Items Description of Module

Subject Name Management

Paper Name HUMAN RESOURCE MANAGEMENT
Module Title STRATEGIC HUMAN RESOURCE MANAGEMENT
Module ID Module 3
Pre-Requisites Understanding the Strategic Human Resource Management
Objectives To study the concept, process and linkages of strategic HRM
Keywords Strategy, Mission, Vision, Strategic HRM
 QUADRANT –I

Module : 3; STRATEGIC HUMAN RESOURCE

MANAGEMENT
1. Learning Outcome
2. Strategy
3. Strategic management
4. Process of strategic management
5. Approaches to strategic HRM
6. Linkages between HR plans and strategy
7. Integration of HR strategy with corporate planning
Summary

1. Module : Strategic Human Resource Management

2. LEARNING OUTCOME:
After studying this module, you shall be able to
 Know the meaning of Strategy
 Understand the concept of strategic management
 Comprehend the process of strategic management
 Understand the concept of strategic human resource management
 Know the linkage between HR Plans and Strategies
 Learn the integration of HR strategy and Corporate Planning

3. Introduction
Strategic Human Resource Management (SHRM) has drawn a great deal of attention in
recent years, most remarkably in HRM, OB, and IR. SHRM is related with top
management’s approach to HRM as a critical strategic dimension influencing firm
performance. Strategic human resource management increases productivity and the
effectiveness of organizations. The execution of strategic human resource management
in various organizations has evidences that when organizations employ such personnel
practices, they are more likely to achieve their goals and organizational objectives.

4. What is a Strategy?
‘Strategy is a unified, inclusive and integrating the whole plan that relates the strategic
advantages of the firm to the challenges of the environment. It is planned to ensure that
the basic enterprise objectives are achieved through proper execution by the
organization.’
‘Strategy establishes direction and scope of an organization in long run: ideally which
matches its resources to the changing environment and specifically, its markets,
customers, or clients so as to meet stakeholder expectations.’

5. Strategic Management
The notion of strategic management comprises of a set of decisions and actions
resulting in formulation and implementation of a strategy to achieve the objectives of an
organization.
 John Pearce and Robinson defined strategic management,’ as a number of decisions
and actions resulting in formulation and implementation of strategies aimed to achieve
the objectives of an organization.’
According to Paine and Naumes, ’Strategic management involves decision-making and
the tasks in an organization, that(1) have wider implication, (2) have a long time
perspective and (3) apply critical resources for discerned opportunities or threats in a
changing environment.
Glueck defined strategic management as ‘a set of decisions and actions which leads to
the development of an effective strategy or strategies to accomplish corporate
objectives. The strategic management process is the way in which strategists establish
objectives and make strategic decisions.
The analysis of the above definitions puts forward the following elements of strategic
management:
(i) Analysis and diagnosis: It involves determining environmental problems and
opportunities and internal strengths and weaknesses, recognizing problems
and/or opportunities and assessing information needs to solve the problems and
heuristics for evaluating the information.
(ii) Choice: relates to generating alternative solutions to the problem, assessing
them and choosing the best ones.
(iii) Implementation: Involves making the strategy work by erecting the structure to
act as the foundation for the strategy and developing appropriate plans and
policies.
(iv) Evaluation: Involves review of results and future possibilities, determining
whether the strategy is working and taking steps to make it work.

6. Process of Strategic Management

The process of strategic management of an organization consists of steps as shown in
Fig.3.1

6.1 Vision and Mission

The strategic management process requires a clear vision and mission statements
for an organization. The three components of business vision include core values,
core purpose, and visionary goals. The vision statement of the organization conveys
the future it envisages and the goal to accomplish in the near and distant future.
Similarly, its mission statement pronounces the purpose of the organization. In fact,
 the mission statement assists the organization link its activities to the needs of
society and legitimize its existence.
In strategic management, the mission and vision provide the essential supporting
structure for strategic planning within the organization. In fact, it gives the direction to
the whole organization and helps the decision-makers to determine the priority of
their activities. At the first stage of the strategic management process, the managers
assess their positions and responsibilities connected to the vision, mission and goals
of the organization. While the vision and mission of an organization remain
unaltered, its strategies can be accommodated with the environmental changes.

6.2 Scanning the Environment

Environmental analysis demands collecting, analyzing and providing information for

tactical or strategic purposes. A successful strategy depends to a great extent on the
ability of the managers to analyze the environment with accuracy. It is necessary for
managers to be aware of the external environment and to utilize their knowledge of
the environment as a critical input for strategic planning. While scanning the
environment, managers look for changes in the environment and assess their impact
on the organization.
Environment analysis can be divided 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 correct assessment of the prospective changes in the environment
will equip the organization to face such changes effectively. Internal analysis
identifies the existing strengths and weakness of the internal factors like production
facilities marketing techniques, management competencies, HR skills, and strategic
choices in achieving the strategic goals of the organization. While analyzing the
environment, an organization may choose 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 opt for continuous scanning, in which the
environment is analyzed on a continuous basis on different parameters.

6.3 Strategy Formulation

The strategy formulation 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 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 of an organization, respectively. An
organization can choose from these strategies and adopt the same in its own
situation.

6.4 Strategy Implementation

The strategy implementation requires the chosen strategy to be put into action. 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.
Generally, the implementation encompasses developing the capacities of the
organization 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.

6.5 Performance Evaluation

The final stage in strategic management process is performance evaluation. There

exists a gap between the formulation and implementation periods of a strategy. It is
possible that during the intervening period the premises made at the time of strategy
formulation may change. 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. Organization may have to incessantly
improve their strategies because the market conditions regularly change and better
ways of performing existing activities may emerge. The existing managers may be
replaced with those with new ideologies and orientation. The performance evaluation
process usually consists of setting performance standards in the form of tolerance
limits for every stage of the strategic management process and assessing the actual
performance of the implemented strategies after a reasonable timeframe. The
evaluation also requires comparing the actual performance of the strategies against
the set standards to identify the performance gaps and 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.

7. Strategic Human Resource Management

SHRM is a process which is regularly developing and being studied and discussed by
academicians and commentators.
Strategic human resource management integrates customary human resource
management actions within a firm’s strategic planning and implementation. SHRM
integrates human resource careful thoughts with other kinds of resources in the setting
of goals and solving complex organizational problems (Legnick-Hal and Legnick-Hall,
1988). SHRM emphasizes the implementation of a set of policies and practices that
builds employee pool of skills, knowledge, talents and abilities (Jackson and Schulerm,
1995) that are relevant to organizational goals. A larger variety and more complex set for
solving organizational problems are provided and the possibilities of attaining the goals
of the organization are increased (Mechelin, 1996).
Wright and McMahan (1992) defined SHRM as ‘a system relating to human resource
suited to the requirements of the business strategy’ and as ‘the pattern of planned
human resource activities directed to enable an organization to achieve its goals. (Miles
and Snow, 1984). Although the difference between these two appears thin, the
implications of the differences are considerable. Here, the first definition of human
resource management is a ‘reactive’ management field in which human resource
 management becomes an instrument to execute a strategy, in the latter definition it has
a proactive function in which human resource activities really mould the business
strategy (Sanz-Valle et.al,1999).

Strategic Human Resource Management may also be expressed as the ‘organizational

use of employees to acquire a competitive advantage over competitors and involves
bring into a line initiatives encompassing the manner people are managed with
organizational mission and objectives’. In flattened, downsized and high-performing
organizations, highly trained and committed employees are often the key to firm’s
competitive position. Perhaps, the most drastic change in role of human resources today
is its increasing involvement in formulating and implementing the company’s strategy.
Thus, SHRM can be considered as a usual approach to the strategic management of
human resources in accordance with the intent of the organization relating to the future
direction it wants to take

8. Approaches to Strategic Human Resource Management

There are five approaches to strategic HRM consisting of resource-based strategy

(Barney, 1991), strategic fit, high-performance management, high- commitment
management (Walton, 1985) and high-involvement management. There approaches are
described below:

8.1 The resource-based approach

The basic purpose of resource-based HR strategy is to develop strategic capability –
achieving strategic fit between resources and opportunities and getting additional
 value from the effective distribution of resources. A resource-based approach
addresses methods of enhancing the firm’s strategic capability by developing
managers and other staff who can think and plan strategically and understand
the key strategic issues.
The resource-based approach rests on the faith that competitive advantage is
acquired if a firm can secure and develop human resources that permit it to get
knowledge or skill faster and make use of its learning more effectively than its rivals
(Hamel and Prahalad, 1989). According to Barney (1995) ‘Human resources
comprise the experience, knowledge, judgment, propensity to take risk and prudence
of people associated with the enterprise.’ Kamoche (1996) advocates that: ‘The
resource-based approach visualizes the firm as a combination of resources and
capabilities needed for competing in the market.
The resource-based theory stresses that investment in people enhances their value
in the firm. The strategic goal is to ‘bring into existence firms which are more
intelligent and possess flexibility more than their competitors’ (Boxall, 1996) by hiring
and augmenting more talented personnel and by enlarging their skills. The strategy
is therefore related to the enhancement of the intellectual capital of the firm. Ulrich
(1998) comments: ‘Knowledge has proved to be a direct competitive advantage for
business, selling ideas and relationships. The organizations have to assure that they
have the capability to find, absorb, compensate and retain the competent people
they need.’
Grant (1991) produced a convincing rationale for resource-based strategy. When the
external environment is continuously changing, the firm’s own resources and
capabilities perhaps keep a much more firm basis on which to determine its identity.
Therefore, defining a business based on of its capability may offer a more stable
basis for strategy than defining a business on the basis of needs (eg markets) which
the business attempts to satisfy.
The unequalled talents among employees, comprising superior
performance, productivity, flexibility, innovation, and the capacity to provide high
levels of customer service, are courses in which people contribute a
critical component for the development of an organization’s competitive position.
Employees also provide the solution to managing the critical mutual dependence
across functional areas and the important external relationships. One of the evident
benefits arising from competitive advantage is based on the effective management of
staff and such an advantage is challenging to imitate. A Business’ HR strategies,
policies as well as practices is an unparallel integration of processes, procedures,
personalities, leadership styles, capabilities and the culture of an organization. One
of the explanations to competitive advantage is the capacity to distinguish one’s
product or service from its competitors. Such differentiation can be attained by
having HR strategies that ensure that the business has greater-quality people as
compared to its competitors, by developing and nourishing the intellectual capital a
business possesses and acts as a ‘learning organization’.

8.2 Strategic fit

The HR strategy should be in tune with the business strategy (vertical fit). It would be
better if the HR strategy is an integral part of the business strategy, assisting to the
business planning process as it occurs. Vertical integration is necessary to provide
alignment between business and human resource strategy. This will help in the
accomplishment of the objectives of business strategy. Horizontal integration with
other aspects of the HR strategy is needed so that its various components
 fit together. The purpose is to adopt a coherent way to managing people where
different practices are mutually assisting.

8.3 High-performance management approach

High-performance management purports to make an impact on the performance of
business through its people in different areas that result in increased shareholder
value. High-performance management practices contain strict recruitment and
selection procedures, wide ranging training and management development efforts,
incentive pay systems and the processes of performance management.
US Department of Labor (1993) gave a popular definition of a high-performance work
system featured by extensive systems for recruitment and selection, training and
development efforts; formal procedures for information-sharing with the people in the
organization; transparent job design; employees’ participation processes;
performance appraisals; properly functioning grievance redressal system; promotion
and compensation plans providing for the recognition and financial rewarding of the
high-performing employees.

8.4 High-commitment management approach

Another approach to strategic human resource management is the high commitment
management approach. One of the characteristics of HRM is its emphasis on the
significance of increasing mutual commitment (Walton, 1985). Wood (1996)
described high-commitment management as: ‘A form of management directed at
drawing out a commitment so that behavior is basically self-regulated rather than
sanctions and controls, and relationships in the organization rests on high levels of
mutual trust.’
The approaches to achieve high commitment are: the development of career path
and emphasis on training and commitment as highly valued features of employees
in the organization; a high degree of functional flexibility with the giving up of
potentially rigid job descriptions; the reduction of levels of hierarchies and the
eliminating of status differentials; a heavy dependence on team structure for
spreading information, structuring work and problem solving. Beer et al (1984) and
Walton (1985)

8.5 High-involvement management

This approach treats employees as stakeholders in the enterprise whose interests
are honored and who have a say on issues concerning them. It is concerned with
communication and involvement. The purpose is to create a climate in which a
dialogue between managers and the members of their teams continues in order to
state expectations and disseminate information on the mission, values and
objectives of the organization. This establishes mutual understanding for
achievement of objectives and a design for managing and assisting people to grow
ensure that it will be accomplished.

9. Linkage between HR Plans and Strategies

The strategic human resource management emphasizes on the need for alignment
between HR functions and corporate strategy. HRM should focus on aligning its basic
sub-functions to the corporate plan in the following three areas:
  Strategic
 Managerial, and
 Operational

9.1 Strategic

In this area, the focus is on the interface of the organization with the external
ambience, the organization being the centre stage as a total entity. Long term issues
get priority over short-term issues, impacting organizational performance. At this
stage, the Director (HRM), being a representative of the top management of a
company plays a significant role. The following strategic HR issues need to be
addressed:

(a) Succession planning aimed at providing potential/trained managers on a

continuous basis.
(b) Reward system aimed at identifying and deciding the most effective reward
system that can motivate people at the time for giving of their best in the
fulfillment of organization goals.
(c) Performance management involving the total management of organizational
performance, including the measures of performance evaluation, should augment
organizational performance for all time.
(d) Human resource planning includes defining the methods f forecasting of human
resource requirements for future in quantitative and qualitative terms, so that the
human resource available can match the needs of the company.
 (e) Training and development means drawing out a training and development plan
for nurturing the growth of future workforce.

9.2 Managerial

This area involves refining the HR policy, practices/procedures and systems at

senior management level. The long term plans as well as policy on HR are translated
into specific systems, like designing a recruitment plan and selection methods, or
designing a strategic reward and benefits system for staff, which match the corporate
strategy. The new systems are designed in pursuance of the direction, objective, and
guidance of the strategic management of the enterprise.

9.3 Operational
The operational area includes the operatives and the front line supervisors and
others engaged in the production of goods and services. The sub-systems of HRM
are so fine-tuned to the needs of the organization that the workflow is smooth. The
staff is rewarded adequately as per the differentiated performance-based reward
system in place.
Thus, strategic issues should be linked to the corporate strategic management plans
at the strategic, managerial and operational levels.

10. Integration of HR Strategy and Corporate Planning

The business organizations feel that there should an integration of HR strategy with
corporate plans. A strong link with strategy is considered to be the key difference
between human resource management and previous philosophies of people
management.
The alignment of HR strategy with corporate strategy addresses various fundamental
issue:
 Can strategic human resource management be really achieved?
 Do HR managers participate in high-level decision-making?
 Are human resource issues given equal importance as financial, production or
marketing issues?
 The manner in which human resource strategies and practices be adjusted to
meet perceived threats and opportunities in a changing environment.
If people are really the greatest assets of an organization’s, then their cautious
selection, growth and deployment can enable acquire competitive advantage.
Strategic human resource management needs formulation of HR objectives, strategies
and policies. These make able the provision of the skills and abilities required to meet
the requirements of an organization’s overall objectives. They can provide the framework
which ensures that an organization’s people needs are fulfilled. In modern organizations,
information technology supports HR strategy as human resource information systems
and human resource management systems.

Summary
 Strategic human resource management is related to top management’s approach
to HRM as a critical strategic variable influencing firm performance.
 Strategy settles the strategic moves and scope of an organization for the long
term:
 Strategic management consists of decisions and actions arising from formulation
and implementation of strategies established to achieve the objectives of an
organization.
 The process of strategic management observes certain steps including
establishing vision and mission, analyzing the environment, formulation of
strategies and implementation of strategies and performance evaluation.
 Strategic Human Resource Management may also be expressed as the
‘organizational use of employees to achieve a competitive advantage.