Strategic Management and HRM

Spurred on by increasing competition, fast-paced technological change, globalization, and other factors, businesses are seeking to understand how one of the last truly competitive resources, their human resources, can be managed for competitive advantage. This idea that the human resources of a firm can play a strategic role in the success of an organization has led to the formation of a field of research often referred to as strategic human resource management (SHRM).

Earlier view of strategy was defined by various works till Porter gave the five forces model for competitive strategy. Bulk of this work focussed on external factors that defined company’s profitability. With the advent of resource based view this changed. The resource-based view suggested that firms should look inward to their resources, both physical and intellectual, for sources of competitive advantage. VRIO framework was defined for strategic resources. RBV (Resource Based View) has also been criticised a few times but has significantly contributed to SHRM.

SHRM states that the firm’s HR should be aligned to its strategies also called vertical alignment. Alignment of HR sub functions with each other is termed as horizontal alignment. RBV has given importance to human resources as strategic resources for competitive advantage.

Testing of RBV with SHRM has been done with respect to HR practices affecting the motivation and human capital and in turn affecting the operational efficiency of the firm. Human capital in terms of knowledge and skills. Three important components of HRM which constitute a resource of the firm are; human capital stock, flow of human capital through the firm (movement of people as well as their knowledge) and the dynamic processes through which organizations change and/or renew themselves.

Firms HR practices and fit

The resource-based application to SHRM requires focusing on a fit between the skills and behaviours of employees that are best suited to the firm’s strategy. Any fit to firm strategy must first consider the kinds of employee behaviour (e.g. experimentation and discovery) required to successfully execute the strategy (e.g. focused on offering innovative products), and the kinds of skills necessary to exhibit those behaviours (e.g. scientific knowledge).

For instance, within Wal-Mart, those in charge of logistics have extremely valuable and unique skills, much more so than the average sales associate. On the other hand, at Nordstrom’s, because customer service is important, sales associate skills are more critical to the strategy than those of the logistics employees. One would expect that firms focused on low cost might not pay the same level of wages and benefits as firms focused on innovation or customer service.

Horizontal fits are those such as HR practices of recruitment and selection giving more focus on team playing capabilities.

Pitfalls of fit

Empirical evidence related to fit is concern and in the long term it is not sure that this positive effect will continue. A tight fit may not be useful in times of organisational change. Moreover large number of organisations operate in complex environment in which applying a fit of HR practices to the strategy may not be possible or easy. Sometimes there is a trade-off between a fit to environment and fit to strategy.

SHRM and sustainability

Unique historical condition and social complexity of resources make it non imitable and rare. HR systems are built and developed over time and hence difficult to replicate for most of the firms. Contribution to firm’s competitive advantage by HR system is sufficiently ambiguous and hence most firms will find it difficult to apply to their own. It is socially complex and variant and hence strategically sustainable for any firm over a period of time.

Key Unanswered questions

There is not much empirical test done on the application of SHRM and its efficacy on organisations competitive advantage as well as operational efficiency. Reduction of complexity while testing different HRM models is required by dissecting organisational studies into departmental studies. This will help in studying the fit effectively.

Expanding the role of HRM

SHRM has been traditionally related to implementation of strategy. A further extension of it can be to strategy formulation. Studying empirically how different aspects of HR systems and practices affect the firm’s performance and how these can be considered as dependent and moderating variables rather than just the independent variable to measure the firm’s advantage, is going to be the next phase of SHRM study. For instance, IBM’s strong HR processes/competencies led it into the business of offering outsourced HR services. This was an internal resource that was extended into a new product line, and illustrates how an understanding of such resources can influence strategic direction. Several other theories like “learning objectives”, “real option theory” etc. can be combined with SHRM in future studies to broaden the lens.

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गुड्डू रंगीला 

Knowledge Partner

Charcha Kendra