CHAPTER 2

Strategic Human Resource Management—A Framework

CHAPTER OBJECTIVES

After reading this chapter, you should be able to:

1. Understand the concept of strategic human resource management
2. Understand the models of strategic human resource management
3. Enumerate the benefits of strategic human resource management

Indian Oil Corporation (IOC) has an annual turnover of $59.22 billion. With a rank of 116, it is the highest-ranked Indian company among the global Fortune 500 companies. It has initiated several innovative HR schemes to convert its employees into a formidable source of competitive advantage. In fact, it has bagged the prestigious SCOPE Gold Trophy for Best Practices in Human Resources Management for 2005–06 for its HR practices. The company has made a commitment to enrich the quality of life of its employees. In this regard, IOC made a pioneering endeavour by establishing the Institute of Petroleum Management (IPM) to organize global standard international business management programmes for its executives.

The primary aim of IPM is to align its human resources with corporate goals and to fulfil pressing organizational needs. The content and pedagogy of its unique programmes focus on areas like strategic and general management, human resource management, and operations and technology management to help executives become specialists in fields like strategic human resource management, and enable them to face the present and future corporate challenges successfully. IPM has won several accolades for this path-breaking initiative. For instance, it has received the Golden Peacock National Award for Innovative Training Practices five times. It has also received the Innovative Training Practices award from the Indian Society of Training and Development (ISTD). These efforts of IOC demonstrate its single-minded pursuit to achieve optimum workforce efficiency.

In the light of the discussion of the strategic HR initiatives of IOC, we shall now discuss the relevance of strategic human resource management in this chapter.

Introduction

Strategic human resource management (SHRM) is about the formulation of HR strategies in alignment with the overall corporate strategy to achieve the goals of the organization. It aims at enhancing individual performance and organizational effectiveness. Further, it focuses on the ways and means of connecting HR strategies to business strategy. The ultimate objective of SHRM is to develop the required HR potential by ensuring that the organization possesses adequately skilled, motivated and loyal employees to accomplish its objectives on a sustained basis. The emphasis of SHRM is more on the proactive role through which HR strategies actually contribute to the determination of overall corporate strategies. In that sense, it is different from conventional human resource management, where the focus is on the reactive role and in which HRM is merely a tool for implementing corporate strategy.

In strategic human resource management, HR managers act as a strategic partner and function at the top levels of management to formulate and implement strategies for the entire organization. For this, HR managers, in addition to their usual skills and knowledge, should be familiar with the complexities of the operational aspects of the business. Moreover, they should be well prepared and more responsive to the changes occurring in the internal and external environment. They must have plans for the long-term allocation of the company’s HR resources and for matching those resources with the emerging external environment. Finally, SHRM should aim at making strategic HR decisions that have a critical and long-term effect on the success of the organization.

Meaning of Strategic Human Resource Management

Strategic human resource management has been defined in various ways by experts. Some of the important definitions are listed in Box 2.1.

We may define strategic human resource management as the process of aligning HR strategies with the business strategy to accomplish the performance goals through the employees’ competency and commitment.

Features of Strategic Human Resource Management

The main features of strategic human resource management are as follows:

1. As strategic human resource management is closely associated with goal-setting, policy formulation and allocation of resources, it is performed at top management levels.⁶
2. Strategic human resource management aims at fulfilling the long-term HR requirements of the organization and, thus, focuses on the expansion of process capabilities (process refers to HR policies and procedures that produce efficiency).
3. It is interrelated with business strategies. For instance, it provides critical inputs to the formulation of business strategy, and specific HR strategies (like recruitment, training and performance appraisal) are in turn shaped by overall business strategies.
4. Strategic human resource management entrusts strategy formulation tasks with line managers while HR professionals play an advisory role.⁷
5. It views employees as the strategic capability of the organization and attempts to distinguish the organization from its competitors in the market on that basis.

Box 2.2 outlines the strategic HR initiatives of Dabur India limited.

Differences Between SHRM and HRM

Though strategic human resource management is an off-shoot of human resource management, it is emerging as an important and independent field of interest for the human resource experts. We shall now see the important differences between strategic human resource management and human resource management in Table 2.1.

Models of Strategic Human Resource Management

The different models available in strategic human resource management are the business-oriented model, strategic fit model, and strategic labour allocation process model, as illustrated in Figure 2.1. However, all these models link HR processes to business strategy and performance. We shall now see now a brief description of these models.

Business-oriented Model

The business-oriented model, according to P. M. Wright and S. A. Snell,⁸ focuses on the factors contributing to the competitive advantage of the firm. The highlight of this model is value creation in SHRM. For instance, the SHRM under this model deals with the HR system that creates and sustains the competitive advantage. The HR activities in the system should produce necessary employee skills and competencies and workforce commitment leading to the desired employee performance. In fact, the SHRM under this model covers the decisions and actions that deal with the management of employees at every level of the business, ultimately resulting in competitive advantage for the firm.⁹

 

Strategic Fit Model

This method focuses on matching the HR capabilities and resources to the opportunities available in the external environment. This is called a strategic fit where HR strategies are integrated with the business strategy.¹⁰ This integrated approach supports the development of HR practices such as employee recruitment, training and development, compensation, performance evaluation, and industrial relations in a way that they complement one another. The strategic fit is usually of two types—the vertical fit and the horizontal fit. The vertical fit deals with the extent of alignment between (a) the components of the HR strategies of an organization, and (b) the essential features of its business strategy. On the other hand, the horizontal fit is about the extent of alignment among the components of the HR strategy of an organization, typically, activities or programmes such as selection, training, and compensation.¹¹

SLAP Model

The strategic labour allocation process (SLAP) model was advocated by E. H. Bax.¹² It is called this because it involves strategic decision making on the part of HR managers. This method focuses on the interdependences among HR strategies, business strategies and organizational changes. It relates the internal labour supply and demand of the organization to its strategy and to the significant developments in its external environment. This model acknowledges human resource management as a continuous process of balancing the demand and the supply of labour. Since this process is mostly influenced by external forces like socio-cultural, economic, institutional and technological developments, it requires organizations to develop strategic solutions that assist the adaptation process.

This method insists that the core business of HR managers is to ensure a balance between the demand for and the supply of labour. Actually, every activity concerning the manufacturing process requires a number of tasks to be performed by people. Thus, there is a demand for labour in the firm. To meet this demand, HR managers procure people with the necessary skills and competences to carry out those tasks. For this, the HR manager can utilize the existing employees of the organization or hire people from the external labour market. This is usually a continuous process and HR managers are constantly engaged in the processes of procuring and allocating labour within the organization.¹³

Terms in SHRM

SHRM is basically concerned with the application of the concept of strategic management to human resources. We shall now see the meaning of related terms, strategy and strategic management.

Strategy

The term strategy has its origin in the Greek word strategus, which means commander-in-chief. It is actually a combination of two words—stratus, meaning “army”and agein meaning “to lead”. Thus, it means to lead the army in its operations.

In a simple sense, strategy means ‘a systematic and detailed plan of action’. In business parlance, the term refers to the specific courses of action undertaken by the higher level of the organization to accomplish pre-specified goals. Charles W. L. Hill and Gareth R. Jones describe strategy as an action a company takes to attain superior performance.¹⁴

Strategic Management

Strategic management is the systematic process of determining goals to be accomplished in the future. It may involve studying the internal and external environment of an organization. The internal environment, i.e., the environment inside an organization, is usually within the control of the organization, while the external environment is usually shaped by factors like customers, suppliers, competitors, and legislative practices. The process of strategic management involves development, execution and appraisal of corporate strategies to achieve performance goals of the organization. Donald F. Harvey defines strategic management as that set of managerial decisions and actions that determines the long-run performance of a corporation. It includes environmental scanning, strategy formulation, strategy implementation, and evaluation and control.¹⁵

Since strategic management is a process, we shall now see the steps involved in that strategic management process.

Steps in the Strategic Management Process

As depicted in Figure 2.2, there are five steps in the strategic management process of an organization. We shall now discuss each of these steps in detail.

Determination of Vision and Mission

The first step in strategic management requires a clear vision and mission statements for an organization. The three components of business vision include core values, core purpose, and visionary goals.¹⁶ The vision statement of the organization conveys the future it envisages and the goal it wants to accomplish in the near and distant future. Similarly, its mission statement declares the purpose of the organization. In fact, the mission statement helps the organization link its activities to the needs of society and legitimize its existence.

In strategic management, the mission and vision provide the framework for strategic planning within the organization. In fact, it provides the direction to the whole organization and helps the decision-makers prioritize their activities. At the first stage of the strategic management process, the managers assess their positions and responsibilities related to the vision, mission and goals of the organization. While the vision and mission of an organization remain unaltered, its strategies can be changed in accordance with the changes in the environment.

Analysing the Environment

Environmental analysis requires collecting, analysing and providing information for tactical or strategic purposes. A successful strategic management strategy depends to a great extent on the ability of the managers to scan the environment with precision. It is essential for managers to be aware of the external environment and to use their understanding of the environment as a critical input for strategic planning and management. While scanning the environment, managers look for changes in the environment and also for their impact on the organization.

Environment analysis can be classified into two categories: external analysis and internal analysis. External analysis refers to the analysis of the changes in the external environment and the consequent threats and opportunities for the organization. A proper assessment of the probable changes in the environment will forearm the organization to face such changes effectively. Internal analysis involves analysing the existing strengths and weaknesses of the internal factors like production facilities, marketing techniques, management competencies, HR skills, and strategic choices in attaining the strategic goals of the organization. While analysing the environment, an organization may opt for ad hoc scanning, in which it prefers a short-term and occasional scanning of the environment, especially when it faces a crisis. Alternatively, it may also go for continuous scanning, in which the environment is analysed on a continuous or regular basis on a broad range of parameters.

Strategy Formulation

The next step in the strategic management process is strategy formulation. In fact, this step involves determining the courses of action suitable for achieving organizational objectives. After understanding the likely changes in the environment, the managers should develop a range of strategic alternatives to deal with the critical issues of the market. While choosing the best strategy, the organization should assess its internal strengths and weaknesses in the background of the opportunities and threats which it has identified in the market.

Although each organization can develop its own alternatives depending on its situation, there are three general strategies called “generic strategies”, which can be useful for a wide range of organizations. These generic strategies are formulated at the corporate, business and functional levels (discussed separately under the section on levels of strategies) of an organization, respectively. An organization can choose from these strategies and adopt the same in its own situation.

Strategy Implementation

At this stage, an organization first ascertains the way in which the activities are carried out at present. Then, it decides the changes required in the system for the effective implementation of the formulated strategy. In the strategy implementation stage, organizations mostly concentrate on the techniques required for effective execution of strategies. In this regard, they may undertake activities like enhancing organizational capabilities, mobilizing resources, training and motivating HR resources, establishing an information and control system, revamping the work ethos and culture, and ensuring the appropriate leadership.

Normally, the implementation stage involves: (i) developing the capabilities of the organization steadily to accomplish the strategy efficiently; (ii) distributing the scarce resources among the strategically significant activities; (iii) establishing the necessary policies and practices that support strategy execution; and (iv) developing the affirmative organizational culture and responsive leadership.

Performance Evaluation

The final stage in the strategic management process is performance evaluation. Since strategic management is a continuous process, it is essential for the managers to continuously assess the performance of each strategy after its execution. Based on the performance, the organization can bring about necessary changes in its future strategies. Organizations may have to constantly improve their strategies because (i) the market conditions continuously change; (ii) better ways of performing existing activities may emerge; and (iii) the existing managers may be replaced with those with new ideologies and orientation. The performance evaluation process usually consists of the following steps:

1. Setting performance standards in the form of tolerance limits for every stage of the strategic management process.
2. Assessing the actual performance of the implemented strategies after a reasonable timeframe.
3. Comparing the actual performance of the strategies against the set standards to identify the performance gaps.
4. Initiating necessary adjustments, if the gap exceeds tolerance limits; like modifying the strategies, revamping performance objectives, bettering strategy execution and redefining business vision and mission, if necessary.

Levels of Strategy

In the strategic management process, an organization can prepare strategies at three different levels. The focus and requirement of each strategy will differ depending upon the level at which these strategies are formed. The three major levels of strategy formulation are corporate, business and functional levels. However, the corporate-level strategy is further classified as the growth, portfolio, and parenting strategy (see Figure 2.3). However, it is absolutely essential that these strategies are internally consistent, mutually supportive and goal-oriented.

Corporate-level Strategy

This is the top-most level of strategy-making in an organization. Corporate strategies usually deal with basic questions such as how to create a value for the entire organization. Here, the top-level managers make wide-ranging decisions concerning the scope and direction of the organization. Specifically speaking, organizations usually make decisions about the market or industry in which they should compete, product diversification, merger or amalgamation, and so on. Similarly, through corporate strategies, an organization decides about building organizational capabilities and core competencies that may be significant for several businesses of the firm. Corporate-level strategy has three components: (i) growth strategy, (ii) portfolio strategy and (iii) parenting strategy. We shall discuss each of these strategies briefly.

Growth Strategy Growth strategy deals with the development and accomplishment of growth objectives. It can be further classified into concentration strategy and diversification strategy. Concentration strategy is adopted by an organization when the business in the existing industry is safe, profitable, and attractive for further expansion. Now, the organization can implement the concentration strategy through a vertical or horizontal integration. In vertical integration, the organization develops strategies to expand within the existing industry by taking over the functions performed earlier by the suppliers and others while the horizontal integration involves the acquisition of additional business activities that are similar to the existing business activities. For instance, firms may acquire competitors’ business activities to reduce the threat from competition. On the other hand, in the diversification strategy, firms grow by expanding their operation into new markets, by introducing new products in the current market or by adopting both strategies. The growth strategies are often carried out through mergers, acquisitions, and strategic alliances.

Portfolio Strategy Portfolio strategy deals with determining the portfolio of business units for the organization. This strategy aims at constantly revising the portfolio of business units on the basis of the risk and return. It views each business unit as an investment for the organization. As such, it aims to get a good return out of each investment. The purpose of a portfolio strategy is to allocate resources to those products or services that ensure a continuous success or to those products that fetch greater returns but with a high risk. On the whole, the portfolio strategy strives to ensure that the collective profitability of all the businesses in the portfolio enable the organization to attain its performance objectives successfully.

Parenting Strategy The last component of the corporate-level strategy is the parenting strategy, which aims to allocate resources among the different business units of the organization with an optimum efficiency. It seeks to build organizational capabilities across the business units of the organization. The strategy may involve, among others, identifying key factors of the organization, determining the priority in resource allocation, ensuring a better utilization of resources and capabilities, and coordinating the different activities in an efficient manner.

Business-level Strategy

The second type of strategy is the business level strategy. It deals with questions like how to achieve a competitive advantage in each business in which the organization is engaged. It is concerned with the development of the strategy for a single business organization. Box 2.3 delineates the different kinds of competitive advantage for a company. In the case of a diversified business organization, the business-level strategy means formulating a strategy for any one of the strategic business units. Each business unit is treated as an independent unit and profit centre. It can develop its own business-level strategy in order to successfully compete in the market for individual products or services. It focuses mostly on creating and sustaining a competitive advantage for products through one or more distinguishing factors like the price/cost leadership and product differentiation.¹⁷ For instance, factors like advanced technology, unique product features, superior HR skills, efficient distribution capabilities, and superior customer service and convenience can give competitive advantage to the unit. Finally, the essence of a competitive strategy is about being different from competitors. The strategy involves a deliberate decision to perform differently in the market to deliver a unique mix of values.¹⁸

Two important components of business strategies are entry tactics and market position tactics. Entry tactics deal with the timing of entering the market with a new strategy. Besides deciding the strategy, the business unit should also decide the timing of its strategic move in the market. It can make a proactive move in the market by being the first to introduce the product or service. It can also make a reactive move in the market, again as part of its strategy, through a swift response to the competitor who makes the first move.

Market position tactics involve defending one’s existing market share or grabbing the market share from the competitors. Depending on the circumstance, the business unit may adopt offensive tactics to capture the market share from the competitors. It can also take up defensive tactics to protect its market share from poaching by the rivals.

Functional-level Strategy

At the functional level, specific strategies are made for the functional activities of the organization and are usually executable within a short period of time. Functional-level strategy may encompass production, marketing, purchase, finance, HR, research and development, and other similar activities of the firm. Each functional area covers several tasks. For instance, the HR function may include tasks like recruitment, selection and training. Here, the functional-level strategy will address issues like whether to carry out the task, say training, through in-house resources or to outsource these. Similar issues may arise in each one of the functional areas requiring an appropriate strategy. However, there should not be any internal inconsistency among the various functional strategies of the organization. Besides, the functional strategies should effectively supplement and support the corporate and business strategies of the organization. Finally, it is essential to ensure that all the strategies of the organization contribute effectively to the accomplishment of the overall objectives of the organization.

Strategic Management and HRM

Strategic human resource management symbolizes the intersection of strategic management and human resource management. Several studies have shown that the organizations that implement HR practices based on specific strategies have performed better.¹⁹ The general purpose of the strategic human resource management is to improve the strategic ability of an organization constantly through a sufficiently skilled and committed workforce. An organization usually acquires this strategic ability to accomplish challenging goals through innovative HR practices and policies. Eventually, it is able to acquire a competitive advantage in the market through effective utilization of its human resources. It can convert its human resource management into strategic human resource management by formulating appropriate strategies. The strategy formulation may adopt any one or more of the following models. We shall now discuss these models in detail.

High Involvement Management Model

It refers to the creation of an environment that facilitates the continuous exchange of information between the superiors and the subordinates through opinions, ideas and suggestions. In this process, the management becomes aware of the expectation of its employees even while sharing information about the goals, mission and ethical standards of the organization. The prerequisite for this model is the need to treat employees as partners. An organization can develop a high involvement management model through distinct HR practices like work teams, problem-solving committees, job rotation, suggestion schemes, and incentives for quality initiatives.²⁰ A high involvement management model would eventually lead to mutual understanding, openness, mutual trust, and a sense of oneness between the organization and its members. Box 2.4 outlines the elements constituting a high involvement work environment.

High Commitment Management Model

The essence of this approach is that the organization should compete on the basis of quality rather than cost, and rely more on its skilled and highly committed human resources to achieve this mission. The aim of this model is to obtain voluntary commitment from employees by adopting mutually beneficial HR practices. In fact, high commitment practices usually enhance the performance of the individual as well as the organization.²¹ The uniqueness of this model is that it reduces the importance of externally imposed supervision and control on the employees. In contrast, it encourages the practices of self-imposed discipline and devotion to work among its workforce. Organizations desiring a high commitment model should have flexible work practices, called a bundle of high-commitment practices, together with effective reward practices. The relevant work practices may include teams, job rotation, quality circles, and total quality management (TQM), while rewarding practices would include profit-sharing, gain-sharing and skill payments.²² Finally, in the words of Dora Scholarios, “The so-called high commitment practices/systems create high trust, high involvement, high intrinsic satisfaction, high skill and control and, as a result, high commitment, which, in turn, result in behaviour with a positive effect on performance at the end chain (expressed in quality or productivity).”²³

High Performance Management Model

The aim of the high performance management model is to improve the performance of individuals and the organization constantly. A high-performance management works well in a learning organization. The structure of a high-performance organization is usually dynamic and fluid. Such organizations are flexible and quick to respond to the requirements of the customers and the market. In fact, a high-performance management can be achieved only by educating the employees constantly and improving their skills even while retaining their enthusiasm.²⁴

The crux of the high performance management model is the alignment among the people, philosophy, policies, programmes, practices and processes—the six Ps. Organizations that ensure perfect alignment of these six Ps and the resultant unified workplace achieve success in getting consistently superior performance. The HR policies and programmes play a major role in producing a high-performance work organization. Several studies have shown a positive correlation between select HR practices and better organizational performance.²⁵

High performance management models can vastly improve skill acquisition, knowledge sharing, commitment, reliability, communication and motivation among employees. It also encourages innovation and shortens the response time of the organization to the external developments. The common features of the high performance management model are:

• an improved alignment observed among people, policies and processes, effectively supported by technology
• emphasis on fewer hierarchies and flatter organization structure in order to be more flexible and responsive to external changes
• continuous learning from the experience of the developments in the market
• faster response than competitors to the changes in the market, faster growth as compared to rivals in the industry, and retention of the growth rate for relatively longer period
• greater emphasis on employee participation in decision making and empowerment

Note that gaining competitive advantage through individual HR practices has been discussed in detail in Chapter 32 under the special topics category. Box 2.5 outlines the elements of a high performance work environment.

Types of HR Strategies

Organizations vie with one another in developing future-oriented, sequential and integrated strategies to accomplish corporate objectives. Today, human resource management offers plenty of scope for developing such strategies. HR practices and techniques involving recruitment, training, compensation, performance evaluation, and communication are constantly reviewed and redesigned from strategic perspectives so that they evolve as the major sources of competitive advantage for the organization. Organizations may adopt different techniques for developing HR strategies depending upon their environment, mission, vision, objectives and strategies, culture, and internal strengths and weaknesses. Important types of HR strategies are commitment strategy, compliance strategy, paternalistic strategy and collaborative strategy. We shall now discuss these strategies briefly.

Commitment Strategy

In this strategy, the organization seeks to build up a strong commitment among employees through the commonality of interests between employers and employees.

Compliance Strategy

In this strategy, the organization aims at increased labour efficiency through improved labour cost control and process control.

Paternalistic Strategy

The aim of this strategy is to secure labour efficiency through flexibility of staffing, workforce stability, internal promotions and job permanency.

Collaborative Strategy

In this strategy, labour efficiency is achieved through need-based hiring of highly skilled labour and evaluating and rewarding them only through performance-based criteria.

Benefits of a Strategic Approach to HRM

Strategic human resource management has evoked a lot of interest among employers and employees. This is due to the benefits of SHRM being mutual and manifold. For instance, on the one hand, SHRM aims at creating a high-performance work environment and achieving cost-reduction measures, which should encourage employers to approve and adopt this concept in the organization without too many reservations. On the other hand, it insists on initiating measures like profit-sharing, flexible work schedules, allowing employee participation in the decision-making process as part of improving employees’ work commitment and involvement. These measures should make the employees favourable to the concept of SHRM. Another highlight of SHRM is that it not only helps in achieving the strategic goals of the organization but also assists in determining those goals. We shall now see the specific benefits of SHRM.

1. SHRM helps firms in achieving cost-effective engagement of labour as part of the competitive advantage initiative.
2. The flexible structure and dynamic policies of SHRM enable the firm to meet the changing needs and expectations of the customers effectively and promptly.
3. Since SHRM requires a well-defined mission and vision for its effective implementation, it is able to provide clear-cut goals, direction, and future focus to the entire organization.
4. It provides a platform for the organization to plan and execute organizational changes in a timely and effective manner.
5. It ensures the optimum utilization of organizational resources by constantly matching the internal strength of the firm with the external opportunities.
6. For a learning organization, it primarily focuses on developing, managing and sustaining the skills and knowledge of its human resources, which should enable firms to get a long-term strategic advantage in the market.
7. Since functional strategies like those of HR are well-aligned with overall corporate strategies, SHRM greatly enhances coordination among the various functional centres and the top management. It also enables the firm to detect goal and performance deviations early and prevent them eventually.
8. It enables the firm to pre-empt its competitors by exploiting the emerging opportunities through a continuous scanning of the external environment.
9. It makes it necessary to develop a quantifiable base for measuring the efficacy of the various HR polices and practices.

Barriers to Effective SHRM

SHRM has gained more importance because of the emergence of global markets, intensified competition, technological developments, and shifting trends in customer preference. However, the introduction and execution of SHRM is not all that easy. There are quite a few issues that hinder effective SHRM implementation. Thus, HR managers often grapple with those issues while applying SHRM. These issues have been explained briefly as follows:²⁶

Absence of Long-term Orientation

SHRM requires long-term planning, orientation, and HR intervention strategies among the top management and the HR managers alike. However, organizations often content themselves with short-term goals and gains. This obviously undermines the importance of SHRM in an organization.

Lack of Strategic Reasoning

HR managers should assume a strategic role when it comes to strategic management of human resources.²⁷ When HR managers lack training and experience in strategic management, they may find it difficult to develop HR strategies, align the same with corporate strategies, and then influence the employees to support them.

Lack of Adequate Support from the Top Management

In strategic human resource management, HR managers must work at the top levels of management in shaping not only the HR strategies but also the corporate strategies. This calls for the elevation of HR managers’ positions to the higher levels in the organizational structure. However, the top management is often reluctant to involve the HR managers in top decision-making levels. This is because top managers hardly understand the importance of human resources as a critical function and as a competitive advantage of the organization.

Resistance from Labour Unions

The introduction of SHRM usually requires extensive changes in the work culture, HR practices, and processes. The real or perceived consequences of such changes may frighten the employees. Consequently, the SHRM proposals may meet with a strong resistance from the workers and their union.

Fear of Failure

Since SHRM reckons with many uncertainties and imponderables, HR managers often hesitate to undertake strategic HR initiatives due to the fear of failure. They are also afraid of their consequences on their own future prospects in the organization.

Rigidity of HR Practices

SHRM requires constant scanning of the external environment and timely changes in the HR policies to meet the emerging needs of the customers. However, in reality, most of the HR practices of organizations are fixed in nature and even rigid in some cases. Thus, HR managers often find it difficult to change the HR polices and processes to make use of the market situation to gain competitive advantage.

Fear of Attrition

SHRM implementation involves a huge investment in human resources in the form of training and development to enhance the skills and competencies of the employees. Once the employees become well-trained and skilful, they may be lured by the competitors. If these employees decide to leave the present organization for any reason, this could cause it significant losses. That is why organizations are reluctant to invest in their employees and hence oppose the introduction of SHRM.

Absence of Measurement Techniques

Unlike other functions of the firm, it is difficult to quantify the efficiency of HR managers or policies in the absence of creditable HR systems of measurement. This often acts as a disincentive to the HR managers for undertaking any strategic HR initiative. Box 2.6 outlines the role of consultancy firms in SHRM.

Summary

1. Strategic human resource management (SHRM) is a process of aligning HR strategies with business strategies to accomplish performance goals through employees’ competency and commitment.
2. Important features of SHRM are: (i) it is performed at top management levels; (ii) it focuses on the expansion of process capabilities; (iii) it is inter-related with business strategies; (iv) strategy formulation tasks rest with the line managers; and (v) employees are viewed as strategic capabilities of the firm.
3. The SHRM models are business-oriented model, strategic fit model, and the strategic labour allocation process (SLAP) model.
4. The steps in strategic management process are determination of the vision and mission, analysing the environment, strategy formulation, strategy implementation, and performance evaluation.
5. Organizations make strategies at three levels—corporate level, business level and functional level. Corporate-level strategy consists of growth strategy, portfolio strategy and parenting strategy.
6. The three models of strategic formulation are high involvement management model, high commitment management model, and high performance management model.
7. The barriers to SHRM are the absence of long-term orientation, a lack of strategic reasoning, a lack of adequate support from top management, the resistance from labour unions, the fear of failure, the rigidity of HR practices, the fear of attrition, and the absence of measurement techniques.

Review Questions

Essay-type questions

1. Discuss the steps involved in the strategic management process in detail.
2. Evaluate critically the strategies formulated at the different levels of the organization.
3. Describe vividly the various models used to discuss the application of strategic management in human resource management.
4. Enumerate the hurdles faced by human resource managers in the implementation of strategic human resource management. How will you overcome these hurdles?
5. “Growth of strategic human resource management in organizations is primarily due to economic liberalization and globalization.” Comment.
6. Why is it important for HR managers to introduce strategic human resource management in their organizations?
7. If you were a human resource manager, how would you introduce strategic human resource management?
8. Examine the growing relevance of human resource management in corporate strategies management.

Skill-development Exercise

Objective – The objective of this exercise is to show you how to develop an HR strategy in alignment with the business strategy in a specific circumstance with the cooperation of the employees.

Procedure Note – The class is divided into groups. Each group has: (1) an HR manager, (2) two HR team members, (3) two union representatives, and (4) two observers of the meetings. The role of the observer is to observe and report about the various aspects of the role-playing sessions.

Situation

Danish Textiles is a large and successful textile company with a sizeable presence in the southern states of India. Cost leadership and low prices were its main planks in gaining market dominance in this part of the country. However, Spider Cloth Mills, the market leader in the rest of the country, entered the southern states with a bang by opening several branches almost simultaneously. Spider entered the southern market as part of its expansion strategy to cover the whole country through low-cost good-quality products. The move produced an instant threat for Danish Textiles in two ways. One, the company faced the risk of losing a substantial portion of its market share since the business strategy was the same for both the groups. And two, the attrition rate was likely to increase as its employees might join the rival company for better pay and facilities. Suddenly, Danish Textiles felt the need to move beyond conventional competitive strategies and come up with new business strategies. After a lot of deliberation, the management asked the HR department to look into the possibility of developing a high performance and high commitment work environment to counter the new threat. The HR manager was asked to initiate strategic HR activities by revamping policies pertaining to recruitment, training, compensation, safety and health after duly consulting the unions.

Steps in the exercise

There are three steps in the exercise:

Step 1: The HR manager seeks the cooperation of the union leaders by explaining to them the need for introducing changes in the existing HR policies and the mutual benefits of strategic HR initiatives.

Step 2: The HR manager conducts a comprehensive meeting with the two HR team members to finalize the specific changes required in the existing HR policies. The HR strategy would be sent to the top management for approval.

Step 3: The observers analyse and give their feedback on the performance of the members in the role-playing session.

Case Study

Rakish Iron and Steel Company is a significant player in the iron and steel industry. The company has a workforce of 18,000. With a 21 per cent market share at the national level, it occupies the fourth position in the industry. The company set for itself an ambitious target of securing the third position in three years, the second position in seven years, and industry leadership in ten years. The management of Rakish announced a major change in the business strategy of the company that would lead to the transformation of business operations. Incidentally, it prepared a blueprint for the company and chose product differentiation as its primary strategy for the future. It identified a few segments in the market like the low-value steel market where the competition was negligible. It decided to expand its product line with a focus on the consumers of these low-value products.

Pursuing this strategy, the management announced a slew of measures aimed at enhancing the width of the product line by adding a few more varieties to it. It made a huge investment commitment in the infrastructure for producing low-value steel. Within a remarkably short span of time, it introduced new products to cater to the market demand for low-value products. The market responded favourably to its new products and the turnover and profit rose appreciably. However, the competing companies understood the game plan of Rakish quickly and reacted by expanding their product line too. The advantage enjoyed by Rakish turned out to be a short-lived one and the major players once again began to dominate the market.

Once the product differentiation efforts failed, the management of Rakish changed its strategy and adopted a low-cost strategy. This required the organization to be aggressive in sales promotion measures and diligent in cost reduction in fields like marketing, advertising, distribution and services. The cost reduction measures could not help the company for two reasons. One, the cost of marketing did not have a significant influence on the price tag of the product. And two, the cost reduction efforts had a negative fall-out on sales promotion and also on the actual sales performance. Eventually, the company was forced to abandon its low-cost strategy endeavours.

When the company was almost clueless about its future strategies to accomplish the performance goals, Mr Rajesh Sharma joined the board as the HR Director of the company. Learning about the ill-fated strategy initiatives of the company, he made a proposal to develop the workforce of the company as a competitive advantage in the market. The board of directors greeted the proposal with suspicion and contempt. They could not believe that the employees could be developed into a formidable force for the organization through proper HR measures, and that in due course this would lead to cost reduction and quality enhancement. However, having no worthwhile alternative schemes, they set aside their reservations and approved the HR director’s proposal. Simultaneously, the directors allowed a huge budgetary support for drastically improving the training infrastructure and the compensation packages. The HR director’s proposal began to take shape and the management kept its fingers crossed.

Questions for discussion

1. What could have been the reason for the failure of the earlier strategies of Rakish?
2. How do you foresee the future of Mr Rajesh Sharma’s proposal in the light of the competition faced by the company?
3. What would your proposal have been if you had been the HR Director of the company?

Notes

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14. Charles W. L. Hill and Gareth R. Jones, Strategic Management: An Integrated Approach (San Diego, USA: South-Western College Pub., 2001), p. 4.
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16. James C. Collins & Jerry I. Porras, (2002) Built to Last: Successful Habits of Visionary Companies (New York: Harper Business), p. 44.
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23. Dora Scholarios, Harvie Ramsay and Bill Harley, “High-Commitment Management Practices and Employee Outcomes Evidence from Britain and Australia,” Working Paper in Human Resource Management, ER and OS, No. 9, pp. 6–8; available at http://www.managementmarketing.unimelb.edu.au/research/papers/wph9.pdf.
24. J. Storey, “From Personnel Management to Human Resource Management” in J. Storey (ed.), New Perspectives on Human Resource Management, (London: Routledge, 1989).
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27. Paul Falcone, “HR’s Growing Role in M&A Due Diligence,” HR Focus 82 (August 2005): 1–15.