Strategic Human Resource

© Oxford University Press, 2018. All rights reserved.

Bailey, Mankin, Kelliher, and Garavan

Strategic Human Resource Management

Chapter 3: Strategic management and strategic human resource management

Bailey, Mankin, Kelliher, and Garavan

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Bailey et al: Strategic Human Resource Management 2e

Learning objectives

By the end of this session you will be able to:

• Define and evaluate the concept of strategy, strategic management, and competitive advantage, and appreciate the contribution that strategy can make to performance.
• Evaluate the origins of strategy and how perspectives on strategy have changed over time.
• Evaluate the classical perspective on strategy and how it differs from alternative views.
• Explain different levels of strategy within an organization and their implications for HRM.
• Critically evaluate the link between strategy and HRM.

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What is strategy?

• Strategy is a multidimensional concept and it can be both planned and emergent in organizations.
• Planned strategy is developed based on a well-structured process consisting of two separate steps.

1) Goals are deduced from a vision and then a strategy is planned.

2) The strategy is implemented through the organization so as to achieve these goals.

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What is strategy?

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• This concept refers to strategy that emerges out of practices within an organization in a bottom up o undirected way. Strategic decision making is viewed as an ongoing and rather inductive change process.
• (Neugebauer et al 2016)

Emergent strategy

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What is strategy?

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A CEO perspective on strategy

“Look, what is strategy but resource allocation? When you strip away all the noise, that’s what it comes down to. Strategy means making clear-cut choices about how to compete. You can not be everything to everybody, no matter what the size of your business or how deep its pockets” (Welch, 2005: 169) (Jack Welch, former CEO of GE)

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Bailey et al: Strategic Human Resource Management 2e

A CEO perspective on strategy

“Look, what is strategy but resource allocation? When you strip away all the noise, that’s what it comes down to. Strategy means making clear-cut choices about how to compete. You can not be everything to everybody, no matter what the size of your business or how deep its pockets” (Welch, 2005: 169) (Jack Welch, former CEO of GE)

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Generic perspectives on strategy

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Strategic management

• Strategic management is the process which enables organizations to turn strategic intent into action.
• It comprises four phases: analysis, selection, implementation and review.
• These phases are inextricably linked.
• Each phase represents a different aspect of an organization’s business and competitive strategies.

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Business and competitive strategies

• Business strategy sets out an organization’s strategic scope or direction; essentially, the markets it wants to compete in (Grant, 2010).
• It is important to note that business strategy is often referred to as corporate strategy.
• Competitive strategy is about how an organization will compete in those markets.

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Competitive strategy

“A company’s competitive strategy provides a kind of template for day-to-day business decisions but is not itself subject to short-term alteration...the template provides a framework for engaging in the market and guiding operational decisions. It sets forward a view on how best to compete over the next three, five, or even ten years” (Cappelli et al, 2010: 118).

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The five stages of strategic management phases

Mission and goals

Environmental analysis

Strategy formulation

Strategy implementation

Strategy evaluation

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Five stages of strategic management

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• The first step in the process focuses on senior managers articulating the organization’s mission, vision, and goals. These should convey the core vales and aspirations. It conveys the direction that senior management would like to take to achieve specific goals. (Example: “Morrisons: To be the food specialist for everyone”)

Mission and goals

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• The second stage focuses on both internal organizational strengths and weaknesses, alongside environmental opportunities and threats. External sources include economic forecasts, market trends, technological changes, labour market, demographic trends, government initiatives.
• Internal data include business processes, performance metrics, staffing and skill levels, financial data, attitude surveys etc.

Environmental analysis

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• This stage is composed of evaluation of the internal and external context and the making of strategic choices to realize goals. It is critical that the organization’s sources of competitive advantage are correctly identified. Innovating new products/services, quality, branding, on time delivery, customer service are all examples of potential performative advantage

Strategy formation

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• The next stage takes into consideration issues such as strategic leadership the fit of culture and structure with strategy, the allocation of human resources and the development of control systems to monitor the implementation of processes. Most strategies fail at this stage, it is not possible to plan for every possible contingency. Intended strategies occasionally give way to new emergent strategies at this stage

Strategy implementation

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• The last stage focuses on activities that determine the effectiveness of strategy implementation and whether the performance gains anticipated are realized. Many organizations use the balanced scorecard to measure the effectiveness of their strategies. The balanced scorecard is intended to encourage organizations to move away from a short term reliance on financial measures by focusing in on four areas.

Strategy evaluation

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These four areas are:

Financial

Internal business processes

Learning and growth

Customer

Strategy evaluation

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Competitive advantage

• The aim of competitive strategy is to acquire or sustain competitive advantage.
• A common strategy is to be less expensive than competitors.
• Other strategies include differentiation, innovating new products and/or services, and occasional cost promotions to undercut competitors for short periods.

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• Market-based view
• Resource-based view
• Knowledge-based view
• These perspectives have shifted over time, with knowledge-based perspectives being the dominant paradigm of understanding competition today.

Theoretical perspectives on competitive advantage

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• This proposes that industry factors and externa market characteristics are the primary determinant of competitive performance.

Market-based view

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• This perspective argues that competitive advantage is determined by a firm’s internal environment and emphasizes the resources that firms develop to compete in the external environment.

Resource-based view

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• This perspective considers knowledge to have special characteristics that make it the most important and valuable resource. A seminal piece of literature on this, Zack (1999) characterized organizational knowledge into three categories:

Core

Advanced

Innovative

Knowledge-based view

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• Core knowledge represents basic knowledge and offers short term market advantages.
• Advanced knowledge provides organizations with knowledge similar to that of its competitors and like core knowledge it offers only short term competitive advantage.
• Innovative knowledge provides a firm with competitive advantage over the long term.

Knowledge-based view

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The classical approach to strategy emphasizes a top down, rational approach and has a number of key themes:

• Long-term direction
• Sustained competitive advantage
• Scope
• Matching
• Operational implementation
• Values and expectations

Classical vs alternative perspectives on strategy

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• Long-term direction: strategy is concerned with establishing a long-term direction that is pursued with commitment and resources.
• Sustained competitive advantage means that strategy is about the development of new products/services or the provision of better value than competitors.

Classical perspective themes

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• Scope. This focuses on what types of activity the organization will engage in to remain competitive. It will be reflected in the portfolio of activities that it will maintain to achieve success and ensure higher profit margins
• Matching has as its central focus the alignment of internal resources and capabilities with the external environment to achieve a strong strategic fit.

Classical perspective themes

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• Operational implementation. Classical strategy models acknowledge that strategic decisions have important operational implications.
• Values and expectations. The values and expectations of organizational decision makers are central to the strategy process. Their interpretations of both external and internal resources will influence the strategic decisions they make.

Classical perspective themes

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• Emphasize the role of policies, consensus and emergent forms of strategy such as:

Evolutionary (profit maximizing, emerging) strategy in the scenario is conceptualized as the outcome of market forces. So strategy evolves as a result of engaging with environment. It is about adapting/changing.

Alternative models of strategy

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• Processual (Pluralist, emergent) this perspective emphasizes that strategy emerges through a process of discussion and engagement by managers in conflicts and disagreements about strategy.

Alternative models of strategy

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Strategic alignment

• Strategic alignment is critical to competitive advantage.
• It combines strategic and operational practices in such a way that both levels are in effect intertwined.

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Strategic alignment comprises two elements:

• Vertical strategic alignment which is the process by which HR strategy, policies and plans are aligned with an organization’s strategic goals and objectives.
• Horizontal strategic alignment which is the process by which functional strategies, policies, plans and practices are aligned with each other.

Strategic alignment

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International trends

• To date the literature on strategic management has been dominated by Western perspectives.
• This dominance is now being challenged as new indigenous business models emerge from developing nations such as China and India.
• “Many companies have relied on their strategies for developed markets to operate in the country. For most this has failed, and they have been forced to revise plans to take into account the idiosyncrasies of the Chinese market” (Torrens, 2010:1).

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• Strategy involves the achievement of superior performance, change, and strategic choices.
• Strategic management comprises five stages or phases: mission, vision and strategy, environmental analysis, strategic formulation, strategy implementation, and evaluation.
• The classical approach to strategy emphasizes rational, top-down analysis.
• Alternative approaches emphasize the role of policies, consensus, and emergent approaches to strategy formulation.

Summary

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• Strategic HRM is founded in the notion of a relationship between strategy and HRM. This relationship involves elements of vertical and horizontal fit.
• Human capital, transfigurations of human resources, HR practices and policies, and organizational culture can be viewed as sources of competitive advantage.

Summary contd.

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• The dominant discourse on strategy is a Western one, but the changing nature of the global economy and the emergence of developing economies such as India, China, and Brazil challenge taken-for-granted approaches to strategic management.

Summary contd.

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