.45), capabilities (.63), impact of practices on capabilities (.60), impact of capabilities on strategic outcomes (.46), and impact of HR practices on outcomes (.48, all signif icant at the .01 level).

In summary, fulfillment of the four different HR roles is interrelated: Organizations that perform more of the strategic roles also perform more of the operational roles. Furthermore, HR departments that perform more of these roles have more highly developed HR evaluation practices. It is also interesting to note that the companies included in this study reported that their HR departments dedicate more time to the realization of the people-oriented roles of change agent and employee advocate than to the more process-oriented roles of administrative expert and strategic partner (Exhibit 7); however, overall there is little difference between the four roles. The HR directors reported that their departments realize to a large extent all four roles (from 3.55 to 3.84 on a 5-point scale). Discussion Managing human resources strategically requires that a firm's HR department realize both the more traditional operational roles of administrative expert and employee champion, as well as the more current roles of strategic partner and change agent (Ulrich, 1998). Becker and Houselid] (1998) have shown that the realization of strategic HR roles is related to firm performance. Their research revealed that, once a certain level of operational efficiency is reached, further improvements do not seem to have a significant impact on financial performance. On the other hand, moving from an operational focus to a more strategic orientation does appear to increase a firm's profitability. This new HR focus challenges the adequacy of current HR evaluation practices. Traditional accounting methods consider human resource expenditure as a short-term cost to be written off every fiscal year, instead of as a long-term asset. As a cost, human resource expenses have a direct negative impact on the bottom line, which reinforces a view of the HR department as an administrative cost to be minimized, rather than as an investment with returns that need to be optimized. Focusing on short-term efficiency may not be the most useful approach from a strategic standpoint. Knowing how many hours of training have been delivered with the current budget provides pretty much the same amount of information as knowing how many advertisements the marketing department has run in a given medium. In either case, nothing is said about the actual impact that those investments had towards achieving the organization's objectives. Just as a marketing executive needs to know the impact that a campaign has had on sales figures o r brand perceptions, the HR executive needs to know how a new HR practice is helping make the firm more competitive. The firms included in our study consistently evaluated the efficiency of their HR practices, as well as employee competencies, performance, and, to a lesser extent, satisfaction; however, they paid significantly less attention to the assessment of interconnections between HR practices and organizational capabilities, and, to an even lesser extent, to the impact that HR practices or capabilities may have on key business outcomes. Finally, the information we gathered suggests that the development of a more strategic HR profile goes hand-in-hand with the development of more complex evaluation practices. Based on prior interviews with HR managers, we proposed a four-stage model of HR development (Cabrera & Cabrera, 2001). The first three stages correspond to those outlined by Becker and Huselid (1998). First, a firm must successfully carry out certain basic functions in

order to survive. These include selecting employees, teaching them the specifics about their jobs, compensating them, and complying with labor and safety regulations. At a second stage of development, the organization requires that these tasks be performed as efficiently as possible: that selection helps to fill vacancies swiftly and with good people, that training resources are administered widely and in response to current problems or needs, etc. Some organizations may then move on to a third stage where the HR department takes on a more strategic role and attempts to align its practices with current business strategies. HR departments at this stage may analyze the capabilities required to carry out the organization's strategy and design specific practices to develop such capabilities. We believe that the full realization of the potential value of a firm's human capital requires a fourth stage. At this stage HR departments must carefully evaluate their contributions to show that they are creating value for the organization. That is, they must measure the impact of their practices on strategic results, be it directly or indirectly through organizational capabilities. Exhibit 8 presents the four stages, along with the corresponding goals and evaluation practices. Most of the organizations we studied have reached either stage 2 or stage 3 of development. They have not made it to stage 4 because they dedicate little, if any, of their time and effort to evaluating the impact of their HR practices and organizational capabilities on strategic results. While many acknowledge the importance of carrying out such assessments, they also question whether it is actually possible to determine the impact of HR practices on strategic results. It appears that organizations interested in moving towards stage 4 of development are prevented from doing so because they do not know how to measure the strategic impact of their HR interventions. Thus, a key direction for future research should be oriented towards providing practitioners with methods and techniques that help them to determine the contribution of their HR practices. Clearly it is difficult to determine the exact combination of factors that contribute to the successful management of human capital. Many variables must be controlled in order to isolate the impact of a particular HR practice. Experimental and analytical methods provide ways of controlling for other factors so that the potential effects of a new HR practice or a change in an existing practice can be assessed. HR departments that wish to advance to the fourth stage of development must incorporate these methods into their evaluation practices.

Correlations Between the Types of Measures and HR Roles

HR Practices
Capabilities HR/Cap. .567 ** .574 ** .785 **

Cap./Results HR/Results Strategic Partner Change Agent

.494 ** .547 ** .676 ** .569 ** .489 ** .630 ** .805 ** .364 ** .359 ** .398 ** .346 * .326 *

.323 *

.492 ** .440 **

.414 ** .390 ** .355 ** .187 .303 * .299 *

.322 * .187 .231

Admin. Expert .151 Emp. Champ.

.286 * .290 *

Stages of HR Development

Stages of HR role development

Stage 1: Minimalist Approach

Stage 2: Operational Excellence

Perceived main Necessary practices purpose of HR to keep business department "in the game"

Internal service


Dominant evaluation of HR practices

Basic operational ratios

Service quality; Internal client satisfaction;

Cost efficiency

Stages of HR role development

Stage 3: Strategic Alignment

Stage 4: Key Strategic Tool

Perceived main

Internal services

Creation of

purpose of HR aligned with business business value department strategy

Dominant evaluation of HR practices

Degree of horizontal and vertical alignment

Long-term impact on business results


After studying this chapter, students should be able to understand the following concepts:

A. Functions of Human Resource Management Department B. Environmental Factors influencing HRM operations
Human Resource Functions in Small Businesses Some aspects of the human resource function may actually be more significant in smaller firms than in

larger ones.

Human Resource Management Functions in Medium-Sized Firms

As firms grow and become more complex, the human resource function becomes more complex, and its function achieves greater importance. The basic purpose of human resource management remains the same, but the approach followed in accomplishing its objectives changes. As a firm grows, a separate staff function may be required to coordinate human resource activities. In a larger firm, the person chosen to do so will be expected to handle most of the human resource activities. For a medium-sized firm, there is little specialization.

Traditional Human Resource Functions in a Large Firm

When the firms human resource function becomes too complex for one person, separate sections are often created and placed under a human resource manager. These sections will typically perform tasks involving training and development, compensation and benefits, employment, safety and health, and labor relations.


The HR organizational structure of large-sized firms changes as firms outsource, use company service centers, and evolve in other ways to make HR more strategic. Regardless of an organizations design, the five functional areas must still be accomplished. The organizational mission and corporate culture have a major impact in determining an appropriate HR organization.

A. Functions of HRM department:

a. Staffing An organization must have qualified individuals, in specific jobs at specific places and times, in order to accomplish its goals. Obtaining such people involves job analysis, human resource planning, recruitment, and selection. Job analysis is the systematic process of determining the skills, duties, and knowledge required for performing specific jobs in an organization. Human resource planning (HRP) is the process of systematically reviewing human resource requirements to ensure that the required numbers of employees, with the required skills, are available when needed. Recruitment is the process of attracting such individuals in sufficient numbers and encouraging them to apply for jobs with the organization. Selection is the process through which the organization chooses, from a group of applicants, those individuals best suited both for open positions and for the company.

b. Human Resource Development

A major HRM function that consists not only of training and development but also individual career planning and development activities and performance appraisal, an activity that emphasizes T&D needs. Training is designed to provide learners with the knowledge and skills needed for their present jobs.

46 Development involves learning that goes beyond todays job; it has a more long-term focus. Human resource development (HRD) helps individuals, groups, and the entire organization become more effective. It is essential because people, technology, jobs, and organizations are always changing. Career planning is an ongoing process whereby an individual sets career goals and identifies the means to achieve them. Career development is a formal approach used by the organization to ensure that people with the proper qualifications and experiences are available when needed. Through performance appraisal, employees and teams are evaluated to determine how well they are performing their assigned tasks.

c. Compensation and Benefits

The term compensation includes all rewards that individuals receive as a result of their employment. The reward may be one or a combination of the following: Pay: The money that a person receives for performing a job. Benefits: Additional financial rewards other than base pay include paid vacations, sick leave, holidays, and medical insurance. Non financial rewards: Non monetary rewards, such as enjoyment of the work performed or a pleasant working environment.

d. Safety And Health

Safety involves protecting employees from injuries caused by work-related accidents. Health refers to the

employees freedom from illness and their general physical and mental well-being. These aspects of the job are important because employees who work in a safe environment and enjoy good health are more likely to be productive and yield long-term benefits to the organization.

e. Employee And Labor Relations

Since 1983, union membership has fallen approximately 8 percent, to only 13.9 percent of the workforce, the lowest level since the Great Depression. Subtracting government employees, unions represent only 9.5 percent of the private industry workforce. Even so, a business firm is required by law to recognize a union and bargain with it in good faith if the firms employees want the union to represent them. In the past, this relationship was an accepted way of life for many employers. But most firms today would like to have a union-free environment.

f. Human Resource Research

Although human resource research is not listed as a separate function, it pervades all HRM functional areas, and the researchers laboratory is the entire work environment.

g. Interrelationships of HRM Functions

All HRM functional areas are highly interrelated. Management must recognize that decisions in one area will affect other areas. The interrelationships among the five HRM functional areas will become more obvious as we address each topic throughout the book.

B. The Dynamic Human Resource Management Environment

Many interrelated factors affect human resource management. Such factors are part of either the firms external environment or its internal environment. The firm often has little, if any, control over how the external environment affects management of its

human resources. In addition, there are certain interrelationships that complicate the management of human resources.

I. External Environmental Factors

External Environmental factors Comprised of those factors that affect a firms human resources from outside the organizations boundaries.

a. The Labor Force

The labor force is a pool of individuals external to the firm from which the organization obtains its workers. The capability of a firms employees determines to a large extent how well an organization can perform its mission.

b. Legal Considerations
Another significant external force affecting human resource management relates to federal, state, and local legislation and the many court decisions interpreting this legislation. In addition, many presidential executive orders have had a major impact on human resource management.

c. Society
Society may also exert pressure on human resource management. If a firm is to remain acceptable to the general public, it must be capable of accomplishing its purpose in line with societal norms. Social responsibility is an implied, enforced, or felt obligation of managers, acting in their official capacities, to serve or protect the interests of groups other than themselves.

d. Unions
Union is a group of employees who have joined together for the purpose of dealing collectively with their employer. Although unions remain a powerful force, union membership as a percentage of the nonagricultural workforce slipped from 33 percent in 1955 to 9.5 percent today.

e. Shareholders
The owners of a corporation are concerned about shareholders. Because shareholders have invested money in a firm, they may at times challenge programs considered by management to be beneficial to the organization.

f. Competition

For a firm to succeed, grow, and prosper, it must be able to maintain a supply of competent employees. Other organizations are also striving toward that objective.

g. Customers
Because sales are critical to the firms survival, management has the task of ensuring that its employment practices do not antagonize the members of the market it serves.

h. Technology
As technological changes occur, certain skills are no longer required. This necessitates some retraining of the current workforce. The trend toward a service economy also affects the type and amount of technology needed.

i. The Economy
The economy of the nationon the wholeand of its various segments is a major environmental factor affecting human resource management. As a generalization, when the economy is booming, it is often more difficult to recruit qualified workers. On the other hand, when a downturn is experienced, more applicants are typically available.


Managers approach changes in the external environment proactively or reactively.

a. Proactive Response
Proactive responsiveness involves taking action in anticipation of environmental changes.

b. Reactive Response
Reactive response involves simply reacting to environmental changes after they occur. Organizations exhibit varying degrees of proactive and reactive behavior.

II. The Internal Environment

Factors that affect a firms human resources from inside its boundaries are termed as internal environmental factors. The primary internal factors include the firms mission, policies, corporate culture, management style of upper managers, employees, the informal organization, other units of the organization, and unions.

a. Mission

the organizations continuing purpose or reason for being. Each management level should operate with a clear understanding of the firms mission. In fact, each organizational unit (division, plant, and department) should clearly understand objectives that coincide with that mission.

b. Policies
A predetermined guide established to provide direction in decision making. As guides, rather than as hardand- fast rules, policies are somewhat flexible, requiring interpretation and judgment in their use. They can exert significant influence on how managers accomplish their jobs.

c. Corporate Culture
The system of shared values, beliefs, and habits within an organization that interacts with the formal structure to produce behavioral norms.

d. Management Style of Upper Managers

Closely related to corporate culture is the way in which the attitudes and preferences of ones superiors affect how a job is done. This situation deserves special emphasis here because of the problems that can result if the managerial style of upper-level managers differs from that of lower-level managers.

e. Employees
Employees differ in many ways including their capabilities, attitudes, personal goals, and personalities. As a result, behavior that a manager finds effective with one worker may not be effective with another.

f. Informal Organization
the informal organization is the set of evolving relationships and patterns of human interaction within an organization that are not officially prescribed. Such informal relationships are quite powerful.

g. Other Units of the Organization

Managers must be keenly aware of interrelationships that exist among divisions or departments and should use such relationships to their best advantage.

h. Labor-Management Agreement
Upper management typically negotiates labor-management agreements, but managers throughout the organization must implement the terms of the agreements. In most instances, agreements place restrictions on the managers actions.


Any perceived difference among people: age, functional specialty, profession, sexual orientation, geographic origin, life style, tenure with the organization, or position. a. Single Parents and Working Mothers The number of nontraditional, single-parent households in the United States is growing. Because more than half of all marriages today end in divorce, this trend is expected to continue. Often, one or more children are involved. Of course, there are always widows and widowers who have children as well, and there are some men and women who choose to raise children outside of wedlock. b. Women In Business The number of women in entry and midlevel managerial positions has risen from 34 percent in 1983 to 46 percent in 1998, meaning many more women are in the pipeline to executive spots. Today, there are more than 9 million women-owned businesses, up from 400,000 in 1972. c. Dual-Career Families The increasing number of dual-career families presents both challenges and opportunities for organizations. As a result of this trend, some firms have revised their policies against nepotism to allow both partners to work for the same company. Other firms have developed polices to assist the spouse of an employee who is transferred. When a firm wishes to transfer an employee to another location, the employees spouse may be unwilling to give up a good position or may be unable to find an equivalent position in the new location. Some companies are offering assistance in finding a position for the spouse of a transferred employee. d. Workers Of Color Workers of color often experience stereotypes about their group (Hispanics, African Americans, Asians, etc.). At times, they encounter misunderstandings and expectations based on ethnic or cultural differences. e. Older Workers The world population is growing older, a trend that is expected to continue through the year 2000. In

addition, the trend toward earlier retirement appears to be reversing itself. f. Persons With Disabilities A handicap, or disability, limits the amount or kind of work a person can do or makes achievement unusually difficult. g. Young Persons With Limited Education Or Skills Each year thousands of young, unskilled workers are hired, especially during peak periods, such as holiday buying seasons. In general, they have limited educationhigh school or less. More jobs can be de-skilled, making it possible for lower-skilled workers to do them. h. Educational Level Of Employees Another form of diversity that is now found in the workplace is that of the educational level of employees. The United States is becoming a bipolar country with regard to education, with a growing number of very educated people on one side and an alarming increase in the illiteracy rate on the other.

i. Corporate Culture Corporate Culture is the system of shared values, beliefs, and habits within an organization that interacts with the formal structure to produce behavioral norms. It is the pattern of basic assumptions, values, norms, and artifacts shared by organizational members. Key Terms: Corporate Culture: The system of shared values, beliefs, and habits within an organization that interacts with the formal structure to produce behavioral norms Mission: The organizations continuing purpose or reason for being. Policies: A predetermined guide established to provide direction in decision-making

The Labor Force: The labor force is a pool of individuals external to the firm from which the organization obtains its workers Unions: Union is a group of employees who have joined together for the purpose of dealing collectively with their employer.

Management scholars and practitioners are becoming more convinced daily that "people" can be an important source of competitive advantage. A firm's human capital is believed to meet all the requirements of a "strategic asset," i.e., an asset capable of yielding above-average economic rents because it is scarce, valuable, nonsubstitutable, and hard to imitate (Lado & Wilson, 1994; Wright, et al., 1994). As a consequence of this conviction, HR departments are evolving from playing merely administrative roles to taking responsibility for contributing to the achievement of business strategies. This evolution requires that HR departments change the way in which they have traditionally evaluated their effectiveness. No longer are operational measures of internal efficiency sufficient. HR departments must be able to demonstrate the value of their strategic contributions.

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Greer Charles, Strategic Human Resource Management 3 rd. edition, Prentice Hall Inc. Meffinson D, Banfield Paul, Mathews J J, Human Resource Management, Kogan Page Dessler Gary, Human Resource Management 8 Th. Edition, Pearson education Asia