Models of strategic HRM

Contest between-• The ‘best fit’ school: HR strategy will be more

effective when it is appropriately integrated with its specific organizational and broader environmental context

• The ‘best practice’ school: all firms will be better off if they identify and adopt best practice in the way they manage people: advocates universalism

‘Best Fit’ (Contingency) School of Strategic HRM

• External Fit (Vertical Fit): HR activities should fit the organization’s stage of development/competitive strategy.

• Internal Fit (Horizontal Fit): Individual HR policies are designed to ‘fit with and support each other’

‘BEST FIT’: Linking HR practices to competitive

strategy: Miles and Snow Model (1984)

PROSPECTORS

• Continually search for product and market opportunities

• Compete through innovation and prime mover advantages

• Efficiency is much lower priority

DEFENDERS

• Narrow and relatively stable product-market domains.

• Limited product line

• Strong efficiencies

ANALYZERS

• Have some stable operations.

• Also keep a lookout for opportunities to emulate creative rivals through fast follower strategies

Generic Strategies for HRMMiles and Snow (1984)

• Growth-prospector-high tech entrepreneurial strategies– Requires creative, innovative and risk taking behavior

• Mature-defender-cost efficiency strategies– Requires repetitive, predictable and carefully specified efficient

behavior

• Analyser-stable-follower strategies– Focus on predictable and efficient behavior but also ‘fast

follower ship’

Prospectors

• Recruit at all levels.• Assess people based on results• Tend to look to the long term for success• Performance incentives serve as the basis for

compensation which is based on external competitiveness.

• Bonus, profit sharing and stock options are common, base salaries are modest.

Defenders• Recruit primarily at the entry level and promote from

within• Assess people based on the process, emphasize on doing

things the right way.• Focus on quantifiable short term results.• Compensation is based on hierarchical wage structures

determined by job evaluation and internal equity• Length of service, loyalty and other traits are rewarded

rather than performance.• Financial incentives may be present but tend to be

available only to a few select employee groups.• Oftentimes, retrenchment and restructuring strategies

resulting in layoffs and reduction in force occur.

Analysers

• Emphasis on recruitment and also on internal training and development.

• Performance appraisal mostly process oriented

• Pay policies concerned with both internal equity and external competitiveness

‘BEST FIT’: Schuler and Jackson’s Model (1987)

• Company mission and values• Desired competitive strategy

– Cost leadership, differentiation or focus

• Required employee behaviors – Predictability, teamwork, quality focus, risk taking etc.

• Supportive HR Practices– Staffing, appraisal, remuneration, training etc

• HR outcomes– Employee behavior aligned with company goals

Schuler and Jackson’s Model

• Differentiation – Selection of highly skilled individuals– More discretion to employees– Minimal controls– Greater investment in HR– Allowing and even rewarding failures– More resources for experimentation– Appraisal on long-run implications

Schuler and Jackson’s Model

• Cost Leadership– Fairly repetitive jobs– As little training as practical– Cutting staff numbers to minimum– Rewarding high output and predictable

behavior

External Fit: Theoretical Critique

• Overlooks Employee interests (issues of social norms, legal requirements, motivation). How does the firm fit for the potential employee?

• Lack of sophistication in the description of competitive strategy: Most resilient firms are superb ‘all rounders’: In an environment of strategic ambiguity and rivalry, it is desirable to build a management team which can think beyond its current competitive posture

• Sometimes, the job (managerial or non-managerial) has more influence on some HRM practices than firm strategy.

• Most firms prefer internal recruitment and have similar selection or appraisal criteria.

• A more helpful model is one in which fit with existing competitive strategy is developed simultaneously with flexibility in the range of skills and behaviors that may be needed to cope with different competitive scenarios in the future.

Internal Fit

• Internal coherence of HR policies and practices– Single Employee Consistency - Avoiding ‘deadly

combinations’ – Among Employee Consistency – across employees

doing the same kind of work– Temporal Consistency – across a reasonable period of

time

• Critique: Management increasingly needs a blend of ‘forcing’ and ‘fostering’ behavior as it renews the firm

Evolution of ‘Best Fit’

• It is helpful to see business strategy as a configuration or ‘gestalt’ of critical interdependent elements. These elements include competitive strategy (sectoral choice and desired position), operations strategy (suitable supplies, technology and methods) and appropriate strategies for finance and human resources.

Best Practice Models (AMO)

Jeffrey Pfeffer’s list of 16 practices for ‘competitive advantage through people’

Employment Security, Selectivity in recruiting, High Wages, Incentive Pay, Employee Ownership, Information Sharing, Participation and Empowerment, Teams and Job Redesign, Training and skill development, Cross-utilization and cross-training, Symbolic egalitarianism, Wage compression, Promotion from within, Long term perspective, Measurement of the practices, Overarching philosophy

Best Practices-Theoretical Critique

• Lists of desirable practices vary significantly• Best practice definitions are silent on the collective issues

of work organization and employee voice. • Pfeffer’s lists of key practices seem to lack a strong

commitment to independent worker representation and joint regulation

• Practices seem to become ends in themselves, apparently disconnected from the company’s goals in its specific context

• Divergent interests are represented in firms.• Labour laws vary from country to country• There are national variations in cultural practices and

management styles.

Best Practices-Theoretical Critique

• Considerations of cost effectiveness: High commitment HR practices are most popular in sectors where quality is a major competitive factor and where firms need to exploit advanced technology or engage in highly skilled interaction with clients. Employers adopt more modest employment policies in other sectors where output per employee in not high

• BOTH GENERAL PRINCIPLES AND SPECIFIC CONTEXTS PLAY AN IMPORTANT ROLE IN THE THEORY AND PRACTICE OF STRATEGIC HRM

Edith Penrose (1959) • A firm is ‘an administrative organization and a

collection of productive resources’ (physical and human)

• Focused on the ways in which firms might build unique ‘clusters’ or ‘bundles’ of human and technical resources that generate enviable levels of performance.

• Countered the marketing oriented models – quality of the management process and firm’s workplace culture are seen as major factors for business performance.

RESOURCE BASED VIEW OF STRATEGIC HRM

• How might a firm obtain and manipulate its resources (human and non-human) to become the best adapted, the most consistently profitable of all firms in its sector

RBV

• Resources are not simply assets in the formal accounting sense but include any feature of the firm with value-creating properties.

• Most CEOs rated the quality of employee know-how and their firm’s reputation with customers as their most strategic assets.

RBV : Work of Barney (1991)

• Distinguished between competitive advantage and ‘sustained competitive advantage’

• Desirable resources are ‘inimitable’ and ‘non-substitutable’

Qualities of Desirable Resources

• Valuable and Scarce

• Inimitable

• Non-substitutable

• Appropriable

Key Barriers to Imitation of Resources

• Unique timing and learning: unique historical conditions, first mover advantages

• Social Complexity: complex patterns of teamwork and coordination

• Causal Ambiguity: cause-effect relationships – importance of BSC

Applications of RBV

• Importance to company’s competencies and capabilities

• “Core Competency” framework of Hamel and Prahalad (1994) – argued for developing a ‘knowledge based’ rather than ‘product based’ understanding of the firm.

Applications of RBV

• Leonard (1998) used the word ‘capability’ instead of ‘competency’.

• ‘Core Capabilities’ are composed of –– ‘Content’ dimensions: Employee skills,

knowledge and technical systems– ‘Process’ dimensions: Managerial systems,

values and norms

Human Resource Advantage: Better People and Better Processes

Firms unable to realise full benefit of human talent-

• In-fighting between departments

• Failure to offer opportunities

• Benefits to a few

• Lack of top management support

• Inadequate financial resourcing

Applications of RBV

Concept of

‘Knowledge Management’

‘Intellectual Capital’ and

‘Learning Organization’