HRM practices

1. The return on investing in the subsystems (staffing, training, etc.) can often exceed the return associated with investing in other areas of the business.

2. Highly motivated workers at the upper ends of certain knowledge–skill distributions are rare.

3. The overall HR system is very difficult to replicate in another company. 4. High-level managerial, entrepreneurial, professional, and technical employees are not easily replaced with machines and emerging information technology.

We see the need for congruence between a firm’s behavioral/role requirements and HRM practices as self-evident. But the call for congruence between strategy and HRM should be viewed with caution and a demand for explanation. Be critical of the consultant or HR executive who continually talks about linking business strategy and HRM strategy. Is there such a thing as corporate-wide HRM strategy? We think not, and we conclude this chapter with some reflections on why we hold this view.

Corporate HR Philosophy or Companywide HR Standards

It has become commonplace for a company’s core values, or HR philosophy, to be presented in a written list of HR standards. Some may go so far as to label such a list as a statement of a firm’s HRM strategy. A few elements from a well-known accounting firm’s 10-item list of HR standards are used here to illustrate and critique the notion that lists of this type in some way provide strategic direction to a firm’s HR practices.

The first element reads something like this:

Recruit people with superior character, talent, and the capacity for significant growth.

This statement does provide some minimal direction for HR policy, but its generality reduces its usefulness. Few companies would base policy on a commitment to seek inferior employees not possessing the potential to learn and grow. This statement sounds good, but we don’t think it is a very interesting or useful guideline.

Another example of a “standard” that does not offer much guidance reads as follows:

Provide appropriate development opportunities that allow all employees to fully utilize their capacity for growth.

Once again, few companies would advocate the use of inappropriate assignments and developmental opportunities. While other elements in this company’s list—such as sharing information and respecting the multiple commitments and interests of employees—do shape HR policy, this and other “statements of corporate HR philosophy” often fail to provide much guidance because many of the same elements repeatedly appear across firms and there are no meaningful alternatives to the elements as stated.

“Strategy,” at least at the tactical level, can and should vary across organizational levels and occupational types within a particular firm. Yet, the notion of a corporate HRM strategy seems to fail to take this possibility into account. We agree with Napier, who repeatedly points out that the approach to selection or pay for many firms will vary as a function of whether the worker is a line worker, middle manager, or so on.24 If it is appropriate to call this “role-contingent HRM” a type of corporate HRM strategy, we would advocate it over the practice of corporate HRM strategy that makes no or few allowances for intra-organizational work role differences.

Beware of the Direct Business Strategy–HRM Connection

Many strategy classification schemes have been described as starting points for the formulation of HRM strategy (Napier, 1996). Some of the more popular include:

Miles and Snow (1978) defenders, prospectors, and analyzers Rumelt (1974)a product-diversity based scheme Porter (1981)cost leaders, focus firms, and differentiators

These typologies can serve many useful purposes—but we do not think it is useful or appropriate to move directly from a statement of firm type to a formulation of HR policy. Whereas general classification schemes may provide limited guidance when a general HRM orientation is planned, the notion of a direct link masks a complex reality: Role requirements vary across organizational levels and occupational types, even within the same organization. There simply is no substitute for the careful consideration of multiple role requirements when addressing issues related to HR practice and policy.

Perhaps a more useful approach to strategy formulation can be found at the level of business unit or tactical strategy. Although not all companies are attempting to grow (in declining or mature markets, for example, a divestment or liquidation strategy may be most appropriate), growth strategies are very commonplace. But companies attempt to grow market share in different ways. For example, Aaker distinguishes between firms that grow by (1) developing products for existing markets, (2) expanding markets for existing products, and (3) following vertical integration strategies.25 These are all “growth” strategies, but they are likely to have different implications for the design and delivery of HR systems. If we use this framework and review the Compaq Computer discussion of Chapter 1, we might decide that Compaq, in the mid-1990s, was following a “product development for the existing market” tactical strategy. This was accomplished through the use of product-feature or product-line expansion. Recall that in July 1996, the computer maker announced that it would target home computer users in all market segments, introducing five new computer lines, ranging from scaled- down models to full-option laptops and multimedia machines.

However, even when we are able to be reasonably specific about a company’s specific or tactical strategy, we do not have enough information to move to very useful prescriptions about HR system design and delivery. The critical step required to link business strategy with HR system design is the careful review of role requirements. Human resource management practices that encourage team member cooperation, flexibility, and the continuous improvement of manufacturing processes (work roles required by Compaq’s assembly cells) may not be called for in all areas of the business. Customer service employees, advertising and marketing specialists, and research scientists and engineers play unique roles that may call for unique HRM solutions.

HRM Leading Strategy Formulation

Finally, HRM can play a role in strategy formulation. But it is not so much that HR system characteristics inform the strategy formulation process as it is that knowledge about internal and external labor-market conditions in- forms this process. German auto manufacturers built assembly plants in the United States partly to have access to low-cost labor (relative to labor costs in Germany).

When Compaq aggressively followed its product-line expansion strategy, its earlier experiences and successes with flexible assembly-cell manufacturing techniques in all likelihood contributed to the decision to pursue such a strategic policy. By providing information about contextual factors (e.g., the costs and quality associated with local labor markets) and about the organizational capability to implement a strategic plan, HRM informs the strategy formulation process.

CONCLUSION

In this chapter we have developed further ideas about how sound HRM practice can add value to the firm and serve as a source of sustained competitive advantage. We frequently hear from HR executives and consultants that the HR function needs to be aligned with business strategy and that HR professionals need to become business partners at the strategic level. One important role for the general manager is that of informed consumer of HR-oriented practices and policies. The general manager as an in- formed consumer should demand a logical and systematic approach from those providing HR services. Competent HR professionals should be able to show that their prescribed investments in human capital will generate a reasonable rate of return, and that their prescribed changes will be compatible with other HR practices and with the technological and strategic changes taking place within and outside the firm.

We have attempted to provide a rationale for how business strategy and technology influence the design of HR systems and how HR professionals can contribute to and inform the process of strategic decision making. We see no simple rules or templates that can be used to formulate HR systems by considering a firm’s strategic direction and core values. The connection comes by way of the behavioral/role requirements associated with job and occupational clusters.