Chapter 1

An Introduction to Strategic Human Resource Management

Pawan Budhwar and Samuel Aryee
The objectives of this chapter are to:

Summarise the developments in the field of human resource management (HRM)

Examine what strategy is

Highlight the growth and nature of strategic human resource management (SHRM)

Examine the linkages between organisational strategy and HRM strategy

Match HRM to organisational strategy

Discuss the main perspectives on SHRM and organisational performance.

What is HRM?
Developments in the field of HRM are now well documented in the management literature
(see e.g. Boxall, 1992; Legge, 1995; Schuler and Jackson, 2007; Sisson and Storey, 2000;
Torrington et al., 2005). The roots of HRM go back as far as the 1950s, when writers like
Drucker and McGregor stressed the need for visionary goal-directed leadership and
management of business integration (Armstrong, 1987). This was succeeded by the
behavioural science movement in the 1960s, headed by Maslow, Argyris and Herzberg.
These scholars emphasised the value aspect of human resources (HR) in organisations and
argued for a better quality of working life for workers. This formed the basis of the
organisational development movement initiated by Bennis in the 1970s. The human
resource accounting (HRA) theory developed by Flamholtz (1974) was an outcome of these
sequential developments in the field of HRM and is considered to be the origin of HRM as a
defined school of thought. HRA emphasised human resources as assets for any organisation.
This asset view began to gain support in the 1980s (Hendry and Pettigrew, 1990). The last
twenty-five years or so have then witnessed rapid developments in the field of HRM, which
are an outcome of a number of factors such as growing competition (mainly to US/UK firms
by Japanese firms), slow economic growth in the Western developed nations, realisation about
the prospects of HRMs contribution towards firms performance, creation of HRM chairs in
universities and HRM-specific positions in the industry, introduction of HRM into MBA

curricula in the early 1980s, and a continuous emphasis on the involvement of HRM strategy
in the business strategy.
The debate relating to the nature of HRM continues today although the focus of the
debate has changed over time. It started by attempting to delineate the differences between
Personnel Management and HRM (see e.g. Legge, 1989; Guest, 1991), and moved on to
attempts to incorporate Industrial Relations into HRM (Torrington et al., 2005), examining the
relationship of HRM strategies, integration of HRM into business strategies and devolvement
of HRM to line managers (Lengnick-Hall and Lengnick-Hall, 1989; Brewster and Larson,
1992; Budhwar and Sparrow, 1997) and then the extent to which HRM can act as a key means
to achieve competitive advantage in organisations (Barney, 1991). Most of these
developments have taken place over the last couple of decades or so, and have precipitated
changes in the nature of the HR function from being reactive, prescriptive and administrative
to being proactive, descriptive and executive (Boxall, 1994; Legge, 1995). At present then, the
contribution of HRM in improving a firms performance and in the overall success of any
organisation (alongside other factors) is being highlighted in the literature (see e.g. Guest,
1997; Schuler and Jackson, 2005; 2007). In relation to the last debate, three perspectives
emerge from the existing literature: universalistic, contingency, and configurational (Katou
and Budhwar, 2006; 2007).
The universalistic perspective posits the best of HR practices, implying that
business strategies and HRM policies are mutually independent in determining business
performance. The contingency perspective emphasises the fit between business strategy and
HRM policies and strategies, implying that business strategies are followed by HRM policies
in determining business performance. The configurationally perspective posits a
simultaneous internal and external fit between a firms external environment, business
strategy and HR strategy, implying that business strategies and HRM policies interact,
according to organisational context in determining business performance.

Activity Briefly discuss with your colleagues: (1) the main factors responsible for
developments in the field of HRM/SHRM; and (2) the main debates in the field of
HRM.

Emergence of strategic human resource management (SHRM)

The above developments in the field of HRM highlight the contribution it can make towards
business success and an emphasis on HRM to become an integral part of business strategy
(Lengnick-Hall and Lengnick-Hall, 1988; Brewster and Larsen, 1992; Bamberger and
Meshoulam, 2000; Schuler and Jackson, 2007). The emergence of the term strategic human
resource management (SHRM) is an outcome of such efforts. It is largely concerned with
integration of HRM into the business strategy and adaptation of HRM at all levels of the
organisation (Guest, 1987; Schuler, 1992).

What is strategy?
The origin of this concept can be traced in its military orientation, going back to the Greek
word strategos, for a general who organises, leads and directs his forces to the most
advantageous position (Bracker, 1980; Legge, 1995; Lundy and Cowling, 1996). In the world
of business it mainly denotes how top management is leading the organisation in a particular
direction in order to achieve its specific goals, objectives, vision and overall purpose in the
society in a given context / environment. The main emphasis of strategy is thus to enable an
organisation to achieve competitive advantage with its unique capabilities by focusing on
present and future direction of the organisation (also see Miller, 1991; Kay 1993).
Over the past three decades or so a lot has been written under the field of strategic
management about the nature, process, content and formation of organisational strategy (see
e.g. Mintzberg, 1987; 1994; Quinn et al., 1988; Ansoff, 1991 Whittington, 1993; 2001). A
classical strategic management process consists of a series of steps, starting from
establishing a mission statement and key objectives for the organisation; analysing the
external environment (to identify possible opportunities and threats); conducting an internal
organisational analysis (to examine its strengths and weaknesses and the nature of current
management systems, competencies and capabilities); setting specific goals; examining
possible strategic choices / alternatives to achieve organisational objectives and goals;
adoption / implementation of chosen choices; and regular evaluation of all the above (see e.g.
Mello, 2006). The abovementioned first five steps form part of strategic planning and the last
two steps deal with the implementation of an ideal strategic management process. They also
deal with both the content (revealed by the objectives and goals) and process (for example,
planning, structure and control) of an organisational strategy (Chakravarthy and Doz, 1992;
Lundy and Cowling, 1996).

However, in real life, it is important to note that for a variety of reasons and pressures
(such as scarcity of time, resources, or too much information), top decision-makers do not
follow such a formal and rational approach (also called as deliberate approach) when
formulating their organisational strategy. Based on their experiences, instincts, intuition and
the limited resources available to them (along with factors such as need for flexibility),
managers adopt an informal and bounded rational approach (resulting in informal
incremental process) to strategy formation (see Quinn, 1978; Mintzberg, 1978). Mintzberg
(1987) says that formal approach to strategy making results in deliberation on the part of
decision-makers, which results in thinking before action. On the other hand, the incremental
approach allows the strategy to emerge in response to an evolving situation. Lundy and
Cowling (1996: 23), summarising Mintzbergs thinking, write that deliberate strategy
precludes learning while emergent strategy fosters it but precludes control. Effective strategies
combine deliberation and control with flexibility and organisational learning. A number of
scholars (such as Ansoff, 1991) have criticised Mintzbergs work as over-prescriptive.

Activity

Identify and analyse the core issues (such as why, when and how) related to
both rational and bounded rational approaches to strategy formulation

The debate with regard to the formation of organisational strategy continues. For
example, Whittington (1993) presents four generic approaches to strategy formation along the
two dimensions of processes and outcomes of strategy (see Figure 1.1). The x axis deals
[Fig. 1.1]
with the extent to which strategy is formed in a rational, formal, planned and deliberate
manner , is a result of bounded rational approach or is emergent in nature. The y axis relates
to continua of outcomes, i.e. the extent to which organisational strategy focuses on profitmaximising outcomes. The top left-hand quadrant represents a mix of maximum profitmaximisation and a formal planned and deliberate approach to strategy formation.
Whittington denotes this combination as classical. The combination in the top right-hand is
that of profit-maximisation and an emergent kind of strategy formation called the
evolutionary approach. The other two combinations the emergent approach to strategy
formation and pluralistic types of outcome and deliberate process and pluralistic outcomes
are denoted as processual and systemic approaches respectively.

OUTCOMES
Profit-Maximising

Classical

Evolutionary

PROCESSES
Deliberate

Emergent

Systemic

Processual

Pluralistic

Figure: 1.1

Whittingtons (1993) generic perspective on strategy

Organisations adopting the classical approach (like the army) follow a clear, rational,
planned and deliberate process of strategy formation and aim for maximisation of profits. This
approach is most likely to be successful when the organisations objectives and goals are
clear, the external environment is relatively stable, the information about both the external and
internal environment is reliable and the decision-makers are able to analyse it thoroughly and
make highly calculated decisions in order to adopt the best possible choice. Strategy
formulation is left to top managers and the implementation is carried out by operational
managers of different departments. This scenario demonstrates the difference between firstorder strategy or decisions and second-order strategy or decisions, where the former
represents the strategy formation by top managers and the latter is an implementation of the
same by lower-level managers (for details see Miller, 1993; Purcell 1989; Legge, 1995). It
also represents the classic top-down approach of Chandler (1962) where organisation
structure follows the strategy.
The evolutionary approach represents the other side of the strategy formation continua
where owing to a number of reasons (such as unpredictability of the dynamic business
environment) it is not possible to adopt a rational, planned and deliberate process, although
5

profit-maximisation is still the focus. In such competitive and uncertain conditions where
managers do not feel they are in command, only the best can survive (survival of the fittest or
being at the correct place at right time). The key to success thus largely lies with a good fit
between organisational strategy and business environment (also see Lundy and Cowling,
1996).
The processual approach is different on the profit-maximisation perspective where
managers are not clear about what the optimum level of output is or should be. A high
degree of confusion and complexity exists both within the organisations and in the markets;
the strategy emerges in small steps (increments) and often at irregular intervals from a
practical process of learning, negotiating and compromising instead of clear series of steps.
This is related to the inability of senior managers to comprehend huge banks of information, a
variety of simultaneously occurring factors and a lack of desire to optimise and rationalise
decisions. The outcome is then perhaps a set of satisficing behaviours, acceptable to the
dominant coalitions, which is the reality of strategy-making (Legge, 1995: 100).
As the name suggests, the systemic approach emphasises the significance of larger
social systems, characterised by factors such as national culture, national business systems,
demographic composition of a given society and the dominant institutions of the society
within which a firm is operating. The strategy formation is strongly influenced by such
factors, and faced by these pressures the strategist may intentionally deviate from rational
planning and profit-maximisation. It will not be sensible to suggest that organisations adopt
only one of the four particular approaches to strategy formation, but certainly it has to be a
mixture of possible combinations along the two dimensions of processes and profitmaximisation.

Activity

Highlight the main context(s) within which each of Whittingtons four

approaches to strategy formation could be pursued by managers.

What is strategic HRM (SHRM)?

The field of strategic HRM is still evolving and there is little agreement among scholars
regarding an acceptable definition. Broadly speaking, SHRM is about systematically linking
people with the organisation; more specifically, it is about the integration of HRM strategies
into corporate strategies. HR strategies are essentially plans and programmes that address and
solve fundamental strategic issues related to the management of human resources in an
organisation (Schuler, 1992). They focus is on alignment of the organisations HR practices,
6

policies and programmes with corporate and strategic business unit plans (Greer, 1995).
Strategic HRM thus links corporate strategy and HRM, and emphasises the integration of HR
with the business and its environment. It is believed that integration between HRM and
business strategy contributes to effective management of human resources, improvement in
organisational performance and finally the success of a particular business (see Holbeche,
1999; Schuler and Jackson, 1999). It can also help organisations achieve competitive
advantage by creating unique HRM systems that cannot be imitated by others (Barney, 1991;
Huselid et al., 1997). In order for this to happen, HR departments should be forward-thinking
(future-oriented) and the HR strategies should operate consistently as an integral part of the
overall business plan (Stroh and Caligiuri, 1998). The HR-related future-orientation approach
of organisations forces them to regularly conduct analysis regarding the kind of HR
competencies needed in the future, and accordingly core HR functions (of procurement,
development and compensation) are activated to meet such needs (see Holbeche, 1999).
Lengnick-Hall and Lengnick-Hall (1999: 2930) summarise the variety of topics that
have been the focus of strategic HRM writers over the past couple of decades. These include
HR accounting (which attempts to assign value to human resources in an effort to quantify
organisational capacity); HR planning; responses of HRM to strategic changes in the business
environment; matching human resources to strategic or organisational conditions; and the
broader scope of HR strategies. For these writers, strategic HRM is a multidimensional
process with multiple effects. Such writing also highlights the growing proactive nature of the
HR function, its increased potential contribution to the success of organisations and the
mutual relationships (integration) between business strategy and HRM.
Two core aspects of SHRM are: the importance given to the integration of HRM into
the business and corporate strategy, and the devolvement of HRM to line managers instead of
personnel specialists. Brewster and Larsen (1992: 41112) define integration as the degree to
which the HRM issues are considered as part of the formulation of the business strategy and
devolvement as the degree to which HRM practices involve and give responsibility to line
managers rather than personnel specialists. Research in the field (see Lengnick-Hall and
Lengnick-Hall, 1988; Purcell, 1989; Schuler, 1992; Storey, 1992; Budhwar and Sparrow,
1997; Truss et al., 1997; Budhwar, 2000a; 2000b) highlights a number of benefits of
integration of HRM into the corporate strategy. These include: providing a broader range of
solutions

for

solving

complex

organisational

problems;

assuring

the

successful

implementation of corporate strategy; contributing a vital ingredient in achieving and

maintaining effective organisational performance; ensuring that all human, technical and
7

financial resources are given equal and due consideration in setting goals and assessing
implementation capabilities; limiting the subordination and neglect of HR issues to strategic
considerations; providing long-term focus to HRM; and helping a firm to achieve competitive
advantage.
In similar vein, researchers (Budhwar and Sparrow 1997; 2002; Hope-Hailey et al.,
1997; Truss et al., 1997; Sisson and Storey, 2000) have highlighted the benefits of
devolvement of HRM to line managers. These include: highlighting certain issues that are too
complex for top management to comprehend alone; developing more motivated employees
and more effective control; local managers responding more quickly to local problems and
conditions; resolving most routine problems at the grassroots level; affording more time for
personnel specialists to perform strategic functions; helping to systematically prescribe and
monitor the styles of line managers; improving organisational effectiveness; preparing future
managers by allowing them to practise decision-making skills; and assisting in reducing costs
by redirecting traditionally central bureaucratic personnel functions.
Despite the highlighted benefits of the devolution of HRM to the line management, it
is still not widely practised in organisations. On the basis of earlier studies in the UK and
their own in-depth investigations into the topic, McGovern et al. (1997: 14) suggest that
devolution of responsibility for HRM to line managers is constrained by short-term pressures
on businesses (such as minimising costs), the low educational and technical skill base of
supervisors and a lack of training and competence among line managers and supervisors.
An important issue for top decision-makers is how to evaluate the extent to which both
strategic integration and devolvement are practised in their organisations. The level of
integration of HRM into the corporate strategy can be evaluated by a number of criteria: these
include representation of specialist people managers on the board; the presence of a written
people management strategy (in the form of mission statement, guideline or rolling plans,
emphasising the importance and priorities of human resources in all parts of the business);
consultation with people management specialists from the outset in the development of
corporate strategy; translation of the people management strategy into a clear set of work
programmes; the growing proactive nature of people management departments through the
creation of rolling strategic plans (emphasising the importance of human resources in all parts
of the business); through mission statements; by aligning HR policies with business needs
through business planning processes; by use of participative management processes and
committee meetings; and via HR audits.

The level of devolvement of HRM to line managers in an organisation can be

evaluated on the basis of measures such as: the extent to which primary responsibility for
decision-making regarding HRM (regarding pay and benefits, recruitment and selection,
training and development, industrial relations, health and safety, and workforce expansion and
reduction) lies with line managers; the change in the responsibility of line managers for HRM
functions; the percentage of line managers trained in people management in an organisation;
the feedback given to managers/line managers regarding HR related strategies; through
consultations and discussions; the extent to which line managers are involved in decisionmaking; by giving the line managers ownership of HRM; and by ensuring that they have
realised / accepted it by getting their acknowledgement (for more details see Budhwar and
Sparrow, 1997; 2002; Budhwar, 2000a).

Activity

Recap the meaning, benefits, measures and concerns with the practice of
both strategic integration of HRM into the business strategy and
devolvement of HRM to line managers.

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:

Administrative linkage represents the scenario where there is no HR department and

some other figurehead (such as the Finance or Accounts executive) looks after the HR
function of the firm. The HR unit is relegated here to a paper-processing role. In such
conditions there is no real linkage between business strategy and HRM.

Next is the one-way linkage where HRM comes into play only at the implementation
stage of the strategy.

Two-way linkage is more of a reciprocal situation where HRM is not only involved
at the implementation stage but also at the corporate strategy formation stage.

The last kind of association is that of integrative linkage, where HRM has equal
involvement with other organisational functional areas for business development.

Purcell (1989) presents a two-level integration of HRM into the business strategy upstream
or first-order decisions and downstream or second-order decisions:

First-order decisions, as the name suggests, mainly address issues at the

organisational mission level and vision statement; these emphasise where the business

is going, what sort of actions are needed to guide a future course, and broad HRoriented issues that will have an impact in the long term.

Second-order decisions deal with scenario planning at both strategic and divisional
levels for the next 35 years. These are also related to hardcore HR policies linked to
each core HR function (such as recruitment, selection, development, communication).

Guest (1987) proposes integration at three levels:

First he emphasises a fit between HR policies and business strategy.

Second, he talks about the principle of complementary (mutuality) of employment

practices aimed at generating employee commitment, flexibility, improved quality and
internal coherence between HR functions.

Third, he propagates internalisation of the importance of integration of HRM and

business strategies by the line managers (also see Legge, 1995).

Linking

organisational

strategy

and

HRM

strategy:

Theoretical

developments
The literature contains many theoretical models that highlight the nature of linkage between
HRM strategies and organisational strategies.
The strategic fit or the hard variant of HRM
Fombrun et al.s (1984) matching model highlights the resource aspect of HRM and
emphasises the efficient utilisation of human resources to meet organisational objectives. This
means that, like other resources of organisation, human resources have to be obtained cheaply,
used sparingly and developed and exploited as fully as possible. The matching model is
mainly based on Chandlers (1962) argument that an organisations structure is an outcome of
its strategy. Fombrun et al. (1984) expanded this premise in their model of strategic HRM,
which emphasises a tight fit between organisational strategy, organisational structure and
HRM system. The organisational strategy is pre-eminent; both organisation structure and
HRM are dependent on the organisation strategy. The main aim of the matching model is
therefore to develop an appropriate human resource system that will characterise those HRM
strategies that contribute to the most efficient implementation of business strategies.
The matching model of HRM has been criticised for a number of reasons. It is thought
to be too prescriptive by nature, mainly because its assumptions are strongly unitarist
(Budhwar and Debrah, 2001). As the model emphasises a tight fit between organisational
10

strategy and HR strategies, it completely ignores the interest of employees, and hence
considers HRM as a passive, reactive and implementationist function. However, the opposite
trend is also highlighted by research (Storey, 1992). It is asserted that this model fails to
perceive the potential for a reciprocal relationship between HR strategy and organisational
strategy (Lengnick-Hall and Lengnick-Hall, 1988). Indeed, for some, the very idea of tight
fit makes the organisation inflexible, incapable of adapting to required changes and hence
misfitted to todays dynamic business environment. The matching model also misses the
human aspect of human resources and has been called a hard model of HRM (Guest, 1987;
Storey, 1992; Legge, 1995). The idea of considering and using human resources like any other
resource of an organisation seems unpragmatic in the present world.
Despite the many criticisms, however, the matching model deserves credit for
providing an initial framework for subsequent theory development in the field of strategic
HRM. Researchers need to adopt a comprehensive methodology in order to study the dynamic
concept of human resource strategy. Do elements of the matching model exist in different
settings? This can be discovered by examining the presence of some of the core issues of the
model. The main propositions emerging from the matching models that can be adopted by
managers to evaluate scenario of strategic HRM in their organisations are:

Do organisations show a tight fit between their HRM and organisation strategy
where the former is dependent on the latter? Do specialist people managers believe
they should develop HRM systems only for the effective implementation of their
organisations strategies?

Do organisations consider their human resources as a cost and use them sparingly? Or
do they devote resources to the training of their HRs to make the best use of them?

Do HRM strategies vary across different levels of employees?

The soft variant of HRM

The Harvard model of strategic HRM is another analytical framework, which is premised on
the view that if general managers develop a viewpoint of how they wish to see employees
involved in and developed by the enterprise then some of the criticisms of historical
personnel management can be overcome. The model was first articulated by Beer et al.
(1984). Compared to the matching model, this model is termed soft HRM (Storey, 1992;
Legge, 1995; Truss et al., 1997). It stresses the human aspect of HRM and is more
concerned with the employeremployee relationship. The model highlights the interests of

11

different stakeholders in the organisation (such as shareholders, management, employee

groups, government, community and unions) and how their interests are related to the
objectives of management. This aspect of the model provides some awareness of the
European context and other business systems that emphasise co-determination. It also
recognises the influence of situational factors (such as the labour market) on HRM policy
choices.
The actual content of HRM, according to this model, is described in relation to four
policy areas, namely, human resource flows, reward systems, employee influence, and works
systems. Each of the four policy areas is characterised by a series of tasks to which managers
must attend. The outcomes that these four HR policies need to achieve are commitment,
competence, congruence, and cost effectiveness. The aim of these outcomes is therefore to
develop and sustain mutual trust and improve individual / group performance at the minimum
cost so as to achieve individual well-being, organisational effectiveness and societal wellbeing. The model allows for analysis of these outcomes at both the organisational and societal
level. As this model acknowledges the role of societal outcomes, it can provide a useful basis
for comparative analysis of HRM. However, this model has been criticised for not explaining
the complex relationship between strategic management and HRM (Guest, 1991).
The matching model and the Harvard analytical framework represent two very
different emphases, the former being closer to the strategic management literature, the latter to
the human relations tradition. Based on the above analysis, the main propositions emerging
from this model that can be used for examining its applicability and for determining the
nature of SHRM in different contexts are:

What is the influence of different stakeholders and situational and contingent variables on
HRM policies?

To what extent is communication with employees used to maximise commitment?

What level of emphasis is given to employee development through involvement,

empowerment and devolution?

The contextual emphasis

Based on the human resource policy framework provided by the Harvard model, researchers
at the Centre for Corporate Strategy and Change at Warwick Business School have developed
an understanding of strategy-making in complex organisations and have related this to the
ability to transform HRM practices. They investigated empirically based data (collected

12

through in-depth case studies on over twenty leading British organisations) to examine the
link between strategic change and transformations, and the way in which people are managed
(Hendry et al., 1988; Hendry and Pettigrew, 1992). Hendry and associates argue that HRM
should not be labelled as a single form of activity. Organisations may follow a number of
different pathways in order to achieve the same results. This is mainly a function of the
existence of linkages between the outer environmental context (socio-economic,
technological, politico-legal and competitive) and inner organisational context (culture,
structure, leadership, task-technology and business output). These linkages directly contribute
to forming the content of an organisations HRM. To analyse this, past information related to
the organisations development and management of change is essential (Budhwar and Debrah,
2001). The main propositions emerging from this model are:

What is the influence of economic (competitive conditions, ownership and control,

organisation size and structure, organisational growth path or stage in the life cycle and
the structure of the industry), technological (type of production systems) and sociopolitical (national education and training set-up) factors on HRM strategies?

What are the linkages between organisational contingencies (such as size, nature,
positioning of HR and HR strategies) and HRM strategies?

The issue of strategic integration

Debates in the early 1990s suggested the need to explore the relationship between strategic
management and HRM more extensively (Guest, 1991) and the emerging trend in which
HRM is becoming an integral part of business strategy (Lengnick-Hall and Lengnick-Hall,
1988; Brewster and Larsen, 1992; Schuler, 1992; Storey, 1992; Budhwar and Sparrow, 1997;
2002). The emergence of SHRM is an outcome of such efforts. As mentioned above, it is
largely concerned with integration and adaptation. Its purpose is to ensure that HRM is
fully integrated with the strategy and strategic needs of the firm; HR policies are coherent
both across policy areas and across hierarchies; and HR practices are adjusted, accepted and
used by line managers and employees as part of their everyday work (Schuler, 1992: 18).
SHRM therefore has many different components, including HR policies, culture,
values and practices. Schuler (1992) developed a 5-P model of SHRM that melds five HR
activities (philosophies, policies, programs, practices and processes) with strategic business
needs, and reflects managements overall plan for survival, growth, adaptability and
profitability. The strategic HR activities form the main components of HR strategy. This

13

model to a great extent explains the significance of these five SHRM activities in achieving
the organisations strategic needs, and shows the interrelatedness of activities that are often
treated separately in the literature. This is helpful in understanding the complex interaction
between organisational strategy and SHRM activities.
This model further shows the influence of internal characteristics (which mainly
consists of factors such as organisational culture and the nature of the business) and external
characteristics (which consist of the nature and state of economy in which the organisation is
existing and critical success factors, i.e. the opportunities and threats provided by the
industry) on the strategic business needs of an organisation. This model initially attracted
criticism for being over-prescriptive and too hypothetical in nature. It needs a lot of time to
gain an understanding of the way strategic business needs are actually defined. The melding
of business needs with HR activities is also very challenging, mainly because linkages
between human resource activities and business needs tend to be the exception, even during
non-turbulent times (Schuler, 1992: 20). In essence, the model raises two important
propositions that are core to the strategic HRM debate. These are:

What is the level of integration of HRM into the business strategy?

What level of responsibility for HRM is devolved to line managers?

Activity

Analyse the key messages for HRM managers emerging from the above
presentation on the main models of SHRM.

Identify and develop key measures that HR managers can use to evaluate
the nature of their SHRM function based on the above-raised propositions.

Matching business strategy and HRM

The above discussion summarises the theoretical developments in strategic HRM and its
linkages with organisational strategies. A number of clear messages emerge from the
analysis. For example, strategic HRM models primarily emphasise implementation over
strategy formulation. They also tend to focus on matching HR strategy to organisational
strategy, not the other way. They also tend to emphasise fit or congruence and do not
acknowledge the need for lack of such fit between HR strategies and business strategies
during transitional times and when organisations have multiple or conflicting goals (also see
Lengnick-Hall and Lengnick-Hall, 1999). This section further highlights the matching of
HRM policies and practices to some of the established models of business strategies.

14

Porters generic business strategies and HRM

Michael Porter (1980; 1985) identified three possible generic strategies for competitive
advantage in business: cost leadership (when the organisation cuts its prices by producing a
product or service at less expense than its competitors); innovation (when the organisation is
able to be a unique producer); and quality (when the organisation is delivering high-quality
goods and services to customers). Considering the emphasis on external-fit (i.e.
organisational strategy leading individual HR practices that interact with organisational
strategy in order to improve organisational performance), a number of HRM combinations
can be adopted by firms to support Porters model of business strategies. In this regard,
Schuler (1989) proposes corresponding HRM philosophies of accumulation (careful
selection of good candidates based on personality rather technical fit), utilization (selection
of individuals on the basis of technical fit), and facilitation (the ability of employees to work
together in collaborative situations). Thus, firms following a quality strategy will require a
combination of accumulation and facilitation HRM philosophies in order to acquire, maintain
and retain core competencies; firms pursuing a cost-reduction strategy will require a
utilisation HRM philosophy and will emphasise short-run relationships, minimise training and
development and highlight external pay comparability; and firms following an innovation
strategy will require a facilitation HRM philosophy so as to bring out the best out of existing
staff (also see Schuler and Jackson, 1987). In summary, according to the external-fit
philosophy, the effectiveness of individual HR practices is contingent on firm strategy. The
performance of an organisation that adopts HR practices appropriate for its strategy will then
be higher.
Business life cycles and HRM
There is now an established literature in the field of HRM that highlights how possible
contingent variables determine the HRM systems of an organisation (for a detailed review see
Budhwar and Debrah, 2001; Budhwar and Sparrow, 2002). One among the long list of such
variables is the life cycle stage of an organisation: introduction (start-up); growth
(development); maturity; decline; and turnaround. Research findings reveal a clear association
between a given life cycle stage and specific HRM policies and practices. For example, it is
logical for firms in their introductory and growth life cycle stages to emphasise a rationalised
approach to recruitment in order to acquired best-fit human resources, compensate employees
at the going market rate, and actively pursue employee development strategies. Similarly,
15

organisations in the maturity stage are known to recruit enough people to allow for labour
turnover/ lay-offs and to create new opportunities in order to remain creative to maintain their
market position. Such organisations emphasise flexibility via their training and development
programmes and pay employees as per the market leaders in a controlled way. Accordingly
firms in the decline stage will be likely to minimise costs by reducing overheads and aspire to
maintain harmonious employee relations (for more details see Kochan and Barocci, 1985;
Baird and Meshoulam 1988; Hendry and Pettigrew 1992; Jackson and Schuler 1995; Boxall
and Purcell, 2003).
Typology of business strategies and HRM
Miles and Snow (1978; 1984) classify organisations as prospectors (who are doing well and
are regularly looking for more products and market opportunities), defenders (who have a
limited and stable product domain), analyzers (who have some degree of stability but are on
the lookout for possible opportunities) and reactors (who mainly respond to market
conditions). These generic strategies dictate organisations HRM policies and practices. For
example, defenders are less concerned about recruiting new employees externally and are
more concerned about developing current employees. In contrast, prospectors are growing, so
they are concerned about recruiting and using performance appraisal results for evaluation
rather than for longer-term development (for details see Jackson and Schuler 1995; MacDuffie
1995).
Generic HR strategies
Identifying the need to highlight the prevalence of generic HR strategies pursued by
organisations in different contexts, Budhwar and Sparrow (2002) propose four HR strategies.
These are:

talent acquisition HR strategy (emphasises attracting the best human talent from
external sources);

effective resource allocation HR strategy (maximises the use of existing human

resources by always having the right person in the right place at the right time);

talent improvement HR strategy (maximes the talents of existing employees by

continuously training them and guiding them in their jobs and career); and

cost reduction HR strategy (reduces personnel costs to the lowest possible level).

16

Budhwar and Khatri (2001) examined the impact of these HR strategies on

recruitment, compensation, training and development and employee communication practices
in matched Indian and British firms. The impact of these four HR strategies varied
significantly in the two samples, confirming the context specific nature of HRM. On the same
pattern, there is a need to identify and examine the impact of other HR strategies such as high
commitment, paternalism, etc. Such HR issues, which have a significant impact on a firms
performance, are further examined in different chapters in this book.

Perspectives on SHRM and organisational performance

The concept of fit has emerged as central to many attempts to theorise about strategic HRM
(Richardson and Thomson, 1999). Internal fit is the case when the organisation is
developing a range of interconnected and mutually reinforcing HRM policies and practices.
This implies that there exists a set of best HR practices that fit together sufficiently so that
one practice reinforces the performance of the other practices. Synergy is the key idea behind
internal fit. Synergy can be achieved if the combined performance of a set of HRM policies
and practices is greater than the sum of their individual performances. In this regard, the
importance of the different HRM policies and practices being mutually reinforcing is
emphasised (see Katou and Budhwar, 2006; 2007).
External fit is the case when the organisation is developing a range of HRM policies
and practices that fit the businesss strategies outside the area of HRM. This implies that
performance will be improved when the right fit, or match, between business strategy and
HRM policies and practices is achieved. As discussed above, specific HRM policies and
practices are needed to support generic business strategies, for example Porters cost
leadership, innovation or quality enhancement (also see Fombrum et al., 1984; Schuler and
Jackson, 1987). Similarly, Miles and Snow (1984) relate HRM policies and practices with
competitive product strategies (defenders, prospectors, analysers, reactors).
Over the last decade or so the concept of fit has been further investigated by many
scholars (see Delery and Doty, 1996; Youndt et al., 1996; Guest, 1997; Katou and Budhwar,
2006; 2007). An analysis of such work highlights that there are generally three modes of fit,
or approaches to fit: universalistic, contingency, and configurational. The core features
of these modes constitute the structure of the so-called strategic HRM / business performance
models.

17

The universalistic perspective or HRM as an ideal set of practices suggests that a

specified set of HR practices (the so-called best practices) will always produce superior
results whatever the accompanying circumstances. Proponents of the universalistic model
(e.g., Pfeffer 1994; 1998; Huselid 1995; Delaney and Huselid, 1996; Claus, 2003) emphasise
that internal fit or horizontal fit or alignment of HR practices helps to significantly
improve an organisations performance. Higgs et al. (2000) explain how a large number of HR
practices that were previously considered to be distinct activities can all be considered now to
belong in a system (bundle) of aligned HR practices.
Considering that internal fit is central to universalistic models, the main question /
problem is how to determine an HR system, that is, as a coherent set of synergistic HR
practices that blend better in producing higher business performance. The methods used in
developing such HR systems depend on the additive relationship (i.e. the case when the HR
practices involved have independent and non-overlapping effects on outcome), and on the
interactive relationship (i.e. the case when the effect of one HR practice depends on the level
of the other HR practices involved) (Delery, 1998). However, in our opinion universalistic
models do not explicitly consider the internal integration of HR practices, and consider them
merely from an additive point of view (also see Pfeffer 1994; Becker and Gerhart, 1996).
Emerging research evidence (see Delery and Doty 1996) reveals the so-called portfolio
effect, that is, how HR practices support and improve one another. However, it is important to
remember that there can be countless combinations of practices that will result in identical
business outcomes. This contributes to the concept of equifinality, in which identical
outcomes can be achieved by a number of different systems of HR practices.
Support for the universalistic approach to strategic HRM is mixed as there are notable
differences across studies as to what constitutes a best HR practice. Most studies (e.g.
Bamberger and Meshoulam, 2000; Christensen Hughes 2002; Boxall and Purcell 2003) focus
on three mechanisms by which universal HR practices impact on business performance: (1)
the human capital base or collection of human resources (skills, knowledge, and potential),
that the organisation has to work with the organisations recruitment, selection, training and
development processes directly affect the quality of this base; (2) motivation, which is
affected by a variety of HR processes including recognition, reward, and work systems; and
(3) opportunity to contribute, which is affected by job design, and involvement/
empowerment strategies. In addition, the best practices approach generally refers to the
resource-based theory of firm and competitive advantage, which focuses on the role internal
resources such as employees play in developing and maintaining a firms competitive
18

capabilities (Wright et al., 1994; Youndt et al., 1996). For a resource to be a source of
competitive advantage it must be rare, valuable, inimitable and non-substitutable. Therefore,
HR practices of the organisation can lead to competitive advantage through developing a
unique and valuable human pool.
The contingency or HRM as strategic integration model argues that an
organisations set of HRM policies and practices will be effective if it is consistent with other
organisational strategies. External fit is then what matters (Fombrum et al., 1984; Golden
and Ramanujam, 1985; Schuler and Jackson, 1987; Lengnick-Hall and Lengnick-Hall, 1988;
Guest, 1997). As discussed above, in this regard specific HRM policies and practices link
with various types of generic business strategies. For example, the work of Schuler and
Jackson (1987), mentioned above, suggests that the range of HRM policies and practices an
organisation should adopt depend on the competitive product strategies it is following.
Considering that external fit is the key concept of contingency models, the contingency
approach refers firstly to the theory of the organisational strategy and then to the individual
HR practices that interact with organisational strategy in order to result in higher
organisational performance. The adoption of a contingency HRM strategy is then associated
with optimised organisational performance, where the effectiveness of individual HR
practices is contingent on firm strategy. The performance of an organisation that adopts HR
practices appropriate for its strategy will be higher (for more details see Katou and Budhwar,
2007).
The configurational or HRM as bundles model argues that to claim a strategys
success turns on combining internal and external fit. This approach makes use of the so-called
bundles of HR practices, which implies the existence of specific combinations or
configurations of HR practices depending on corresponding organisational contexts, where
the key is to determine which are the most effective in terms of leading to higher business
performance (see Guest and Hoque, 1994; MacDuffie, 1995; Delery and Doty, 1996; Huselid
and Becker, 1996; Katou and Budhwar, 2006).
Considering that both the internal and external fits are the key concepts of
configurational models, the configurational approach refers firstly to the theory of the
organisational strategy and then to the systems of HR practices that are consistent with
organisational strategy in order to result in higher organisational performance. As indicated
above, there are a number of strategies an organisation may choose to follow, such as Miles
and Snows (1984) strategic typology that identifies the four ideal strategic types of
prospector, analyser, defender and reactor.
19

With respect to the configurations of HR practices, scholars (such as Kerr and Slocum,
1987; Osterman, 1987; Sonnenfeld and Peiperl, 1988; Delery and Doty, 1996) have developed
theoretically driven employment systems. Specifically, Delery and Doty (1996) propose the
following two ideal type employment systems: the market type system, which is
characterised by hiring from outside an organisation, and the internal system, which is
characterised by the existence of an internal market. Because organisations adopting a
defending strategy concentrate on efficiency in current products and markets, the internal
system is more appropriate for this type of strategy. On the other hand, organisations pursuing
a prospectors strategy are constantly changing, and the market system is more appropriate for
this type of strategy. A possible third type of configurational strategy can be the analyser, at
the midpoint between the prospector and the defender. In summary, according to this
approach, if consistency within the configuration of HR practices and between the HR
practices and strategy is achieved, then the organisation will achieve better performance.
With respect to these three models, there is no clear picture of which of these three key
broad areas is the predominant one. It is worth repeating the words of Wood (1999: 409):
If ones arm were twisted to make an overall conclusion on the balance of the
evidence so far, one in favour of contingency hypothesis would be just as justified as
the universal hypothesis. This is because any such conclusion would be premature
because of conflicting research results but, more importantly, because the debate is
still in its infancy (also see Katou and Budhwar, 2006; 2007).

Activity

Analyse the main aspects and highlight the core issues related to each of the
above discussed perspectives on SHRM.

Key points for this chapter are:

Understand the developments in the field of SHRM.

Examine linkages between business strategy and HRM.

Analyse matching of HRM and organisational strategy.

Understand the different perspectives on SHRM and organisational performance.

Questions to work through

1.
2.

Discuss the main factors that have contributed to the growth of the field of strategic HRM.
What do you understand by the concept of fit in the strategic HRM literature? Analyse the significance of fit(s) between business
strategy and HRM. Provide both research evidence and examples to support your discussion.

20

3.
4.

Critically analyse the main models of strategic HRM. Also, highlight the main aspects of SHRM emerging from these models.
In your opinion, which of the three perspectives on strategic HRM are more applicable in different contexts? Use research findings to
support your response.

LEWIN'S CHANGE MANAGEMENT MODEL:

UNDERSTANDING THE THREE STAGES OF CHANGE

Change is a common thread that runs through all businesses regardless of size, industry and age. Our
world is changing fast and, as such, organizations must change quickly too. Organizations that handle
change well thrive, whilst those that do not may struggle to survive.
The concept of change management is a familiar one in most businesses today. But, how
businesses manage change (and how successful they are at it) varies enormously depending on the
nature of the business, the change and the people involved. And a key part of this depends on how far
people within it understand the change process.
One of the cornerstone models for understanding organizational change was developed by Kurt Lewin
back in the 1950s, and still holds true today. His model is known as Unfreeze Change Refreeze,
refers to the three-stage process of change he describes. Lewin, a physicist as well as social scientist,
explained organizational change using the analogy of changing the shape of a block of ice.
Understanding Lewins Model
If you have a large cube of ice, but realize that what you want is a cone of ice, what do you do? First
you must melt the ice to make it amenable to change (unfreeze). Then you must mold the iced water
into the shape you want (change). Finally, you must solidify the new shape (refreeze).

By looking at change as process with distinct stages, you can prepare yourself for what is coming and
make a plan to manage the transition looking before you leap, so to speak. All too often, people go
into change blindly, causing much unnecessary turmoil and chaos.
To begin any successful change process, you must first start by understanding why the change must
take place. As Lewin put it, Motivation for change must be generated before change can occur. One
must be helped to re-examine many cherished assumptions about oneself and ones relations to
others. This is the unfreezing stage from which change begins.
Unfreeze
This first stage of change involves preparing the organization to accept that change is necessary,
which involves break down the existing status quo before you can build up a new way of operating.
Key to this is developing a compelling message showing why the existing way of doing things cannot
continue. This is easiest to frame when you can point to declining sales figures, poor financial results,
worrying customer satisfaction surveys, or suchlike: These show that things have to change in a way
that everyone can understand.
To prepare the organization successfully, you need to start at its core you need to challenge the
beliefs, values, attitudes, and behaviors that currently define it. Using the analogy of a building, you
must examine and be prepared to change the existing foundations as they might not support add-on
storeys; unless this is done, the whole building may risk collapse.

21

This first part of the change process is usually the most difficult and stressful. When you start cutting
down the way things are done, you put everyone and everything off balance. You may evoke strong
reactions in people, and thats exactly what needs to done.
By forcing the organization to re-examine its core, you effectively create a (controlled) crisis, which in
turn can build a strong motivation to seek out a new equilibrium. Without this motivation, you wont get
the buy-in and participation necessary to effect any meaningful change.
Change
After the uncertainty created in the unfreeze stage, the change stage is where people begin to resolve
their uncertainty and look for new ways to do things. People start to believe and act in ways that
support the new direction.
The transition from unfreeze to change does not happen overnight: People take time to embrace the
new direction and participate proactively in the change. A related change model, the Change Curve,
focuses on the specific issue of personal transitions in a changing environment and is useful for
understanding this specific aspect in more detail.
In order to accept the change and contribute to making the change successful, people need to
understand how the changes will benefit them. Not everyone will fall in line just because the change is
necessary and will benefit the company. This is a common assumption and pitfall that should be
avoided.

Tip:
Unfortunately, some people will genuinely be harmed by change, particularly those who benefit
strongly from the status quo. Others may take a long time to recognize the benefits that change brings.
You need to foresee and manage these situations.
Time and communication are the two keys to success for the changes to occur. People need time to
understand the changes and they also need to feel highly connected to the organization throughout
the transition period. When you are managing change, this can require a great deal of time and effort
and hands-on management is usually the best approach.
Refreeze
When the changes are taking shape and people have embraced the new ways of working, the
organization is ready to refreeze. The outward signs of the refreeze are a stable organization chart,
consistent job descriptions, and so on. The refreeze stage also needs to help people and the
organization internalize or institutionalize the changes. This means making sure that the changes are
used all the time; and that they are incorporated into everyday business. With a new sense of stability,
employees feel confident and comfortable with the new ways of working.
The rationale for creating a new sense of stability in our every changing world is often questioned.
Even though change is a constant in many organizations, this refreezing stage is still important.
Without it, employees get caught in a transition trap where they arent sure how things should be done,
so nothing ever gets done to full capacity. In the absence of a new frozen state, it is very difficult to
tackle the next change initiative effectively. How do you go about convincing people that something
needs changing if you havent allowed the most recent changes to sink in? Change will be perceived
as change for changes sake, and the motivation required to implement new changes simply wont be
there.
As part of the Refreezing process, make sure that you celebrate the success of the change this
helps people to find closure, thanks them for enduring a painful time, and helps them believe that
future change will be successful.

22

Practical Steps for Using the Framework:

Unfreeze
1. Determine what needs to change

Survey the organization to understand the current state

Understand why change has to take place.

2. Ensure there is strong support from upper management

Use Stakeholder Analysis and Stakeholder Management to identify and win the support of key
people within the organization

Frame the issue as one of organization-wide importance.

3. Create the need for change

Create a compelling message as to why change has to occur

Use your vision and strategy as supporting evidence

Communicate the vision in terms of the change required

Emphasize the why.

4. Manage and understand the doubts and concerns

Remain open to employee concerns and address in terms of the need to change.

Change
1. Communicate often

Do so throughout the planning and implementation of the changes

Describe the benefits

Explain exactly the how the changes will effect everyone

Prepare everyone for what is coming.

2. Dispel rumoUrs

Answer questions openly and honestly

23

Deal with problems immediately

Relate the need for change back to operational necessities.

3. Empower action

Provide plenty of options for employee involvement

Have line managers provide daytoday direction.

4. Involve people in the process

Generate short-term successes to reinforce the change

Negotiate with external stakeholders as necessary (such as employee organizations).

Refreeze
1. Anchor the changes into the culture

Identity what supports the change

Identify barriers to sustaining change.

2. Develop ways to sustain the change

Ensure leadership support

Create a reward system

Establish feedback systems

Adapt the organizational structure as necessary.

3. Provide support and training

Keep everyone informed and supported.

5. Celebrate success!
Key Points
Lewins change model is a simple and easy-to-understand framework for managing change.
By recognizing these three distinct stages of change, you can plan to implement the change
required. You start by creating the motivation to change (unfreeze). You move through the change
process by promoting effective communications and empowering people to embrace new ways of
working (change). And the process ends when you return the organization to a sense of stability
(refreeze), which is so necessary for creating the confidence from which to embark on the next,
inevitable change

24

Organizational Change Management Process

Organizational Change is Systemic

The systemic model developed by Dr. Resnick has been tested and used successfully with many companies. It offers a
comprehensive yet simple way of identifying and applying the leverage points that guide the change process.

The model starts with the organizations vision. A vision is not simply the sentence that gets mounted on the plaque in th
lobby. The vision must be sufficiently comprehensive to provide guidance and direction to every employee in the compa

The next basic component is a clear understanding of the markets the company serves and its desired customer profile

Once these two elements are defined, the elements in the middle of the diagram is the organizational system. This syst
exists for only one purpose - to deliver the power of the organizations vision to its customers. Every element needs to b
examined and re-designed to make sure that it is "fit for purpose" to deliver the vision to customers.

The elements that comprise an organization are shown in the four quadrants: structure, work processes, people and too
These are four key interdependent components.

Structure is the traditional view of an organization. It is the "faces and spaces" diagram that is shown as an
organization chart. It defines the boundaries of authority and decision-making and identifies the key personnel
responsible for the business.
Work processes describe how work gets done in an organization. They range from a few high-level cross-func
integrated core processes that drive the business down to detailed departmental processes and procedures.
People identifies the skill sets needed for the company and the numbers of people with various skills. The esse
this category is about getting the right people doing the right job in the right place.

25

Tools represents physical facilities and capital equipment - hardware and software systems, management and
reporting systems, written documents such as policies, procedures and manuals, and compensation tools.

An organization undergoing major change should examine all of these quadrants and assess their alignment to its visio
customers and each other. This will enable senior management to identify the leverage points that will create sustainab
breakthrough change.

A Big Enough Lever Can Lift The World

One of the challenges in modifying systems is knowing the key levers and how to use them to create and sustain chang
three levers for creating organizational change are:

Lever One The Senior Management Team

The single best lever is the senior management teamif they are truly aligned. When aligned, they speak with on
and reinforce each other throughout the organization. If they are not aligned but give verbal agreement to change
proceeding with their own agendas the organization loses its best leverage point. Actually, if the senior managem
team is not fully aligned and doing real work in designing the change together, they may become the biggest poin
resistance.

Lever Two A Common Organizational Model

The second lever is having an agreed upon mental model of the organization. This common picture of how to exa
the organization and approach change is essential to success. Otherwise, the senior team will argue about what t
change and where and why. They will each have their own root cause analysis based on their own personal expe
And each story will have its validity. Full alignment can only be achieved if everyone understands and agrees to a
common model.

Lever Three A Structured Change Methodology

The third lever is a structured methodology to analyze the organization, design the change, implement it, and mon
progress until it becomes the natural way of conducting business. Without this methodology change will be spora
sustained and employees will view the change effort as the initiative of the week, waiting until it goes away. A str
methodology based on a common model that is fully and completely implemented and supported by the senior
management team provides the leverage for sustainable change.

The Change Management Methodology

Step One - Confirming the Compelling Need to Change

It is not uncommon for the process to begin with significant discussion about whether broad-based systemic change is n
or whether smaller incremental improvements will do the job. This often requires some external data (market share, com
information, etc.) as well as objective internal data (how long does it take to complete projects vs. plan; are costs per un
increasing or decreasing; is our organization getting better at what it does; is competitive positioning weakening, etc.).
Step Two - Identifying the Boundary Conditions

Boundary conditions define the limits (or playground) within which change might be considered. When senior teams beg
discussion some large topics usually emerge very quickly. Issues such as mergers, acquisitions, international or global
initiatives, large capital investments, strategic alliance partners, equity situations, private vs. public ownership, etc. may
debated.
Step Three - Creating the Vision of the Desired End State

A group of people aligned around a common vision are a very powerful force. John Kennedys vision of "put a man on th
moon by the end of the decade" spurred NASA to unprecedented performance. Martin Luther Kings vision in his "I have
dream" speech energized the civil rights movement. Jack Welchs vision for GE in which he said that "We will be numbe

26

or number two in every category or we wont be in it" drove incredible energy and focus through GE. The vision of Merc
Benz to "always make the best engineered car in the world" has been the hallmark of its focus for decades.
Step Four - Developing the Core Work Processes

The mention of work processes typically creates mixed reactions. Everyone agrees that some degree of process is requ
Without defined processes a company would not be able to produce a consistent payroll. It would not be able to hire pe
would not have any consistent methodologies for its work. It could never assure any consistency or reliability.

The problem for most cross-functional work processes is in the hand-offs. When processes cut across functions there a
typically miscues and conflicting expectations or requirements between functional groups. Most companies have only a
core processes about five that drive their entire business. Everything else is an enabler. These core processes are v
always cross-functional. Therefore, they must be developed by the entire senior management team together. And that
next step of the process of creating breakthrough change. Once these major cross-functional processes are developed
fairly high level they can then be handed down to the next levels of the organization for more detailed implementation
member of the senior management team must then be designated as the owner of the entire process throughout the
organization.

This step typically surfaces the strongest points of contention in the entire breakthrough change process. If this step is
addressed seriously, issues of organizational structure begin to resolve themselves. After all, the structure should be de
to support how the work gets done. Form follows function.
Step Five - Defining Key Roles and Responsibilities

Every company has a relatively small number of key roles that are central to its business. There are usually a number o
who perform these roles, and they are the linking pins for one or several core processes. Some examples of such key r
are: project director, lead engineer, national account manager, customer service representative, senior consultant, syste
engineer, account executive, etc.

The next step is to identify the few key roles in the organization that are central to how the companys work gets done a
for the senior team collectively to define them.

27

Step Six - Modifying the Organizational Structure

Most changes begin with a modification of the organizational structure. Unfortunately, most changes end there as well
is precisely why most large scale change is unsuccessful. Step six represents the point where examining and possibly
modifying the organizational structure is both appropriate and necessary.

Structure should exist to support what an organization is trying to accomplish (vision and strategy); how it is trying to do
work processes) and the requirements people have for their work (key roles). Now that these have been identified, the
structure should be reviewed and, if necessary, re-designed.

The fundamental question is: Does the existing structure enhance or at least not interfere with how the work needs to g
done? If the structure is helpful or neutral, the general guideline is to leave it alone. Structural changes are very disrupti
They should only be made if they are truly necessary.

If the structure is a barrier to the work that needs to be done, then it should quickly be re-aligned to meet its new require
This analysis and re-design should be a collaborative effort by the senior team. If individual team members cannot "che
positions and their egos at the door" then it may be necessary for the President to impose the new organization. This st
should be reviewed and implemented quickly, in its entirety, based on what best serves the needs of the whole organiza

28

This is not the time to allow the "right of infinite refusal" to stall the change process.
Step Seven - Establishing the Key Performance Measures

Every organization measures its performance. Unfortunately, most organizational measures have two fundamental flaw
there is a disproportional emphasis on financial measures. Financial measures are not direct performance measures. T
the consequences of company performance achieved or not achieved. By themselves, they indicate very little. Second,
performance measures cause the company to look through its rear view mirror. These measures indicate past performa
and do little to help guide future performance or have a positive impact on organizational results.

This next step calls for the creation of a balanced scoreboard or dashboard of the key internal and external measure
provide a comprehensive view of the organizations performance, with as much insight as possible regarding their implic
for the future.

At the completion of this process by the senior management team you should have a limited set of defined measures th
provide a balanced understanding of current performance, guidelines for improving short-term results, and the ability to
and improve long-term organizational performance.
Step Eight - Reviewing System-Wide Tools

Tools are powerful forces in defining how an organization behaves. An enterprise-wide tool can be one of the most dram
vehicles to create (or force) organizational change.

Enterprise software systems have become very powerful forces for driving organizational behavior, and potentially crea
highly value increased productivity. Such tools require an organization to define how it conducts its business, and impos
discipline on all individuals and functional areas to conform to the standards and processes defined by the tools. Howev
the tool is not sufficiently flexible or does not match how business is actually conducted, the effect will be disastrous. To
impose their way of working in conflict with established business norms or practices will be strongly resisted.
Step Nine - Develop Training that Enables Performance

Training is an integral part of organizational design and behavior. It is essential to ensure that individuals have the know
and skills to perform in their current jobs and prepare for new ones.

Training is also perceived by employees as a measure of the organizations commitment to them. In the current marketp
employees are encouraged to think of themselves as independent contractors selling their services for the best opportu
Training (as a part of continuous learning) is an essential ingredient for retaining a nimble workforce.

Training is one of the most powerful vehicles for a company to create breakthrough change. It can achieve three simulta
results. First, it builds alignment to the desired change. Second, it provides individuals with the knowledge and skills to
implement the change. Third, it creates the opportunity for cross-functional communication in the implementation of com
wide initiatives.
Step Ten Aligning the Reward Systems

Traditionally reward systems have been approached conservatively in the form of salaries for professional employees, a
hourly wages for non-exempt employees. In some companies annual bonuses or profit-sharing programs have been ad
tied to organizational performance for that year.

Companies have now started to use more sensitive vehicles to align reward systems to individual, team and organizatio
performance. Commissions for a sales force have long been in place. More recently, defined bonuses for the achievem
individual quarterly goals has become fairly widespread. Team rewards tied to specific project completion has also beco
common. Annual bonuses based on the achievement of specific performance goals is becoming the new norm.

Though the techniques may differ, two dominant themes emerge. The first is the trend toward broad band job classificat
providing much more flexibility in establishing individual compensation. The second is a much higher degree of at risk

29

compensation tied to individual, team and organizational performance.

If possible, reward systems should to be tied to the desired breakthrough change. Employees will pay great attention to
adjustments in the reward system, especially if it is modified to focus on the desired behaviors and effects of the breakth
changes.
Dr. Resnick works with senior leadership teams and change leadership teams to help guide them through this process.
be contacted for further information regarding this process.

Benefits of change management

to the organization:

Change is a planned and managed process. The benefits of the change are known before
implementation and serve as motivators and assessment of progress
The organization can respond faster to customer demands
Helps to align existing resources within the organization
Change management allows the organization to assess the
overall impact of a change
Change can be implemented without negatively effecting the day
to day running of business
Organizational effectiveness and efficiency is maintained or even
improved by acknowledging the concerns of staff
The time needed to implement change is reduced
The possibility of unsuccessful change is reduced
Employee performance increases when staff feel supported and
understand the change process
Increased customer service and effective service to clients from
confident and knowledgeable employees
Change management provides a way to anticipate challenges
and respond to these efficiently
An effective change management process lowers the risk
associated with change
Managed costs of change: change management helps to contain costs associated with the
change
Increased return on investment (ROI)
Creates an opportunity for the development of "best practices", leadership development, and
team development

Benefits of change management

for individuals / staff:
Effective change management supports a smooth transition from the old to the new while
maintaining morale, productivity, and even company image
Provides management and staff support for concerns regarding changes
An efficient change management process creates the correct perception of the change for
staff and public

30

Helps to plan efficient communication strategies

Minimizes resistance to change
Improves morale, productivity and quality of work
Improves cooperation, collaboration and communication
A carefully planned approach to change reduces stress and anxiety and encourages people to
stay loyal to the organization
Increased employee acceptance of the change
Personal loss/gain to individuals is acknowledged and addressed
Change management reduces disruptive aspects and emphasises positive opportunities in the
change process
Further benefits of change management:
Careful planning helps to ensure that the change process is started and managed by the right
people at the right time
Planned change management allows you to include specific tasks and events that are
appropriate for each stage in the change process
Change management ensures that customers, suppliers and other stakeholders understand
and support the change

31

Change management - the systems and tools for managing change

Scope of change management
This tutorial provides a summary of each of the main areas for change management
based on Prosci's research with more than 900 organizations in the last 7 years.
The purpose of defining these change management areas is to ensure that there is a
common understanding among readers. Tools or components of change management
include:

Change management process

Readiness assessments
Communication and communication planning
Coaching and manager training for change management
Training and employee training development
Sponsor activities and sponsor roadmaps
Resistance management
Data collection, feedback analysis and corrective action
Celebrating and recognizing success

Change management process

The change management process is the sequence of steps or activities that a change
management team or project leader would follow to apply change management to a
project or change. Based on Prosci's research of the most effective and commonly
applied change, most change management processes contain the following three
phases:
Phase 1 - Preparing for change (Preparation, assessment and strategy
development)
Phase 2 - Managing change (Detailed planning and change management
implementation)
Phase 3 - Reinforcing change (Data gathering, corrective action and recognition)
These phases result in the following approach as shown below in Figure 1.

32

Figure 1 - Change Management Process (the Change Management Toolkit

and Change Management Pilot show you how to apply the process))

33

It is important to note what change management is and what change management is

not, as defined by the majority of research participants.
Change management is not a stand-alone process for designing a business solution.
Change management is the processes, tools and techniques for managing the
people-side of change.
Change management is not a process improvement method.
Change management is a method for reducing and managing resistance to change
when implementing process, technology or organizational change.
Change management is not a stand-alone technique for improving organizational
performance.
Change management is a necessary component for any organizational performance
improvement process to succeed, including programs like: Six Sigma, Business
Process Reengineering, Total Quality Management, Organizational Development,
Restructuring and continuous process improvement.
Change management is about managing change to realize business results.

Readiness assessments
Assessments are tools used by a change management team or project leader to
assess the organization's readiness to change. Readiness assessments can include
organizational assessments, culture and history assessments, employee
assessments, sponsor assessments and change assessments. Each tool provides
the project team with insights into the challenges and opportunities they may face
during the change process.

Assess the scope of the change, including: How big is this change? How many
people are affected? Is it a gradual or radical change?
Assess the readiness of the organization impacted by the change, including:
What is the value- system and background of the impacted groups? How much
change is already going on? What type of resistance can be expected?
Assess the strengths of your change management team.
Assess the change sponsors and take the first steps to enable them to
effectively lead the change process.

Communication and communication planning

34

Many managers assume that if they communicate clearly with their employees, their
job is done. However, there are many reasons why employees may not hear or
understand what their managers are saying the first time around. In fact, you may
have heard that messages need to be repeated 6 to 7 times before they are
cemented into the minds of employees. That is because each employees readiness
to hear depends on many factors. Effective communicators carefully consider three
components: the audience, what is said and when it is said.
For example, the first step in managing change is building awareness around the
need for change and creating a desire among employees. Therefore, initial
communications are typically designed to create awareness around the business
reasons for change and the risk of not changing. Likewise, at each step in the
process, communications should be designed to share the right messages at the right
time.
Communication planning, therefore, begins with a careful analysis of the audiences,
key messages and the timing for those messages. The change management team or
project leaders must design a communication plan that addresses the needs of frontline employees, supervisors and executives. Each audience has particular needs for
information based on their role in the implementation of the change.

Coaching and manager training for change management

Supervisors will play a key role in managing change. Ultimately, the direct supervisor
has more influence over an employees motivation to change than any other person at
work. Unfortunately, supervisors as a group can be the most difficult to convince of
the need for change and can be a source of resistance. It is vital for the change
management team and executive sponsors to gain the support of supervisors and to
build change leadership. Individual change management activities should be used to
help these supervisors through the change process.
Once managers and supervisors are on board, the change management team must
prepare a coaching strategy. They will need to provide training for supervisors
including how to use individual change management tools with their employees.

Training and training development

Training is the cornerstone for building knowledge about the change and the required
skills. Project team members will develop training requirements based on the skills,
knowledge and behaviors necessary to implement the change. These training
requirements will be the starting point for the training group or the project team to
develop training programs.

35

Sponsor activities and sponsor roadmaps

Business leaders and executives play a critical sponsor role in change management.
The change management team must develop a plan for sponsor activities and help
key business leaders carry out these plans. Sponsorship should be viewed as the
most important success factor. Avoid confusing the notion of sponsorship with
support. The CEO of the company may support your project, but that is not the same
as sponsoring your initiative.
Sponsorship involves active and visible participation by senior business leaders
throughout the process. Unfortunately many executives do not know what this
sponsorship looks like. A change agent's or project leader's role includes helping
senior executives do the right things to sponsor the project.

Resistance management
Resistance from employees and managers is normal. Persistent resistance, however,
can threaten a project. The change management team needs to identify, understand
and manage resistance throughout the organization. Resistance management is the
processes and tools used by managers and executives with the support of the project
team to manage employee resistance.

Data collection, feedback analysis and corrective action

Employee involvement is a necessary and integral part of managing change.
Managing change is not a one way street. Feedback from employees is a key
element of the change management process. Analysis and corrective action based on
this feedback provides a robust cycle for implementing change.

Celebrating and recognizing success

Early successes and long-term wins must be recognized and celebrated. Individual
and group recognition is also a necessary component of change management in
order to cement and reinforce the change in the organization.
The final step in the change management process is the after-action review. It is at
this point that you can stand back from the entire program, evaluate successes and
failures, and identify process changes for the next project. This is part of the ongoing,
continuous improvement of change management for your organization and ultimately
leads to change competency.
SummaryThese eight elements comprise the areas or components of a change management
program. Along with the change management process, they create a system for managing
change. Good project managers apply these components effectively to ensure project success,

36

avoid the loss of valued employees, and minimize the negative impact of the change on
productivity and a company's customers.

***
There are several theories which explain the organization and its structure (EXHIBIT 1).
Classical organization theory includes the scientific management
approach, Weber's bureaucratic approach, and administrative theory.
The scientific management approach is based on the concept of planning of work to
achieve efficiency, standardization, specialization and simplification. The approach to
increased productivity is through mutual trust between management and workers. Taylor
(1947) proposed four principles of scientific management:
science, not rule-of-thumb;
scientific selection of the worker;
management and labour cooperation rather than conflict; and
scientific training of workers.
Show EXHIBIT 2 and discuss these principles.
Weber's bureaucratic approach considers the organization as a part of broader society.
The organization is based on the principles of:
structure;
specialization;
predictability and stability;
rationality; and
democracy.
Show EXHIBIT 3, and discuss Weber's bureaucratic approach. Observe that this
approach is considered rigid, impersonal, self-perpetuating and empire building.
Administrative theory was propounded by Henry Fayol and is based on several
principles of management (EXHIBIT 4). In addition, management was considered as a
set of planning, organizing, training, commanding and coordinating functions.
Neoclassical theory emphasizes individual or group behaviour and human relations in
determining productivity. The main features of the neoclassical approach are individual,
work group and participatory management. Show EXHIBIT 5 and discuss the principles.
Show EXHIBIT 6 on a modern approach to organization characteristics. Modern theories
are based on the concept that the organization is an adaptive system which has to adjust
to changes in its environment. Discuss the important characteristics of the modern
approach to organizations. Modern theories include the systems approach, the sociotechnical approach, and the contingency or situational approach.
The systems approach considers the organization as a system composed of a set of
inter-related - and thus mutually dependent - sub-systems. Thus the organization
consists of components, linking processes and goals (EXHIBIT 7).

37

The socio-technical approach considers the organization as composed of a social

system, technical system and its environment. These interact among themselves and it is
necessary to balance them appropriately for effective functioning of the organization.
The contingency or situational approach recognizes that organizational systems are
inter-related with their environment and that different environments require different
organizational relationships for effective working of the organization.
Ask participants whether they consider the research organization as a social system.
Since scientists constitute the core resource in a research organization, their growth is as
important as the growth of the organization. A social organization is characterized by
complexity, degrees of inter-dependence between sub-systems, openness, balance and
multiplicity of purposes, functions and objectives. Show EXHIBIT 8 and discuss each of
these characteristics.
Now move to goal setting in an organization. Ask participants "Why should goals be set?"
Goals are set to increase performance and provide control. Show EXHIBIT 9 and discuss
how goal setting improves performance. How are goals set? Following management by
objectives, the process of goal setting involves five steps (EXHIBIT 10). First, the overall
objectives of the organization are set and then an action plan is evolved. The second
step is to prepare members in the organization for successful implementation of the
action plan. Individual goals are set in the third step. Periodic appraisal and feedback is
the fourth step, to ensure smooth implementation of the action plan. Finally, an appraisal
of performance by results takes place.
Now discuss the concept of integration and coordination in the organization. These are
controlling mechanisms for smooth functioning of the organization. Organizational
differentiation is the unbundling and re-arranging of the activities. Integration is regrouping and re-linking them. The need for integration arises in the face of environmental
complexity, diversity and change. Show EXHIBIT 11 and discuss some of the important
reasons which necessitate integration.
How is integration achieved? Obviously, the structure of the organization should facilitate
proper coordination and integration of different specialized units. What could happen
were the organizational structure not proper? Integration is achieved through vertical
coordination along the hierarchy, decision making levels, and span of control (EXHIBIT
12). There are several methods to improve integration. These include rules and
procedures and professional training.
Next discuss the process in the organization, which involves the concept of power,
decision making and communication. Power refers to the ability to get an individual or
group to do something or to change in some way. Power could emanate from position,
economic status, knowledge, performance, personality, physical or ideological traits.
Observe that power is one of the strongest motives, and affects setting of objectives and
availability of resources in an organization. Next discuss the concept, and the various
types of organization-based power (EXHIBIT 13).
Communication is another important process in the organization and is a key mechanism
for achieving integration and coordination of the activities of specialized units at different
levels in the organization. Communication can be horizontal, downward or upward
(EXHIBIT 14).

38

Finally, discuss decision making in an organization. It begins with goal setting, identification
and evaluation of alternatives and the choice of criteria. Show EXHIBIT 15 and discuss the
important steps involved in decision making. There are several models of decision making
(EXHIBIT 16).

Formulating and implementing HR strategies

There is an ever-present risk that the concept of strategic HRM can
become somewhat nebulous nice to have but hard to realize. The danger
of creating a rhetoric/reality gap is acute. Broad and often bland
statements of strategic intent can be readily produced. What is much
more difficult is to turn them into realistic plans, which are then
implemented effectively. Strategic HRM is more about getting things done
than thinking about them. It leads to the formulation of HR strategies,
which first define what an organization intends to do in order to attain
defined goals in overall human resource management policy and in
particular areas of HR process and practice, and second set out how they
will be implemented.
Difficult though it may be, a strategic approach is desirable in order to
give a sense of direction and purpose and as a basis for the development
of relevant and coherent HR policies and practices.
Guidance on formulating and implementing HR strategies is given in this
chapter under the following headings:
-

fundamental process considerations;

characteristics of the process;
developing HR strategies;
setting out HR strategies;
conducting a strategic review;
implementing HR strategies.

FUNDAMENTAL PROCESS CONSIDERATIONS

When considering approaches to the formulation of HR strategy it is
necessary to underline the interactive (not unilinear) relationship between
business strategy and HRM, as have Hendry and Pettigrew (1990). They
emphasize the limits of excessively rationalistic models of strategic and HR
planning. The point that HR strategies are not necessarily developed
formally and systematically but may instead evolve and emerge has been
made by Tyson (1997): The process by which strategies come to be
realized is not only through formal HR policies or written directions:
strategy realization can also come from actions by managers and others.
Since actions provoke reactions (acceptance, confrontation, negotiation
etc) these reactions are also part of the strategy process.

39

Perhaps the best way to look at the reality of HR strategy formulation is to

remember Mintzberg, Quinn and Jamess (1988) statement that strategy
formulation is about preferences, choices, and matches rather than an
exercise in applied logic. It is also desirable to follow Mintzbergs analysis
and treat HR strategy as a perspective rather than a rigorous procedure
for mapping the future. Moore (1992) has suggested that Mintzberg has
looked inside the organization, indeed inside the heads of the collective
strategists, and come to the conclusion that, relative to the organization,
strategy is analogous to the personality of an individual. As Mintzberg sees
them, all strategies exist in the minds of those people they make an
impact upon. What is important is that people in the organization share
the same perspective through their intentions and/or by their actions.
This is what Mintzberg calls the collective mind, and reading that mind is
essential if we are to understand how intentions become shared, and
how action comes to be exercised on a collective yet consistent basis.
No one else has made this point so well as Mintzberg, and what the
research conducted by Armstrong and Long (1994) revealed is that
strategic HRM is being practised in the organizations they visited in the
Mintzbergian sense. In other words, intentions are shared amongst the
top team and this leads to actions being exercised on a collective yet
consistent basis. In each case the shared intentions emerged as a result of
strong leadership from the chief executive with the other members of the
top team acting jointly in pursuit of 48 l Strategic HRM in action welldefined goals. These goals indicated quite clearly the critical success
factors of competence, commitment, performance, contribution and
quality that drive the HR strategy.
CHARACTERISTICS OF THE PROCESS
Propositions
Boxall (1993) has drawn up the following propositions about the
formulation of HR strategy from the literature:
- The strategy formation process is complex, and excessively rationalistic
models that advocate formalistic linkages between strategic planning and
HR planning are not particularly helpful to our understanding of it.
- Business strategy may be an important influence on HR strategy but it is
only
one
of
several
factors.
- Implicit (if not explicit) in the mix of factors that influence the shape of
HR strategies is a set of historical compromises and trade-offs from
stakeholders.
It is also necessary to stress that coherent and integrated HR strategies
are only likely to be developed if the top team understands and acts upon
the strategic imperatives associated with the employment, development
40

and motivation of people. This will be achieved more effectively if there is

an HR director who is playing an active and respected role as a business
partner. A further consideration is that the effective implementation of HR
strategies depends on the involvement, commitment and cooperation of
line managers and staff generally. Finally, there is too often a wide gap
between the rhetoric of strategic HRM and the reality of its impact, as
Gratton et al (1999) emphasize. Good intentions can too easily be
subverted by the harsh realities of organizational life. For example,
strategic objectives such as increasing commitment by providing more
security and offering training to increase employability may have to be
abandoned or at least modified because of the short-term demands made
on the business to increase shareholder value.
Schools of strategy development
Purcell (2001) has identified three main schools of strategy development:
the design school, the process school and the configuration school.
The design school is deliberate and is based on the assumption of
economic rationality. It uses quantitative rather than qualitative tools of
analysis and Formulating and implementing HR strategies l 49 focuses on
market opportunities and threats. What happens inside the company is
mere administration or operations.
The process school adopts a variety of approaches and is concerned with
how strategies are made and what influences strategy formulation: It is
much more a study of what actually happens with explanations coming
from experience rather than deductive theory. As Purcell suggests, the
implication of the design concept is that everything is possible, while that
of the process school is that little can be done except swim with the tide
of events. The rationalist approach adopted by Purcells design school
broadly corresponds with the classical approach to strategy, and Poeter
(1985) is a typical representative of it. Purcells process school is the
postmodern version of strategy of which Mintzberg is the most notable
exponent. But as Grant (1991), cited by Purcell (2001), has indicated, the
rationalist approach may indeed be over-formalized and rely too much on
quantitative data, but the Mintzberg approach, which downplays the role
of systematic analysis and emphasizes the role of intuition and vision, fails
to provide a clear basis for reasoned choices.
The configuration school draws attention to the beliefs that, first,
strategies vary according to the life cycle of the organization, second, they
will be contingent to the sector of the organization and, third, they will be
about change and transformation. The focus is on implementation
strategies, which is where Purcell thinks HR can play a major role.
Levels of strategic decision making

41

Ideally, the formulation of HR strategies is conceived as a process that is

closely aligned to the formulation of business strategies. HR strategy can
influence as well as be influenced by business strategy. In reality,
however, HR strategies are more likely to flow from business strategies,
which will be dominated by product/market and financial considerations.
But there is still room for HR to make a useful, even essential,
contribution at the stage when business strategies are conceived, for
example by focusing on resource issues. This contribution may be more
significant if strategy formulation is an emergent or evolutionary process
HR strategic issues will then be dealt with as they arise during the course
of formulating and implementing the corporate strategy.
A distinction is made by Purcell (1989) and Purcell and Ahlstrand (1994)
between:
- upstream first-order decisions, which are concerned with the long-term
direction of the enterprise or the scope of its activities;
- downstream second-order decisions, which are concerned with internal
operating procedures and how the firm is organized to achieve its goals;
-downstream third-order decisions, which are concerned with choices on
human resource structures and approaches and are strategic in the sense
that they establish the basic parameters of employee relations
management in the firm.
It can indeed be argued that HR strategies, like other functional strategies
such as product development, manufacturing and the introduction of new
technology, will be developed within the context of the overall business
strategy, but this need not imply that HR strategies come third in the
pecking order. Observations made by Armstrong and Long (1994) during
research into the strategy formulation processes of 10 large UK
organizations suggested that there were only two levels of strategy
formulation: 1) the corporate strategy relating to the vision and mission of
the organization but often expressed in terms of marketing and financial
objectives; and 2) the specific strategies within the corporate strategy
concerning
productmarket
development, acquisitions and divestments, human resources, finance,
new technology, organization and such overall aspects of management as
quality, flexibility, productivity, innovation and cost reduction.
Strategic options and choices
The process of developing HR strategies involves generating strategic HRM
options and then making appropriate strategic choices. It has been noted
by Cappelli (1999) that: The choice of practices that an employer pursues
is heavily contingent on a number of factors at the organizational level,
including their own business and production strategies, support of HR
policies, and cooperative labour relations. The process of developing HR
42

strategies involves the adoption of a contingent approach in generating

strategic HRM options and then making appropriate strategic choices.
There is seldom if ever one right way forward.
Choices should relate to but also anticipate the critical needs of the
business. They should be founded on detailed analysis and study, not just
wishful thinking, and should incorporate the experienced and collective
judgement of top management about the organizational requirements,
while also taking into account the needs of line managers and employees
generally. The emerging strategies should anticipate the problems of
implementation that may arise if line managers are not committed to the
strategy and/or lack the skills and time to play their part, and the
strategies should be capable of being turned into actionable programmes.
DEVELOPING HR STRATEGIES
An overall approach
The following six-step approach is proposed by Gratton (2000):
1. Build the guiding coalition involve people from all parts of the
business.
2. Image the future create a shared vision of areas of strategic
importance.
3. Understand current capabilities and identify the gap establish where
the organization is now and the gap between aspirations for the future
and
the
reality
of
the
present.
4. Create a map of the system ensure that the parts can be built into a
meaningful
whole.
5. Model the dynamics of the system ensure that the dynamic nature of
the
future
is
taken
into
account.
6. Bridge into action agree the broad themes for action and the specific
issues related to those themes, develop guiding principles, involve line
managers and create cross-functional teams to identify goals and
performance indicators.
But many different routes may be followed when formulating HR
strategies there is no one right way. On the basis of their research in 30
well-known companies, Tyson and Witcher (1994) commented that: The
different approaches to strategy formation reflect different ways to
manage change and different ways to bring the people part of the
business into line with business goals.
In developing HR strategies, process may be as important as content.
Tyson and Witcher (1994) also noted from their research that: The
process of formulating HR strategy was often as important as the content
of the strategy ultimately agreed. It was argued that, by working through

43

strategic issues and highlighting points of tension, new ideas emerged and
a consensus over goals was found.
A methodology for formulating HR strategies
A methodology for formulating HR strategies was developed by Dyer
andHolder (1988) as follows:
1. Assess feasibility from an HR point of view, feasibility depends on
whether the numbers and types of key people required to make the
proposal succeed can be obtained on a timely basis and at a reasonable
cost, and whether the behavioural expectations assumed by the strategy
are
realistic
(eg
retention
rates
and
productivity
levels).
2. Determine desirability examine the implications of strategy in terms
of sacrosanct HR policies (eg a strategy of rapid retrenchment would have
to be called into question by a company with a full employment policy).
3. Determine goals these indicate the main issues to be worked on and
they derive primarily from the content of the business strategy. For
example, a strategy to become a lower-cost producer would require the
reduction of labour costs. This in turn translates into two types of HR
goals: higher performance standards (contribution) and reduced
headcounts (composition).
4. Decide means of achieving goals the general rule is that the closer
the external and internal fit, the better the strategy, consistent with the
need to adapt flexibly to change. External fit refers to the degree of
consistency between HR goals on the one hand and the exigencies of the
underlying business strategy and relevant environmental conditions on the
other. Internal fit measures the extent to which HR means follow from the
HR goals and other relevant environmental conditions, as well as the
degree of coherency or synergy among the various HR means.
Specific approaches to strategy development
Three specific approaches to the development of HR strategies were
defined by Delery and Doty (1996) as the universalistic, the contingency
and the configurational. Richardson and Thompson (1999) redefined the
first two approaches as best practice and best fit, and retained the word
configurational, meaning the use of bundles, as the third approach.
Guest (1997) refers to fit as an ideal set of practices, fit as contingency,
and fit as bundles. These approaches are discussed below.
The best practice approach
This approach is based on the assumption that there is a set of best HRM
44

practices and that adopting them will inevitably lead to superior

organizational performance. Four definitions of best practice are given in
Table 5.1.
The best practice rubric has been attacked by a number of
commentators. Cappelli and Crocker-Hefter (1996) comment that the
notion of a single set of best practices has been overstated: There are
examples in virtually every industry of firms that have very distinctive
management practices. Distinctive human resource practices shape the
core competencies that determine how firms compete. Purcell (1999) has
also criticized the best practice or universalist view by pointing out the
inconsistency between a belief in best practice and the resource-based
view that focuses on the intangible assets, including HR, that allow the
firm to do better than its competitors. He asks how can the universalism
of best practice be squared with the view that only some resources and
routines are important and valuable by being rare and imperfectly
imitable? The danger, as Legge (1995) points out, is that of
mechanistically matching strategy with HRM policies and practices.
In accordance with contingency theory, which emphasizes the importance
of interactions between organizations and their environments so that what
organizations do is dependent on the context in which they operate, it is
difficult to accept that there is any such thing as universal best practice.
What works well in one organization will not necessarily work well in
another because it may not fit its strategy, culture, management style,
technology or working practices. As Becker et al (1997) remark:
Organizational high-performance work systems are highly idiosyncratic
and must be tailored carefully to each firms individual situation to achieve
optimum results. But a knowledge of best practice as long as it is
understood why it is best practice can inform decisions on what practices
are most likely to fit the needs of the organization. And Becker and
Gerhart (1996) argue that the idea of best practice might be more
appropriate for identifying the principles underlying the choice of
practices, as opposed to the practices themselves.
Best fit
The best fit approach emphasizes the importance of ensuring that HR
strategies are appropriate to the circumstances of the organization,
including its culture, operational processes and external environment. HR
strategies have to take account of the particular needs of both the
organization and its people. For the reasons given above, it is accepted by
most commentators that best fit is more important than best practice.
There can be no universal prescriptions for HRM policies and practices. It
all depends. This is not to say that good practice, or leading edge
practice, ie practice that does well in one successful environment, should
be ignored. Benchmarking (comparing what the organization does with
45

what is done elsewhere) is a valuable way of identifying areas for

innovation or development that are practised to good effect elsewhere by
leading companies. But having learnt about what works and, ideally, what
does not work in comparable organizations, it is up to the firm to decide
what may be relevant in general terms and what lessons can be learnt
that can be adapted to fit its particular strategic and operational
requirements. The starting point should be an analysis of the business
needs of the firm within its context (culture, structure, technology and
processes). This may indicate clearly what has to be done. Thereafter, it
may be useful to pick and mix various best practice ingredients, and
develop an approach that applies Formulating and implementing HR
strategies l 55 those that are appropriate in a way that is aligned to the
identified business needs.
But there are problems with the best fit approach, as stated by Purcell
(1999) who wrote: Meanwhile, the search for a contingency or matching
model of HRM is also limited by the impossibility of modeling all the
contingent variables, the difficulty of showing their interconnection, and
the way in which changes in one variable have an impact on others. In
Purcells view, organizations should be less concerned with best fit and
best practice and much more sensitive to processes of organizational
change so that they can avoid being trapped in the logic of rational
choice.
The configurational approach (bundling)
As Richardson and Thompson (1999) comment: A strategys success
turns on combining vertical or external fit and horizontal or internal fit.
They conclude that a firm with bundles of HR practices should have a
higher level of performance, providing it also achieves high levels of fit
with its competitive strategy. Emphasis is given to the importance of
bundling the development and implementation of several HR practices
together so that they are interrelated and therefore complement and
reinforce each other. This is the process of horizontal integration, which is
also referred to as the use of complementarities (MacDuffie, 1995) or as
the adoption of a configurational mode (Delery and Doty, 1996).
MacDuffie (1995) explained the concept of bundling as follows: Implicit in
the notion of a bundle is the idea that practices within bundles are
interrelated and internally consistent, and that more is better with
respect to the impact on performance, because of the overlapping and
mutually reinforcing effect of multiple practices.
Dyer and Reeves (1995) note that: The logic in favour of bundling is
straightforward Since employee performance is a function of both ability
and motivation, it makes sense to have practices aimed at enhancing
both. Thus there are several ways in which employees can acquire needed
46

skills (such as careful selection and training) and multiple incentives to

enhance motivation (different forms of financial and non-financial
rewards). Astudy by Dyer and Reeves (1995) of various models listing HR
practices that create a link between HRM and business performance found
that the activities appearing in most of the models were involvement,
careful selection, extensive training and contingent compensation.
On the basis of his research in flexible production manufacturing plants in
the United States, MacDuffie (1995) noted that flexible production gives
employees a much more central role in the production system. They have
to resolve problems as they appear on the line and this means that they
56 l Strategic HRM in action have to possess both a conceptual grasp of
the production process and the analytical skills to identify the root cause
of problems. But the multiple skills and conceptual knowledge developed
by the workforce in flexible
production firms are of little use unless workers are motivated to
contribute mental as well as physical effort. Such discretionary effort on
problem solving will only be contributed if workers believe that their
individual interests are aligned with those of the company, and that the
company will make a reciprocal investment in their well-being. This means
that flexible production techniques have to be supported by bundles of
high-commitment human resource practices such as employment security,
pay that is partly contingent on performance, and a reduction of status
barriers between managers and workers. Company investment in building
worker skills also contributes to this psychological contract of reciprocal
commitment. The research indicated that plants using flexible production
systems that bundle human resource practices into a system that is
integrated with production/business strategy outperform plants using
more traditional mass production systems in both productivity and
quality.
Following research in 43 automobile processing plants in the United
States, Pil and MacDuffie (1996) established that, when a highinvolvement work practice is introduced in the presence of complementary
HR practices, not only does the new work practice produce an incremental
improvement in performance but so do the complementary practices.
The aim of bundling is to achieve coherence, which is one of the four
meanings of strategic HRM defined by Hendry and Pettigrew (1986).
Coherence exists when a mutually reinforcing set of HR policies and
practices have been developed that jointly contribute to the attainment of
the organizations strategies for matching resources to organizational
needs, improving performance and quality and, in commercial
enterprises, achieving competitive advantage.

47

The process of bundling HR strategies is an important aspect of the

concept of strategic HRM. In a sense, strategic HRM is holistic; it is
concerned with the organization as a total entity and addresses what
needs to be done across the organization as a whole in order to enable it
to achieve its corporate strategic objectives. It is not interested in isolated
programmes and techniques, or in the ad hoc development of HR
practices.
In their discussion of the four policy areas of HRM (employee influence,
human resource management flow, reward systems and work systems)
Beer et al (1984) suggested that this framework can stimulate managers
to plan how to accomplish the major HRM tasks in a unified, coherent
manner rather than in a disjointed approach based on some combination
of past practice, accident and ad hoc response to outside pressures.
David Guest (1989b) includes in his set of propositions about HRM the
point that strategic integration is about, inter alia, the ability of the
organization to ensure that the various aspects of HRM cohere. One way
of looking at the concept is to say that some measure of coherence will be
achieved if there is an overriding strategic imperative or driving force such
as customer service, quality, performance or the need to develop skills
and competences, and this initiates various processes and policies that are
designed to link together and operate in concert to deliver certain defined
results. For example, if the driving force were to improve performance,
competence profiling techniques could be used to specify recruitment
standards, identify learning and development needs, and indicate the
standards of behaviour or performance required. The competence
frameworks could be used as the basis for human resource planning and
in development centres. They could also be incorporated into performance
management processes in which the aims are primarily developmental
and competencies are used as criteria for reviewing behaviour and
assessing learning and development needs. Job evaluation could be based
on levels of competence, and competence-based pay systems could be
introduced. This ideal will be difficult to achieve as a grand design that
can be put into immediate effect, and may have to be developed
progressively.

The problem with the bundling approach is that of deciding which is the
best way to relate different practices together. There is no evidence that
one bundle is generally better than another, although the use of
performance management practices and competence frameworks are two
ways that are typically adopted to provide for coherence across a range of
HR activities. Pace the findings of MacDuffie, there is no conclusive proof
that in the UK bundling has actually improved performance.

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Culture integration
HR strategies need to be congruent with the existing culture of the
organization or designed to produce cultural change in specified directions.
This will be a necessary factor in the formulation stage but could be a vital
factor when it comes to implementation. In effect, if what is proposed is in
line with the way we do things around here, then it will be more readily
accepted. However, in the more likely event that it changes the way we
do things around here, then careful attention has to be given to the real
problems that may occur in the process of trying to embed the new
initiative in the organization.
Fit with the business strategy
The key business issues that may impact on HR strategies include:
- intentions concerning growth or retrenchment, acquisitions, mergers,
divestments, diversification, product/market development;
- proposals on increasing competitive advantage through innovation
leading to product/service differentiation, productivity gains, improved
quality/customer service, cost reduction (downsizing);
- the felt need to develop a more positive, performance-orientated culture
and other culture management imperatives associated with changes in the
philosophies of the organization in such areas as gaining commitment,
mutuality, communications, involvement, devolution and teamwork.
Business strategies in these areas may be influenced by HR factors,
although not excessively so. HR strategies are concerned with making
business strategies work. But the business strategy must take into
account key HR opportunities and constraints.
It is therefore necessary to analyse the existing culture to provide
information on how HR strategies will need to be shaped. The analysis
may cover the following 12 points listed by Cooke and Lafferty (1989) in
their organizational culture inventory:
1.humanistic-helpful organizations managed in a participative and
person-centred way;
2.affiliative organizations that place a high priority on constructive
relationships;
3.approval organizations in which conflicts are avoided and interpersonal
relationships are pleasant at least superficially;
4.conventional conservative, traditional and bureaucratically controlled
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organizations;
5.dependent hierarchically controlled and non-participative
organizations;
6.avoidance organizations that fail to reward success but punish
mistakes;
7.oppositional organizations in which confrontation prevails and
negativism is rewarded;
8.power organizations structured on the basis of the authority inherent
in members positions;
9.competitive a culture in which winning is valued and members are
rewarded for outperforming one another;
10.competence/perfectionist organizations in which perfectionism,
persistence and hard work are valued;
11.achievement organizations that do things well and value members
who set and accomplish challenging but realistic goals;
12.self-actualization organizations that value creativity, quality over
quantity, and both task accomplishment and individual growth.
Achieving vertical fit integrating business and HR strategies Wright and
Snell (1998) suggest that seeking fit requires knowledge of the skills and
behaviour necessary to implement the strategy, knowledge of the HRM
practices necessary to elicit those skills and behaviours, and the ability to
implement the desired system of HRM practices quickly.
When considering how to integrate business and HR strategies it should be
remembered that business and HR issues influence each other and in turn
influence corporate and business unit strategies. It is also necessary to
note that, in establishing these links, account must be taken of the fact
that strategies for change have also to be integrated with changes in the
external and internal environments. Fit may exist at a point in time but
circumstances will change and fit no longer exists. An excessive pursuit of
fit with the status quo will inhibit the flexibility of approach that is
essential in turbulent conditions. This is the temporal factor in achieving
fit identified by Gratton et al (1999). An additional factor that will make
the achievement of good vertical fit difficult is that the business strategy
may not be clearly defined it could be in an emergent or evolutionary
state. This would mean that there could be nothing with which to fit the
HR strategy.

50

Making the link

But an attempt can be made to understand the direction in which the
organization is going, even if this is not expressed in a formal strategic
plan. All businesses have strategies in the form of intentions although
these may be ill formed and subject to change. The ideal of achieving a
link in rigorous terms may be difficult to attain. Cooke and Armstrong
(1990) suggested that one approach might be to find a means of
quantifying the additional resources required by HR overall and at the
level of each element of HR strategy, and measuring and comparing the
marginal return on investing in each element. But it is highly unlikely that
this approach would be practicable.
The link must therefore be judgemental, but it could still be fairly rigorous.
Conceptually, the approach would be to develop a matrix, as illus- 60 l
Strategic HRM in action trated in Table 5.2, which for each of the key
elements of business strategy identifies the associated key elements of HR
strategy.
Even if the approach cannot be as rigorous as this, the principle of
considering each key area of business strategy and, reciprocally, the HR
implications provides a basis for integration.
An alternative framework for linking business and HR strategies is a
competitive strategy approach, which identifies the different HR strategies
that can relate to the firms competitive strategies, including those listed
by Porter (1985). An illustration of how this might be expressed is given in
Table 5.3.
Achieving horizontal integration
Horizontal integration or fit is achieved when the various HR strategies
cohere and are mutually supporting. This can be attained by the process
of bundling as described earlier. Bundling is carried out by, first,
identifying appropriate HR practices, second, assessing how the items in
the bundle can be linked together so that they become mutually
reinforcing and therefore coherent, which may mean identifying
integrating practices such as the use of competence-based processes and
performance management, and, finally, drawing up programmes for the
development of these practices, paying particular attention to the links
between them.
Integrative processes
Two frequently used integrating processes are performance management
51

and the use of competencies. The ways in which they can provide the
glue between different HR practices are illustrated in Figures 5.1 and 5.2.
Horizontal integration can also be achieved by the development of career
family grading structures, which define the competencies required at each
level, thus indicating career paths, and also serve as the framework for
pay structures.
Linking HR practices
Bundling is not just a pick-and-mix process. The aim should be, first, to
establish overriding areas of HR practice that need to be applied generally
and, second, to examine particular practices to establish links or common
ground between them so that they do provide mutual support.
The overarching areas of HR practice will be concerned with organization
development, the management of change, creating a positive employment
relationship, developing mutual commitment policies, communicating with
employees and giving employees a voice (involvement and participation).
These should be taken into account generally and their relevance should
be considered when introducing any specific practices concerned with
resourcing, human resource development and reward management. It is
necessary to take deliberate steps in the latter areas to achieve
coherence.
SETTING OUT THE STRATEGY
The following are the headings under which a strategy and the plans for
implementing it could be set out:
1. Basis
business needs in terms of the key elements of the business strategy;
environmental factors and analysis (SWOT/PESTLE);
cultural factors possible helps or hindrances to implementation.
2. Content details of the proposed HR strategy.
3. Rationale the business case for the strategy against the background
of business needs and environmental/cultural factors.
4. Implementation plan
action programme;
responsibility for each stage;
resources required;
proposed arrangements for communication, consultation, involvement
and training;
project management arrangements.
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5. Costs and benefits analysis an assessment of the resource

implications of the plan (costs, people and facilities) and the benefits that
will accrue, for the organization as a whole, for line managers and for
individual employees (so far as possible these benefits should be
quantified in terms of value added).
But there is no standard model; it all depends on the circumstances of the
organization.

CONDUCTING A STRATEGIC REVIEW

Although HR strategies can emerge and evolve under the influence of
events, there is much to be said for adopting a systematic approach to
their formulation. This can take the form of a strategic review, which
assesses strategy requirements in the light of an analysis of present and
future business and people needs. Such a review provides answers to
three basic questions:
1. Where are we now?
2. Where do we want to be in one, two or three years time?
3. How are we going to get there?
The stages of a strategic review are illustrated in Figure 5.3.
The following is an example of a strategic review as carried out in a large
not-for-profit organization.
HR strategic review
Background
A major strategic review of the business has taken place and a new Chief
Executive and other members of the senior management team have been
appointed within the last two years. In essence, the review led to a
business strategy that:
- redefined the purpose of the organization;
- emphasized that the core purpose will continue to be given absolute
priority;
- set out the need to secure the future of activities outside its core
purpose; and importantly
- made proposals designed to shape and secure the financial future.
HR issues emerging from the strategic review
53

The key HR issues emerging from the strategic review are that:
- it will lead to the transformation of the organization;
- this involves major cultural changes, for example:
* some change in the focus to activities other than the core activity;
* a move away from a paternalistic, command-and-control organization;
* introducing processes that enable the organization to operate more
flexibly;
* clarifying expectations but simultaneously gaining commitment to
managing and carrying out activities on the basis of increased
selfregulation and decision making at an operational level rather than
pressures or instructions from above;
* more emphasis on managerial as distinct from technical skills for
managers;
* greater concentration on the financial requirement to balance income
and expenditure while continuing to develop and improve service delivery;
- a significant change in the regional organization and the roles of the
management team and regional controllers/managers is taking place; this
means that new skills will have to be used that some existing managers
may not possess;
- from a human resource planning viewpoint, decisions will have to be
made on the capabilities required in the future at managerial and other
levels, and these may involve establishing policies for recruiting new
managerial talent from outside the organization rather than relying on
promotion from within; l difficult decisions may have to be made on
retaining some existing managers in their posts who lack the required
skills, and there may be a requirement to reduce staff numbers in the
future;
- more positively, management development and career planning activities
will need to be introduced that reflect the changing culture and structure
of the organization and the different roles managers and others will be
expected to play.
The provision of the core HR services such as recruitment and training is
not an issue.
Steps to address the issues
Steps have already been taken to address these issues, for example:
- major communication initiatives introduced by the Chief Executive;
- a review of the pay system, which will no doubt bear in mind the
unsatisfactory experience of the organization in applying performance
management/pay procedures a few years ago;
- decisions on the shape of the regional organization;
54

- an analysis and diagnosis on cultural issues, ie what the present culture

is and what it should become.
Future strategy
Against this background, it is necessary to build on the steps already
taken by:
- adopting a systematic approach to the achievement of culture change,
bearing in mind that this can be a long haul because it involves changing
behaviour and attitudes at all levels and is difficult if not impossible to
attain simply by managerial dictation;
- developing an HR strategy that, as a declaration of intent, will provide a
framework for the development of HR processes and procedures that
address the issues referred to above; this involves:
> strategic integration, matching HR policies and practices to the
business strategy;
> a coherent approach to the development of these processes so that
HR activities are interrelated and mutually reinforcing;
> a planned approach, but one that is not bureaucratic;
> an emphasis on the need to achieve flexibility, quality and costeffectiveness in the delivery of HR services;
- focusing on the activities that will not only deal with the HR issues, but
also help to achieve culture change, namely:The HR strategy will have to
establish priorities. Because the thrust of the strategic review initially
makes most impact on managers, the priority may well be given to people
at this level but without neglecting the needs of the rest of the staff.The
problem with strategic HRM as noted by Gratton et al (1999) is that, too
often, there is a gap between what the strategy states will be achieved
and what actually happens to it. As they put it:
One principal strand that has run through this entire book is the
disjunction between rhetoric and reality in the area of human resource
management, between HRM theory and HRM practice, between what the
HR function says it is doing and how that practice is perceived by
employees, and between what senior management believes to be the role
of the HR function, and the role it actually plays.
The factors identified by Gratton et al that contribute to creating this gap
included:
- the tendency of employees in diverse organizations only to accept initiatives they
perceive to be relevant to their own areas;
- the tendency of long-serving employees to cling to the status quo;

55

- complex or ambiguous initiatives may not be understood by employees or will be

perceived differently by them, especially in large, diverse organizations;
- it is more difficult to gain acceptance of non-routine initiatives;
- employees will be hostile to initiatives if they are believed to be in conflict with the
organizations identity, eg downsizing in a culture of job-for-life;
- the initiative is seen as a threat; inconsistencies between corporate strategies and
values;
- the extent to which senior management is trusted;
- the perceived fairness of the initiative;
- the extent to which existing processes could help to embed the initiative;
- a bureaucratic culture that leads to inertia.
Barriers to the implementation of HR strategies
Each of the factors listed by Gratton et al can create barriers to the successful
implementation of HR strategies. Other major barriers include failure to understand the
strategic needs of the business, inadequate assessment of the environmental and cultural
factors that affect the content of the strategies, and the development of ill-conceived and
irrelevant initiatives, possibly because they are current fads or because there has been
an illdigested analysis of best practice that does not fit the organizations requirements.
These problems are compounded when insufficient attention is paid
to practical implementation problems, the important role of line managers in
implementing strategies and the need to have established supporting processes for the
initiative (eg performance management to support performance pay).
Overcoming the barriers
To overcome these barriers it is necessary to: 1) conduct a rigorous preliminary analysis
of needs and requirements; 2) formulate the strategy; 3) enlist support for the strategy;
4) assess barriers; 5) prepare action plans; 6) project-manage implementation; and 7)
follow up and evaluate progress so that remedial action can be taken as necessary.
resourcing: deciding what sort of people are required and ensuring that they are
available;
human resource development: identifying the skills required, auditing the skills
available, taking steps to match skills to present and future business requirements and
initiating processes for enhancing organizational and individual learning related to
business needs;
reward: using reward processes to ensure that people are valued according to their
contribution and to convey messages about the behaviour, capabilities and results
expected of them;
employee relations: building on the steps already taken to communicate to employees
and to involve them in decision-making processes on matters that concern them.

56

IMPLEMENTING HR STRATEGIES
Because strategies tend to be expressed as abstractions, they must be translated into
programmes with clearly stated objectives and deliverables. But getting strategies into
action is not easy. The term strategic HRM has been devalued in some quarters,
sometimes to mean no more than a few generalized ideas about HR policies and at other
times to describe a short-term plan, for example to increase the retention rate of
graduates. It must be emphasized that HR strategies are not just programmes, policies,
or plans concerning HR issues that the HR department happens to feel are important.
Piecemeal initiatives do not constitute strategy.

57