Human Resource Strategy

Formulation, Implementation, and Impact

Peter A. Bamberger, Ilan Meshoulam

• Publisher: SAGE Publications, Inc
• Year: 2000
• ISBN:
  9781452237213
• Edition: 1
• Topic: Business
• Subtopic: Human Resource Management
• Index: Business

Human Resource Strategy provides an overview of the academic and practitioner responses to these and other questions. Applying an integrative framework, the authors review twenty years' worth of empirical and theoretical research in an attempt to reconcile often-conflicting conceptual models and competing empirical results. The authors present much of the relevant research in the context of the critical strategic decisions that executives must actually make with regard to human resource investments and deployments. As a result, often complex theoretical models and scientific findings are presented such that they are not only understandable but also highly relevant to non-research-oriented practitioners.

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Introduction

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Over the long run, the influence of human resource management professions in organizations rises and falls depending on how well they anticipate and respond to changing external and internal forces that shape employment relationships. Kochan (1997, p. 1)

Origins of HR Strategy Research

The nature of human resource management (HRM) has shifted dramatically since its establishment as the discipline of personnel administration in the first quarter of the 20th century. Emerging from the function of “welfare secretary” at the turn of the century and encouraged by Frederick Taylor’s disciples in the 1920s, personnel management was grounded in the emerging paradigm of industrial psychology and was viewed as a possible solution to such nagging problems as worker inefficiency and worker unrest (Barley & Kunda, 1992). Regarding the former, a core tenet of Taylorism was the notion that work becomes more productive and less arduous when individuals are placed in jobs appropriate to their abilities and when they are paid fairly. How to match individuals and jobs and ensure that they are paid fairly was viewed by Taylor as a “technical problem” (Barley & Kunda, 1992, p. 371), one to be resolved by the emergent personnel function. For example, applying the scientific approach demanded by Taylor, personnel workers used new testing technologies to rationally select and place employees. Regarding worker unrest, personnel directors offered a new approach to employee relations grounded on the use of entitlements to solidify workers’ allegiance to their employer. The personnel function became the locus of all activities having to do with employee relations and eventually contract administration.

The scope of these technical activities widened over the decades, with new functions and technologies added with every shift in managerial thought and discourse (Barley & Kunda, 1992). For example, during the height of the human relations movement (1930s-1950s), personnel directors widened their package of services to include management development (as a conflict avoidance mechanism) and collective bargaining, industrial due process, and labor-management collaboration (to structure and manage labor conflict). With the upsurge of operations research and systems rationalization in the 1960s and 1970s, personnel directors offered new technical services in the field of work redesign, job evaluation, personnel needs forecasting and planning, and performance appraisal systems design (e.g., management by objectives).

However, in the face of increased global competition and the demands for both cost-efficiency and quality in the 1980s, personnel management was at a crossroads. Since its establishment, the personnel function had based its legitimacy and influence on its ability to buffer an organization’s core technology from uncertainties stemming from a heterogeneous workforce, an unstable labor market, and a militant union movement. Yet by the 1980s, managers had become less concerned with these technical sources of uncertainty and were paying greater attention to issues of quality, agility, and unique competencies as sources of competitive advantage. Indeed, by the early 1980s, the strategic management of human resources and the design of “strong” organizational cultures had become the focus of attention for a number of extremely influential management consultants and applied researchers (e.g., Deal & Kennedy, 1982; Ouchi, 1981; Peters & Waterman, 1982). These writers viewed the effective management of human resources as the key to ensuring quality and a critical source of competitive advantage. For example, one of Peters and Waterman’s (1982) “Eight Attributes” was “productivity through people,” which called for “treating the rank and file as the root source of quality and productivity gain” and “looking at human resources rather than capital investment as the fundamental source of efficiency improvement” (p. 14).

Not surprisingly, by the mid-1980s, an increasing number of HR researchers (e.g., Beer, Spector, Lawrence, Mills, & Walton, 1985; Dyer, 1983, 1985; Fombrun, Tichy, & Devanna, 1984) were calling for the personnel function to take on a more strategic or business role. Tyson (1987) called for the replacement of two traditional personnel models—in which the personnel director was the “clerk of works” (i.e., an administrative function responsible for the provision of pay, benefits, and employee welfare services) and/or the “contracts manager” (i.e., employee relations expert)—with a new, “architect” model. According to this architect model, personnel would return the responsibility for people management (e.g., appraisal, individual counseling) back to line managers and would instead focus on aligning the firm’s human resource system with its business strategy. According to Wright and McMahan (1992), two important dimensions distinguish such a strategic approach to HRM from the more traditional practices of personnel management described above. First, “it entails the linking of human resource management practices with the strategic management process of the organization” (p. 298). That is, it calls for the consideration of HR issues as part of the business strategy formulation. Second, it places an emphasis on finding a synergy (or at least a certain degree of congruency) among various HR practices and ensuring that these practices are aligned with the needs of the business as a whole. Not surprisingly, this approach to HRM has been labeled strategic human resource management or SHRM (p. 298).

Conceptual Issues

Despite the increasing amount of attention paid to SHRM and HR strategy in recent years, researchers have failed to clarify the precise meaning of these two important concepts. Several scholars have noted that this lack of conceptual clarity has complicated both theory development and testing. One key definitional issue concerns the degree to which one or the other of these two terms relates to a process or an outcome. For example, Wright and McMahan (1992) defined SHRM as an outcome: “the pattern of planned HR deployments and activities intended to enable a firm to achieve its goals” (p. 298). Similarly, Snell, Youndt, and Wright (1996) viewed SHRM as “organizational systems designed to achieve sustainable competitive advantage through people” (p. 62). Others (e.g., Truss & Gratton, 1994; Ulrich, 1997) disagreed. Ulrich (1997) described SHRM as “the process of linking HR practices to business strategy” (p. 189). According to Ulrich, this process involves the identification of those HR capabilities required to implement business strategy and the adoption of those HR practices and policies designed to secure those capabilities. For Ulrich, HR strategy is the outcome: that is, the agenda for the HR system, defining “the mission, vision and priorities of the HR function” (p. 190). In the sections below, we attempt to clear up some of the confusion with respect to these key constructs in the SHRM literature.

Business Strategy

Business strategy concerns the long-term direction and goals of a firm and the broad formula by which that firm attempts to acquire and deploy resources in order to secure and sustain competitive advantage (Faulkner & Johnson, 1992; Porter, 1980). Drawing from military science, management scholars (Mintzberg, 1990; Quinn, 1988) have come to define business strategy in terms of the set of organizational goals that business leaders attempt to achieve (i.e., ends) and the policies (i.e., means) by which these leaders attempt to position the firm and its resources in relation to the firm’s environment, competitors, and key stakeholders) in order to maximize the potential for goal attainment (Porter, 1980).

According to Chakravarthy and Doz (1992), there are two key subfields of business strategy research. The first, policy or “content” research, focuses on the link between a wide variety of organizational parameters (e.g., structure, positioning, technology) and performance and the way in which this relationship may be moderated by a variety of environmental contingencies. Much of the research in this subfield is grounded on the seminal work of Chandler (1962) and his basic proposition that environmental (e.g., technological) contingencies shape organizational strategies, which in turn determine organizational structure. In contrast, process research examines the formulation and implementation of these policies as well as their dynamics over time and their impact on the firm’s “bottom line.” Much of the process research literature is grounded on the work of Galbraith and Nathanson (1978), who argued that the key to implementation is the realignment of core organizational systems (e.g., finance, marketing, operations, HRM).

These issues of strategy formulation and the link between implementation and firm performance are themes that we will constantly encounter throughout this book. For example, as we will describe in Chapter 2, there continues to be a debate as to the role of human resource strategy in the formulation of business strategy. As we will discuss in Chapter 7, the link between HR strategy and business strategy may have critical implications for firm performance.

HR Strategy

Consistent with the strategy literature (Miles & Snow, 1978; Mintzberg, 1978), we conceptualize HR strategy as an outcome: the pattern of decisions regarding the policies and practices associated with the HR system. Implicit in this definition are two core assumptions (Bamberger & Fiegenbaum, 1996). First, we assume that the focus of attention needs to be on the HR system, not the HR function. The HR system is one of numerous organizational systems (e.g., finance system, marketing system), each of which play a role in the formulation of organizationwide strategies and each of which is composed of function-specific subsystems (Bamberger & Fiegenbaum, 1996). In the case of HR, these subsystems are focused on staffing and development, appraisal and rewards, and employee relations (i.e., work systems design and workforce governance). Although in many organizations the HR function has primary responsibility for the implementation of decisions having to do with each of these subsystems, other functional units, along with the human resource function, may play an important role in making the decisions in the first place, as well as in implementing them.

Second, we assume that it is impossible to understand the nature of HR strategy without taking both intraorganizational politics and environmental/institutional contingencies into account (Bamberger & Phillips, 1991). Consequently, we recognize that there is likely to be a difference between a firm’s “espoused” HR strategy and its “emergent” strategy. This assumption is based on the recognition that strategy at any level and regarding any organizational system is rarely if ever the outcome of a rational, explicit, and top-down process. Instead, it is a negotiated order (Strauss, Schatzman, Ehrlich, Bucher, & Sabshin, 1963), shaped by the political maneuvering of those interests and institutions likely to be affected by the outcomes of the strategic decision-making process.

Espoused HR strategy is therefore the pattern of HR-related decisions made but not necessarily implemented. It is often explicated as part of “corporate philosophy” or included as a central component of a managerial mission statement. For example, Analog Devices’ (1993) corporate philosophy focuses first on its employees and only then on its customers, stockholders, and other stakeholders:

Our corporate goals are thus best achieved in an environment that encourages and assists employees in the achievement of their personal goals while helping Analog Devices achieving its goals. We therefore seek to offer our employees a challenging and stable work environment where they can earn above average compensation for above average performance and contribution to the company. Our policy is to share Analog Devices’ success with the people who made it possible.

In contrast, the emergent HR strategy is the pattern of HR-related decisions that, although perhaps never made explicit, have in fact been applied: that is, the gestalt of negotiated people-related policies and practices in use. Whereas the analysis of espoused HR strategy focuses on the prospective claims of management with respect to desired ends and means, the analysis of emergent HR strategy requires a retrospective orientation and the induction of ends and means on the basis of those policies and practices actually in use.

Strategic Human Resource Management

We view SHRM as a competency-based approach to the management of personnel focused on the development of durable, imperfectly imitable, and nontradable people resources. Developing resources with such characteristics is the key to sustainable competitive advantage (Barney, 1991), particularly because people are the key “competence carriers” of organizations (Prahalad & Hamel, 1990, p. 87). As an approach to the process of people management in organizations, SHRM is not unrelated to HR strategy. Indeed, the formulation and enactment of an HR strategy designed to “link HR policies and practices with the strategic goals and objectives of the firm” (Truss & Gratton, 1994, p. 663) is a key element of SHRM. Thus, if SHRM is the process by which organizations seek to link the human, social, and intellectual capital of their members to the strategic needs of the firm, espoused HR strategy is the road map that organizational leaders use to secure that link, and emergent HR strategy is the road actually traveled.

The Role of HR Strategy in Strategic Management

That both HR practitioners and researchers have embraced this strategic approach to HRM is beyond dispute. Why the shift in orientation? From a rational choice perspective, it makes sense for any organizational function to shift its attention to those activities that are likely to provide the organization with the greatest possible return.

Rational Choice Theories

Indeed, a number of theories support such a perspective (Jackson & Schuler, 1995). For example, based on the assumption that employee behaviors are key to successful strategy implementation, behavioral role theory (Katz & Kahn, 1978) suggests that by aligning HR policies and practices with firm strategy, employees will be better able to “meet the expectations of role partners within the organization (i.e., supervisors, peers, subordinates), at organizational boundaries (e.g., customers), and beyond (i.e., family and society)” (Jackson & Schuler, 1995, p. 239).

Resource-based theory (Barney, 1991; Prahalad & Hamel, 1990) suggests that resources that are rare, inimitable, and nonsubstitutable provide sources of sustainable competitive advantage for the organization. Several researchers argue that, if strategically managed, a firm’s “human resource deployments” have the potential to meet these conditions and thus provide the firm with an advantage in terms of its human, social, and intellectual capital (Nahapiet & Ghoshal, 1998; Wright & McMahan, 1992).

Similarly, human capital theory (Becker, 1964) suggests that because the knowledge, skills, and abilities that people bring to organizations have economic value to organizations, they need to be managed in the same strategic manner that other economic assets (e.g., land, machinery) are managed. Students of human resource accounting (Cascio, 1991; Flamholtz & Lacey, 1981) draw from human capital theory to generate utility models of HRM.

Transaction cost theories (Williamson, 1981) suggest that the adoption of a strategic approach to HRM can minimize the costs involved in controlling internal organizational exchanges. These costs stem from the need to establish, monitor, and enforce a “myriad of implicit and explicit contracts between employers and employees” designed to protect the organization from member self-interest and opportunism (Jackson & Schuler, 1995, p. 242). In theory, the adoption of a strategic approach to HRM should allow a firm to adopt more streamlined governance systems (such as those characteristic of firms with highly developed internal labor markets) when the nature of the work process is such that employee loyalty and/or firm-specific knowledge, skills, and abilities are highly valued (Baron & Kreps, 1999). Such an approach should also facilitate the decision to maximize efficiencies by competing in the external labor market when such firm-specific skills are not required.

Finally, on the basis of similar assumptions, agency theory (Eisenhardt, 1989) also suggests that a strategic approach to HRM is likely to provide significant returns to the firm. Given the inefficiencies inherent in monitoring and rewarding employees’ (i.e., agents’) compliance with the implicit and explicit contracts typical in employment contexts, agency theory proposes that through the strategic alignment of agent and principal (i.e., employer) interests, employment relations and systems can be streamlined. In recent years, the application of agency theory has been most apparent with regard to strategic compensation practices and, in particular, the widespread adoption of variable or performance-based pay practices.

Constituency-Based Theories

However, it is just as likely that HR practitioners and researchers have embraced SHRM out of a constituency-based interest. At least in the United States, as Wright, McMahan, McCormick, and Sherman (1998) noted, “The HR function has been neither traditionally viewed nor empirically demonstrated to contribute to firm performance, and has therefore been viewed as neither important nor effective” (p. 17). This is reflected in the level of compensation received by HR executives relative to executives in other staff functions. Moreover, it has created a vicious circle in many firms in which only those contributing to performance are invited to p...

Table of contents

• Cover Page
• Title
• Copyright
• Contents
• Dedication
• Preface
• 1. Introduction
• 2. The Formulation and Emergence of Human Resource Strategies
• 3. Models of Human Resource Strategy
• 4. People Flow Subsystem
• 5. Appraisal and Reward Subsystem
• 6. Employee Relations Subsystem
• 7. The Impact of Human Resource Strategy
• References
• Author Index
• Subject Index
• About the Authors