Strategic Human

Resource Management
and HR Policies
(As Per the New Syllabus 2018-19 of Mumbai University for T.Y.BMS, Semester V)

Dr. Rajeesh Viswanathan

MBA, Ph.D.,
Assistant Professor,
Dept. of International Business,
Pondicherry Central University,
Puducherry.

Trupti Shelke
M.Com., Ph.D., MHRDM, PDGALL,
Assistant Professor,
Coordinator (BMS, BBI, BAF & BFM),
Institute of Management & Computer Studies,
Thane.

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 PREFACE

This book ‘Strategic Human Resource Management and HR Policies’ is written keeping in
mind the current global HR scenario. This edition has been prepared looking into the current and
relevant research studies to enable come alive for students. Author has maintained its hallmark
features – clear writing, cutting edge content and compelling pedagogy. The book comprises of 14
chapters with case studies from different global scenario. The book has been written for management
students and practicing managers.
Though there exists many books in this area, this book has its unique approach and focus. All the
concepts have been discussed in detail with strategies and its impact. Book also covers case studies
and exhibits to enable the reader think beyond and give the reader a feel of real-life situation.
Chapter 1 covers overview of strategic human resource management. It gives the reader a bird’s
eye view of SHRM and the need to study it.
Chapter 2 focuses on the importance of aligning human resources with strategies. It begins with
consideration of factors relevant to strategy-based human resource and how it impacts overall
effectiveness.
Chapter 3 discusses on HR and organisational strategies. In order to achieve the desired outputs,
an organisation should be able to blend HR with organisational strategies. HR strategy relates to
selection, development and motivation of the right candidates for the job. To implement strategies
effectively, plans and policies should be framed efficiently. Only if both are aligned, it would lead to
positive results.
Chapter 4 talks about the human resource planning in global scenario, issues and strategies to be
adopted. It enables the managers to estimate their human resource needs for the future and identify
sources from where these resources can be obtained applying economic rationality model.
Chapter 5 talks about the different strategies of acquiring human resources. Strategic recruitment
is a process of creating a long-term strategic plan for the organisation. It also involves having specific
requirements for each job and aligning them with the organisation’s strategic plan. The real challenge
for the modern-day organisations is not just recruiting people, but hiring people who can effectively
contribute to the organisation’s goals. The changing business environment calls in for different
staffing decisions.
In chapter 6 focuses on strategic training and development. For the effectiveness of any
organization training and development plays a vital role. Here, we cover identifying training needs
from individual and organizational angle and methods of training .
Chapter 7 covers the importance and types of appraisal tools and the scientific ways of selecting
and implementing it.
Chapter 8 – Employee compensation plays such a key role because it is at the heart of the
employment relationship, being of critical importance to both employees and employers. For
employers, compensation decisions influence their cost of doing business and thus, their ability to sell
at a competitive price in the product market. In addition, compensation decisions influence the
employer’s ability to compete for employees in the labour market (attract and retain), as well as their
attitudes and behaviours while with the employer. This chapter discusses about the compensation
strategies. It also discusses about the reward and development. An investment in human resources can
provide a sustainable source of competitive advantage and can increase the likelihood of successful
implementation of the firm’s business strategies provided there exist a reward and development
system whereby employees are motivated.
Chapter 9 discusses about the workforce utilisation and employment practices. This chapter will
cover several areas of implementation beginning with the efficient utilisation of human resources
through workforce flexibility and the widespread use of teams. Such efficiencies have become
increasingly important because of pressure to control labour costs. It discusses about managing HR
surplus – separation and downsizing.
Chapter 10 – Here how to design a HR policy and factors to be kept in mind has been discussed.
Chapter 11 – Employee engagement is today’s nightmare for the HR. In this chapter, we discuss
the ways to engage the employee and excel the individual and organisation’s performance.
Chapter 12 – Evaluating organisation’s performance is mandatory at every stage. In this chapter,
it covers ways of evaluating strategies.
Chapter 13 – Human capital management is the ultimate aim of any organisation. To be effective,
there needs to be a proper synchronising between organisational mission and HR. Here, we discuss on
these angles.
Chapter 14 – An effective organisation is the aim of SHRM. Here, we discuss about the to IHRM
and factors affecting the approach to IHRM. Managing employees from different culture and diversity
are discussed here.

Authors
 SYLLABUS
MODULES AT A GLANCE
Sr. No. Modules No. of Lectures
1 SHRM – An Overview 15
2 HR Strategies 15
3 HR Policies 15
4 Recent Trends in SHRM 15
Total 60

OBJECTIVES
Sr.No. Objectives
1 To understand human resource management from a strategic perspective
2 To link the HRM functions to corporate strategies in order to understand HR as a strategic
resource
3 To understand the relationship between strategic human resource management and
organisational performance
4 To apply the theories and concepts relevant to strategic human resource management in
contemporary organisations
5 To understand the purpose and process of developing human resource policies

No. Name of the Topic

1 SHRM – An Overview
 Strategic Human Resource Management (SHRM) – Meaning, Features, Evolution,
Objectives, Advantages, Barriers to SHRM, SHRM vs. Traditional HRM, Steps in
SHRM, Roles in SHRM – Top Management, Front-line Management, HR, Changing
Role of HR Professionals, Models of SHRM – High Performance Working Model,
High Commitment Management Model, High Involvement Management Model.
 HR Environment – Environment Trends and HR Challenges.
 Linking SHRM and Business Performance.
2 HR Strategies
 Developing HR Strategies to Support Organisational Strategies, Resourcing Strategy –
Meaning and Objectives, Strategic HR Planning – Meaning, Advantage, Interaction
between Strategic Planning and HRP, Managing HR Surplus and Shortages, Strategic
Recruitment and Selection – Meaning and Need, Strategic Human Resource
Development – Meaning, Advantage, Rewards Strategies – Meaning, Importance,
Employee Relations Strategy, Retention Strategies, Strategies for Enhancing
Employee Work Performance.
3 HR Policies
 Human Resource Policies – Meaning, Features, Purpose of HR Policies, Process of
Developing HR Policies, Factors Affecting HR Policies – Recruitment, Selection,
Training and Development, Performance Appraisal, Compensation, Promotion,
Outsourcing, Retrenchment, Barriers to Effective Implementation of HR Policies and
Ways to Overcome These Barriers, Need for Reviewing and Updating HR Policies,
Importance of Strategic HR Policies to Maintain Workplace Harmony.
4 Recent Trends in SHRM
 Employee Engagement – Meaning, Factors Influencing Employee Engagement,
Strategies for Enhancing Employee Engagement, Mentoring
 Contemporary Approaches to HR Evaluation – Balanced Scorecard, HR Scorecard,
Benchmarking and Business Excellence Model.
 Competency Based HRM – Meaning, Types of Competencies, Benefits of
Competencies for Effective Execution of HRM Functions.
 Human Capital Management – Meaning and Role.
 New Approaches to Recruitment – Employer Branding, Special Event Recruiting,
Contest Recruitment, e-recruitment.
 Strategic International Human Resource Management – Meaning and Features,
International SHRM Strategic Issue, Approaches to Strategic International HRM.
 QUESTION PAPER PATTERN
SYLLABUS
Maximum Marks: 75
Questions to be Set: 05
Duration: 2 1/2 Hours
All Questions are Compulsory Carrying 15 Marks each.

Question
Particulars Marks
No.
Q-1 Objective Questions 15 Marks
(A) Sub-questions to be asked (10) and to be answered (any 08)
(B) Sub-questions to be asked (10) and to be answered (any 07)
(* Multiple Choice/True or False/Match the Columns/Fill in the Blanks)
Q-2 Full Length Question 15 Marks
OR
Q-2 Full Length Question 15 Marks
Q-3 Full Length Question 15 Marks
OR
Q-3 Full Length Question 15 Marks
Q-4 Full Length Question 15 Marks
OR
Q-4 Full Length Question 15 Marks
Q-5 (A) Theory Questions 08 Marks
(B) Theory Questions 07 Marks
OR
Q-5 Short Notes 15 Marks
To be Asked (05)
To be Answered (03)

Note: Theory question of 15 Marks may be divided into two sub-questions of 7/8 and 10/5 Marks.
 CONTENTS

Sr. No. Modules/Units Page No.

1 Strategic Human Resource Management 1 – 13

Importance of Aligning Human Resources with

2 14 – 23
Strategy

3 HR and Organisational Strategies 24 – 36

4 Human Resource Planning 37 – 48

5 Strategic Recruitment and Selection 49 – 62

6 Strategic Training and Development 63 – 75

7 Performance Appraisal 76 – 92

8 Compensation and Reward Strategy 93 – 117

Managing HR Surplus – Employee Separation and

9 118 – 126
Downsizing

10 HRM Policies 127 – 141

11 Employee Engagement Strategy 142 – 153

12 Contemporary Approaches for HR Evaluation 154 – 168

13 Human Capital Management 169 – 184

14 International Human Resource Management 185 – 196

 C hapter 1
Strategic Human Resource
Management

INTRODUCTION
As the organisations are expanding in an exponential manner, organisation aspires employees
who can synchronise with the changes and develop and design strategies accordingly. To meet up this
objective, we need to adapt to SHRM approach which ensures employees are key.

Meaning and Features of SHRM

Every organisation needs a HR department, which plays a crucial role right from human resource
planning, sourcing the right candidate for right position and so on. In the current scenario, sourcing
has become a nightmare for the HR managers because of more number of employers and the presence
of limited employable talents. Further, the game does not end with sourcing. The employees have to
be retained. Hence, we need to have an ideal motivational and reward system. Only with the presence
of these, we can think of having a high performing team facilitating to achieve the vision of the
organisation.

THE CHANGING ROLE OF STRATEGIC HUMAN RESOURCE

MANAGEMENT
The role of HR has had a significant change from the early 1990. Its no more a mere recruitment
and training development, but plays a vital role in the strategic development of the organisation. It
plays a crucial role in the formulation of policies and structures and implementing it. HR works out the
cost-benefit analysis from every function and figures out the lacunas, if any. Hence, the roles of HR
managers have taken an overall change in the current scenario.
2 Strategic Human Resource Management and HR Policies

Importance of Human Capital

Employees are the institution’s human capital. An institution may invest in infrastructure but
unless we have an excellent human capital, the presence of infrastructure will not serve any purpose.
It is the collective sum of the attributes, life experience, knowledge, inventiveness, energy and
enthusiasm that its people choose to invest in their work. The aim of the institution should be to
explore the human capital and utilise the resources whereby organisation could attain its success.

Objectives of SHRM
The aim of the HR should be to synchronise with the vision and mission of the organisation, else
it would be like two horses pulling the chariot in two different directions. HR should be able to
identify exactly what are the issues. For example, if the attrition rate is high, identify the root cause.
Observe right from recruitment and the entire HR policies. Identify the lacuna and overcome it.
Today’s main issue is HR hardly spends time on investigating rather tries to find quick temporary
solutions. This hampers the system in the long run. Hence, we should try to synchronise with the
vision and mission of the institution and move ahead.

THE PROCESS OF STRATEGIC MANAGEMENT

It is important to understand the process of strategic management, to clearly understand the role
human resources play in strategically directing an organisation. Strategic management is the process of
formulating and implementing strategies that will help in aligning the organisation and its environment
to achieve organisational objectives.
SHRM is an approach where it tries to synchronise with strategic management of the organisation.
This helps the planning and monitoring of the system more effectively and helps to enhance the
efficiency level.
There are five stages in the strategic management process. They are:
 Defining the mission statement
 Analysing the environment
 Organisational self-assessment
 Establishing goals and objectives
 Formulating strategy
Strategic Human Resource Management 3

Organisation Self-
assessment Resources
Environmental
 Financial Goals and
Mission Analysis Strategy
Statement  Physical Objectives
Competition/
 Human
Industry Analysis
Regulations  Technological
Technology  Capital
Market Trends  Management Systems
Economic Trends  Culture
 Structure
 Power
 Decision-making
 Performance
 Work Systems

Fig. 1.1: The Process of Strategic Management

Source: Jeffrey A. Mello, Strategic Human Resource Management, South Western College Publishing, 63.

Defining the Mission Statement

Every organisation should have a mission statement. A mission statement should be viewed as
the guiding principle for an entire business. It should tell a company, its employees, vendors,
customers, investors, the goal of the organisation. Essentially, a mission statement defines a
company’s values and outlines its organisational purpose and reasons for existence. A mission
statement should require little or no explanation, and its length is less important than its power.
Mission statement is usually restricted to two lines, but it encompasses the basic foundation of the
existence of the organisation. For example, the mission statement of Lucent Technologies is, “to
provide customers with the world’s best and most innovative communication systems, products,
technologies and customer support, and to deliver superior, sustained shareowner value.” Thus, a
company’s vision and mission provides guidelines for general decision-making.

Analysing the Environment

This is the second step in the strategic management process. It includes the external environment
such as competitors, market trends, technological changes, government regulations, economic policies,
etc. By analysing the industry structure and the competitive work environment, an organisation can
identify the main competitors and the strategies that have to be framed. Some other factors that need to
be considered are the barriers to entry, opportunities for mergers and acquisitions and the impact of
complementary industries on the company’s products. Government regulations include the preview of
laws that may have an impact on organisational performance. This involves the local laws and
international laws, if the company is operating in the global business environment.
On the technological front, organisations should get themselves acquainted with new
technologies. They should also decide whether they plan to adopt a new technology or invent a new
technology.
While analysing market trends, organisations have to take into account the potential customers,
the target group of customers and the marketing strategies required for targeting new customers. This
stage also requires analysing the demographic, psychographic and other aspects concerned with the
4 Strategic Human Resource Management and HR Policies

consumer’s lifestyles. Economic trends include interest rates, inflation level, fiscal and monetary
policies, GNP and the economic growth of the country.

Stages of the Evolution of Strategy and HRM Integration

Greer (1995) talks about four possible types of linkages between business strategy and the HRM
function/department of an organisation:
The stages of evolution of HR with organisational strategies can be traced to early in 1990s in
India. Prior to this, they were working as separate entities in reality. Hardly any emphasis was laid and
never ever understood the importance of linkages. L&T, Godrej and TVS were some of the
organisations which laid stress on this and was adopted.
It was the time when most of the organisation converted its training and development department
into HRD department and continued to perform the same old functions what were existing. Chennai
Petrochemicals Ltd. located in Chennai was one such company. Though they changed the title,
function remained to be the same. It was in late 1990s they restructured the whole system.
Purcell (1989) presents a two level integration of HRM into the business strategy – “upstream or
first-order decisions” and “downstream or second-order decisions”:

ORIGINS OF THE CONCEPT OF STRATEGIC HRM

The concept of strategic HRM was first coined by Fombrun. He stated that three core elements
are necessary for effective functioning of SHRM. They are:
 Mission and strategy
 Organisation culture
 Human resource management
Every organisation has a strategy to make its vision and mission come through. It is a process
through which an organisation utilises its resources effectively. Though strategies are made up in
many organisations, they at times fail to link with HR. Fomrun stated that HR system and structure
should be well synchronised and congruent with organisational strategy.

Strategic Integration and HR Strategies

The aim of the the whole concept of strategic HRM relies on the belief that HR strategies should
be integrated with business strategies. To facilitate such a scenario, it is vital to ensure that
management initiatives in the field of HRM are consistent with those decisions taken in other
functional areas of the business and consistent with an analysis of the product-market situation.
In other words, there is a need for proper synchronisation.
Only if there exist strategic integration, it facilitates to provide congruence between business and
human resource strategy so that the later supports the accomplishments of the former. The aim is to
provide strategic fit and consistency between the policy goals of HRM and the business.
In most of the organisations when they face with inefficiencies and they try to implement new
strategies with outmoded structures, it hardly gives any result. They rarely attempt to restructure or
redesign new strategies with appropriate HRM systems.
Strategic Human Resource Management 5

HRM is practically concerned with the functions like recruitment, selection, appraisal, training
and rewards which describes the general functions of HRM. In fact, there is relative isolation among
these functions; we can say that HRM has evolved at micro level of the organisation.
Recently, the researches and practitioners in all related disciplines have attempted to utilise
strategy in the firm, which created strategic development and strategic appraisal.
All these create the impact on the HRM which is aligned with the corporate goals and objectives.
Now, the concept of HRM is considered from a micro- to macro-oriented which is more precisely
called SHRM.
In other words, SHRM is the macro-organisational approach to viewing the role and function of
HRM in the larger organisation.
 First-order decisions looks into the issues at the organisation’s mission level and vision
statement; it focuses on the operational issues and tries to overcome any lacunas, if any,
which would in turn effect the overall functioning of the system.
 Second-order decisions focuses on future plans. Here, they compare their organisation with
the global players and analyse where they can excel in the next 3-5 years.
Guest states three levels of integration:
 At the first level, there is a need for “fit” between HR policies and business strategy.
 At level two, there is a need for synchronising between employment practices aimed at
generating employee commitment, flexibility, improved quality and internal coherence
between HR functions.
 Finally, at level three, there is need for “internalisation” of the of integration of HRM and
business strategies by the line managers (also see Legge, 1995).

Organisational Self-assessment
After analysing the external environment, the next step for an organisation would be to assess the
internal environment. This involves identifying the strengths and weaknesses of the organisation, and
working on the strengths to overcome the weaknesses. It also entails analysing the financial, physical,
human, technological and capital resources. Organisational self-assessment is also about
understanding the various components of change like culture, structure, power, the decision-making
process and past strategy and work systems. Let us now discuss the various resources.
 As financial assets are the main assets through which other resources can be acquired, they
have a direct impact on the organisation’s competitive advantage.
 Physical resources include the assets owned by the organisation, such as land, machinery, etc.
The requirement of physical assets vary from industry to industry.
 Human resources include the skill, knowledge and capability of employees that can help
organisations gain competitive advantage.
 Technological resources are the processes the organisation employs to produce goods.
 Organisation should clearly identify the type of technology required for manufacturing the
goods. Irrelevant technology may add up costs for the organisation.
 Intangible resources include brand name and goodwill.
Apart from the above resources, organisations also need to understand the management systems
that guide the day-to-day functioning of the organisation. They include the culture, organisational
6 Strategic Human Resource Management and HR Policies

structure, power dynamics, decision-making process, analysis of the organisation’s past strategy and
present mode of functioning and work systems.
 While assessing culture, an organisation clearly needs to articulate core values and
philosophies that guide day-to-day activities. Hence, for a strategic planning process to be
successful, an organisation needs to clearly communicate the elements of culture to the
employees. Employees should clearly understand the core values that guide the culture of an
organisation as this can have an impact on their performance.
 Organisational structures also have a major impact on the performance. The process through
which the groups and departments interact for accomplishment of the organisational goals can
have an impact on the performance of the employees. Effective organisational structures can
achieve strategic objectives and if poorly structured, can act as an impediment for the
organisation.
 Power dynamics and politics in the organisation can hinder work, if people at any level
misuse their power and authority.
 Decision-making constitutes an important process in an organisation that looks into aspects
like the people who are involved in the decision-making process, the method of information
collection, the time span of the decision-making process, and the credibility of the sources of
information. By analysing the results of the decision-making process, an organisation can
decide whether it is contributing to the overall performance or whether it is inhibiting
performance.
 An important part of organisational self-assessment is analysis of a past strategy that helps
identify the loopholes and find out why a particular strategy was not successful.
 Work system design is an other important part of internal assessment. Work systems are
concerned with the design of the jobs and the responsibilities that have to be assigned to the
employees. When designing work systems, an organisation has to decide whether the job is
suitable for the employee or not.
All the above-mentioned components of management systems are important for the assessment of
an organisation’s internal environment.

Objectives and Roles of SHRM

After an organisation has assessed the internal and external environment, it has to set its goals
and objectives. These goals and objectives should be specific, flexible and measurable, because of the
changing business environments and the influences of the external environment. Setting goals under
strict regulations is impractical, especially when a business is operating in highly volatile conditions.

Formulating Strategy
The final step in the strategic management process is formulating the strategy and deciding on the
implementation. The strategy that a company plans to implement has to be in alignment with the
human resource strategy. This helps in developing a consistent set of policies and programmes and
helps the employees to achieve organisational objectives.
There are five important variables that determine the success of strategy. They are: organisational
structure, task design, employee training, reward system and information system. These five factors
highlight the importance of HR in strategy implementation. Therefore, it becomes more important to
align HR with the strategic goals of an organisation. Another important change in the HR perspective
Strategic Human Resource Management 7

is the trend towards customer orientation. Employees are trained to provide effective customer
services. The HR function has to ensure that the company has a large number of employees with the
desired skills. Effective control systems should be developed to align employee goals with the goals of
the organisation. Tasks have to be grouped into jobs so that the performance is more effective and
strategy is more successful.
Strategy formulation usually takes place with the involvement of the top management. HR and
strategic management process can be linked in four ways – administrative linkages, one-way linkages,
two-way linkages and integrative linkages.
Administrative linkage is the linkage where the HR executive has very little time in the strategic
planning process. Therefore, there exists very little alignment between the HR department and
strategic management. The HR department in this linkage handles mostly administrative work that is
restricted to the company’s core business needs. The strategic goals of the organisation are not
included at this level.
In one-way linkage, the HR department is given the plan after it has been developed by the firm’s
strategic business planning function. The HR department does not form a part of the plan design team.
Two-way linkages make HR a part of the strategic formulation plan team. There are three steps in
two-way linkages:
 First, the strategic planning department brings to the notice of the HR department the various
strategies that the company plans to consider.
 Second, the HR department analyses the strategies and presents the results of the analysis to
the strategic planning department.
 Finally, the HR department develops programmes and implements these strategies. In two-
way linkages, the strategic planning units and HR are interdependent.
Integrative linkage is most effective in strategy formulation and involves the HR manager in the
formulation and implementation of the strategy. In this linkage, HR functions are integrated into the
formulation and implementation of the strategy. This is the enterprising link as compared to other
linkages as it incorporates related to people issues in strategy formulation.

VALUE CHAIN ANALYSIS

Competitive advantage of an organisation depends on the way the organisation performs as a unit
and the way in which the various functions of the organisation are integrated. Value chain analysis
helps in studying the various activities – direct and support activities of an organisation. The value
chain developed by Michael Porter has five primary activities – inbound logistics, operations,
outbound logistics, marketing and sales, and service (Refer Figure 1.2). These activities are linked to
four support activities – procurement, technology development, firm’s infrastructure and human
resource management. All the above-mentioned primary and support activities incur costs and hence,
the organisation must ensure that they add value to the company’s product or service. Let us first
discuss each of the primary activities:
8 Strategic Human Resource Management and HR Policies

Firm Infrastructure
Human Resource Management
Support
Activities Technology Development

Procurement

Margin
Inbound Outbound Marketing
Operations Service
Logistics Logistics and Sales

Primary
Activities
Fig. 1.2: The Value Chain
Source: Michael E. Porter, The Competitive Advantage of Nations (The Free Press,) 41.
Inbound logistics are activities related to receiving, storing and distributing raw materials
required for manufacturing of the products, internally. Inbound logistics include warehousing, internal
stock control and internal transportation.
Operations refers to the directive and control of the processes that transforms inputs into finished
goods and services. Outbound logistics relates to the distribution of finished goods and services to the
customers. Marketing and sales are about advertising, promotion and sales force activities. Finally;
service means providing the necessary after-sales service of the product or training related to the use
of the product. Let us now look at the support activities:
Procurement means purchasing the inputs required for manufacturing of the products and
making sure that all the departments receive the products at the right time.
Technology development refers to the utilisation of the right technologies and methods for
manufacturing the products.
The next support activity is human resource management that involves recruiting, training and
motivating employees to accomplish the goals of the organisation.
Finally, infrastructure includes the structure of the organisation, planning, financial controls and
quality management designed to support the whole of the value chain. Porter’s value chain activities
do not act independently. They are interlinked and actions in one department can affect the activities
of the organisation as a whole. If a firm wants to gain a competitive advantage, it has to have a good
understanding of linkages and has to align all these activities properly.

Role of SHRM as a Support Function in Value Chain Analysis

Human resources as a support function of the value chain has gained considerable significance
because of the interrelationship with the other departments of the organisation. All HR activities
including recruitment, training, development and rewarding are now linked to the strategic goals of the
organisation. Strategy to be successful needs the full support of employees. Particularly during
mergers and acquisitions, if people are not ready to accept the changes then the organisation may not
be able to implement the strategies effectively. As a support function in the value chain, HRM will
Strategic Human Resource Management 9

provide for the integration of all management work by creating equal opportunities for employees.
New organisational structures are emerging with greater flexibility and responsiveness to changes.
Work teams have emerged and the focus now is more on empowerment, autonomy of work processes
and the ability of an individual to adjust to the changing business environment. Thus, the HR
department plays an important role in the value chain, as it integrates itself with technology,
infrastructure and other functions of the value chain.

ADVANTAGES AND CHALLENGES OF SHRM

Organisational effectiveness will depend on how far and how good we are able to synchronise the
system. The information age has made knowledge the most important organisational resource.
Company, regardless of its size, industry or location faces five challenges with respect to HR They are:
 Global business environment
 Profitability through growth
 Technology
 Intellectual capital
 Adaptability

Global Business Environment

In a global business environment, a manager is confronted with the task of managing a diverse
workforce and the complexity of diverse cultures. At the same time, he has to increase the
effectiveness of the workforce so that they adapt well to the global work environment. The global
business environment, also, requires HRM to gain insights about the laws and structures of the
countries it is operating in.

Profitability through Growth

Organisations, today, have to have the capability to attract and retain customers, in order to be
profitable. HRM is becoming more and more customer-oriented. Managers and employees are being
constantly reoriented towards customer satisfaction. Training in quality and productivity is intense and
obligatory in most successful companies. Quality is recognised and rewarded. Quality circles,
multifunctional groups, autonomous teams, task forces and committees are widely encouraged.
Companies encourage creativity and innovation and free flow of ideas among the employees. All these
factors help companies to gain a competitive advantage, whereby they can achieve growth.

Technology
The biggest challenge for today’s managers is how best they can utilise the available technology.
Technology has made it easy for managers to communicate with employees and top management with
the help of teleconferencing, video conferencing and the internet. Managers should know how best
they can utilise this technology.

Intellectual Capital
Knowledge has unseated capital as most important organisational resource and as the unlimited
and fundamental ingredient for success. Knowledge has become a tool of competitive advantage for
10 Strategic Human Resource Management and HR Policies

organisations. Therefore, companies seeking growth should attract, develop and retain individuals who
can add value to the organisation.

Adaptability
This is one of the most difficult challenges that companies face when they embrace change. The
leader has to persuade employees to adjust to these changing circumstances. Apart from these
challenges, HR also faces other challenges in its involvement in the strategy formulation and
execution which are discussed in later chapters.

KEY ELEMENTS OF HR
In an high performing organisation, four key elements of HR are focused on beyond the basic HR
rules and regulations. In high-performance companies, each element of the HR system is designed to
reflect best practice and to maximise employee performance. These components are closely knit and
aligned with organisation’s goals.

Selection and
Placement

Diversity Key HR Job

Management Elements
Design

Compensation
and
Rewards

Fig. 1.3: Key HR Elements

Selection and Placement

It is said that selection and placement plays a vital role the organisation’s success. HR should
invest maximum time and give maximum priority for this. Right candidate is an asset for the
organisation and would pave for organisation’s performance. Selecting the candidate is the first part,
but grooming them to the organisational mindset depends on the way how we orient them.
Behavioural competencies are the cornerstone for any organisation’s success.

Job Design
The success of an organisation depends on how well the organisation is able to design its job
whereby employees are able to work with nil stress. This creates a conducive working environment.
Ergonomics should be kept in mind while designing the job.
Strategic Human Resource Management 11

Compensation and Rewards

As it is said, profit is the reward for risk taken and compensation is commensurate the potential
applied by the potential candidate. If there is a mismatch between the work done and compensation
and rewards, or in other words, inequality, then it would lead to employee dissatisfaction. Hence, HR
should ensure that they are able to maintain a descent salary whereby employees feel motivated.

Diversity Management
In today’s world, business operations are getting global. We cannot anymore confine our
operations to geographical boundaries. . At the same time, we are sourcing potentials from across the
globe, people with different culture and age group. Managing this diversity is be biggest challenges of
HR. T-Group training plays a crucial role in overcoming these hurdles. Employees should be able to
adapt to different scenarios. We have to raise the level of emotional intelligence of the employees to
overcome this.

SUMMARY
In today’s global scenario, HR is the cornerstone of any organisation irrespective of its size.
Right from manpower planning, sourcing, training and development, compensation and rewards
management. Unless these are managed, we cannot run an organisation and attain productivity.

QUESTIONS
1. Explain the importance of HRM.
2. “People as Strategic Assets.” Discuss.
3. Explain the process of Strategic Management.
4. What are the challenges of SHRM?
5. Explain the key elements of HR.
Fill in the Blanks
1. ________________ presents a two-level integration of HRM into the business strategy –
“upstream or first-order decisions” and “downstream or second-order decisions”
2. Michael Porter has five primary activities – inbound logistics, ______________, outbound
logistics, marketing, and ______________.
3. ______________ and ______________ in the organisation can hinder work, if people at any
level misuse their power and authority.
4. After an organisation has assessed the ______________, it has to set its goals and objectives.
5. The final step in the strategic management process is formulating the ______________ and
deciding on the implementation.
Ans.: 1. Purcell, 2. operations, sales and service 3. Power dynamics, politics, 4. internal and external
environment, 5. strategy
True or False
1. Every organisation should have a mission statement.
2. On the technological front, organisations need not get themselves acquainted with new
technologies.
12 Strategic Human Resource Management and HR Policies

3. Guest (1987) proposes integration at three levels

4. The HR function has to ensure that the company has a large number of employees with the
desired skills.
5. Analysing environment is not the second step in strategic management process.
Ans.: 1. True, 2. False, 3. True, 4. True, 5. False
Multiple Choice Questions
1. Human resource management is:
(a) an entirely new approach to managing people
(b) another name for personnel management
(c) the same as human capital management
(d) a perspective on personnel management
2. The matching model of HRM:
(a) links HRM with personnel management
(b) emphasises that HRM systems should be integrated with organisational strategy
(c) suggests that HR policies should be matched with the interests of both management and
employees
(d) focuses on the need to gain the commitment of employees
3. The most common criticism of HRM is that:
(a) it is manipulative
(b) it is more concerned with business performance than people
(c) it treats people as mere factors of production
(d) it promises more than it delivers
4. Which of the following comments about HRM is the most perceptive?
(a) ‘A wide and contradictory variety of regenerative initiatives have been introduced under
the name of HRM and force-fed to a battered, bewildered and defensive workforce and a
newly confident management.’ (Keenoy and Anthony, 1992)
(b) ‘The heralded outcomes (of HRM) are almost always unrealistically high.’ (Mabey et al,
1998)
(c) ‘At the heart of the (HRM) concept is the complete identification of employees with the
aims of the business – employee involvement but on the company’s terms.’ (Fowler,
1987)
(d) ‘HRM is too important to be left to personnel managers.’ (Guest, 1991)
5. The purpose of HR policy is to:
(a) provide guidelines on how things relating to people should be done
(b) provide the basis for HR strategy
(c) set out the procedures to be used in dealing with HR
(d) keep people informed about what the organisation is doing about HRM
Ans.: 1. (d), 2. (b), 3. (b), 4. (d), 5. (a)
Strategic Human Resource Management 13

CASE STUDY 1 : SHRM AT WELLAND WATER

Welland Water is a large water company which, as pointed out by the Managing Director,
operates ‘in a monopolistic situation, providing a service that is absolutely fundamental to life’. But he
also stated that: ‘we recognise that our organisation must not abuse that situation and that we must
implant in the company values that would be appropriate in a competitive environment’. He went on
to say that: ‘the critical success factor which allows all this to happen is the level of employee
satisfaction and commitment we have, because without that we can’t achieve any of the other things.
And we know about this because we get consultants to carry out periodic employee surveys which we
discuss with everyone. The only human resource strategy you really need is the tangible expression of
values and the implementation of values… unless you get the human resource values right you can
forget all the rest.’
The approach to developing HR strategy was described by the Head of HR as follows:
In our original HR strategy, we tried to encompass the emerging values and principles that we felt
should determine how we should conduct our business in terms of people. HR strategies come from
the ideas we share together and the problems and issues that managers are working on… It is very
much a team effort, working with line colleagues in whatever they do… I use the intranet to flash
ideas round to groups of managers, and thus build up draft policy papers. The intranet is a very
powerful device for getting ideas back rapidly.

Question:
1. Comment on the approach to HR strategy adopted at Welland Water. What lessons can be
learnt from this?

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