Strategic Management of human resources | Management Optional Notes for UPSC PDF Download

Introduction

• Strategic Human Resource Management (SHRM) is an effective approach to managing human resources, providing a strategic framework to support long-term business objectives and outcomes. This approach addresses enduring people-related issues and broader concerns related to organizational structure, quality, culture, values, commitment, and aligning resources with future needs. 
• Strategic Human Resource Management is a systematic process for managing a firm's human resources. While it has been evolving for several decades, it is still considered a novel concept in management. Traditional HR functions, encompassing various employment practices like recruitment, selection, performance appraisal, training and development, and administration of compensation and benefits, are integrated with business strategy through SHRM. 
• This approach involves a flexible plan and utilization of human resources to achieve the targeted goals of multinational firms, enabling organizations to compete effectively in a challenging marketplace.

Components of SHRM

• Strategic HRM emphasizes the need for human resource plans and strategies to be developed in alignment with overall organizational strategies and objectives, taking into account the dynamic nature of the external environment. 
• It is a framework that demands interpretation and customization by experts to ensure the optimal alignment between human resource and business strategies and plans. Therefore, Strategic Human Resource Management involves aligning all human resource functions with overarching organizational goals and being mindful of the external environment.

Theoretical review of Strategic human resource management

• The realm of human resource strategy diverges from traditional HR management research in two significant manners.
• Initially, Strategic Human Resource Management (SHRM) centers on organizational performance as opposed to individual performance.
• Additionally, SHRM underscores the role of human resource management systems in addressing business challenges rather than focusing on individual HR management practices in isolation.
• Previous studies on SHRM indicate positive correlations with various conceptualizations of HRM and firm performance (Wright et al., 2005).
• The strategic dimension of human resource management gained attention from researchers in the late 1970s, marked by fundamental shifts in the literature.
• This era witnessed a transition from the conventional personnel administration approach to the contemporary concept of human resources.
• There was a reorientation of generic strategic models to focus on internal aspects of the organization.
• Strategic Human Resource Management is a purposeful arrangement of human resource deployment and activities designed to facilitate the organization in achieving its goals and objectives (Noe et al., 2007).
• According to Wright and McMahan, SHRM is defined as "the pattern of planned human resource deployments and activities intended to enable the firm to achieve its goals" (1992).

Evolution of SHRM

• The concept of Strategic Human Resource Management (SHRM) emerged in the early 1990s, initially defined as the management of activities influencing individuals' behavior in their efforts to formulate and implement business strategic needs. SHRM addresses extensive organizational issues related to structural and cultural changes, organizational efficiency, resource alignment with future requirements, development of distinctive capabilities, knowledge management, and change management. It deals with human capital requirements and process capabilities development. 
• In essence, SHRM tackles significant people-related issues influenced by the organization's strategic plans. In theoretical terms, SHRM is described as "a distinctive approach to employment management seeking competitive advantage through the strategic deployment of a highly committed and capable workforce, using a range of cultural, structural, and personnel techniques" (Storey, 2001: 6). 
• The basic representation of the SHRM model establishes a connection between a firm's HR architecture and its performance. HR architecture encompasses systems, practices, competencies, and employee behaviors reflecting the development and management of the firm's strategic human capital. SHRM primarily focuses on actions that differentiate the firm from its competitors (Purcell, 1999). Hendry and Pettigrew (1986) proposed four meanings: the use of planning; a coherent approach to designing and managing personnel systems based on an employment policy and workforce strategy, often supported by a 'philosophy'; aligning HRM activities and policies with explicit business strategy; viewing the organization's people as a 'strategic resource' for achieving 'competitive advantage'. Boxall (1996) emphasized that critical HRM concerns, such as executive leadership and labor relations patterns, are strategic in any firm. His underlying principle for strategic HRM is the clear advantage of having an agreed and understood basis for developing long-term approaches to people management.
• As per Lengnick-Hall and Lengnick-Hall (1990), achieving competitive advantage is the primary concept. The role of strategic human resources aims to align human resource strategies and practices with overall business strategy. In this context, HR professionals strive to become strategic partners, ensuring the success of business strategies. Fulfilling this role enhances a business's capability to implement its strategies effectively. The translation of business strategies into HR practices benefits a business in three ways. Firstly, the business can adapt to change swiftly due to the short time span from strategy conception to execution. Secondly, the business can meet customer demands as its customer service strategies are translated into specific policies and practices. Thirdly, the business can achieve financial performance through more efficient strategy implementation.
• Strategic human resource management provides a perspective where critical issues or success factors related to people can be addressed, and strategic decisions are made that significantly impact the long-term success of the organization. The fundamental objective of strategic human resource management is to establish strategic capability, ensuring that the organization possesses skilled, committed, and well-motivated employees essential for sustained competitive advantage. Its aim is to offer a sense of direction in an often unpredictable environment, ensuring the business needs of the organization and the individual and collective needs of its workforce are met through the development and implementation of coherent and effective human resource strategies and programs.
• Dyer and Holder (1988) noted that strategic human resource management should offer "unifying frameworks that are simultaneously broad, contingency-based, and integrative." According to Storey (1989), soft strategic HRM places greater emphasis on the human relations aspect of people management, highlighting continuous development, communication, involvement, job security, quality of working life, and work-life balance. 
• On the other hand, 'hard strategic HRM' emphasizes the returns gained by investing in human resources for the benefit of the business. Strategic human resource management seeks to achieve a proper balance between the hard and soft elements. While organizations are driven by the need to achieve their purpose and ensure effective resource utilization, they should also consider the human aspects inherent in the concept of soft strategic HRM. There is a widespread belief in the business world that an organization's human resources can be a source of competitive advantage if the policies and practices for managing people align with strategic goals and objectives. Strategic human resource management underscores the importance of establishing alignment between human resource policies and organizational strategic goals.

The Impact of Strategic human resource management implementation on organizational performance

Various elements influence the strategic dimensions of human resources. Internal factors encompass the organization's structure, culture, competencies, internal policies, and processes. External factors comprise the market environment, competition, government regulations, and technological advancements.

Approaches of Strategic Human Resource Management

There are five methods for Strategic Human Resource Management, which encompass resource-based strategy, attaining strategic alignment, high-performance management, high-commitment management, and high-involvement management.

The Resource-Based Approach

• The resource-based view is a significant theoretical framework in discussions about Strategic Human Resource Management. In this approach, the primary focus is on achieving sustainable competitive advantage through the effective utilization of organizational resources (Wright et al., 2001). The main goal of the resource-based human resource strategy is to develop strategic capabilities that align resources with opportunities, extracting additional value through their effective utilization (Barney, 1991). 
• The resource-based approach aims to enhance the firm's strategic capability by developing managers and employees who can strategically plan and comprehend major strategic issues. This approach is grounded in the belief that competitive advantage is achieved when a firm can acquire and develop human resources that enable quicker learning and more effective application of that learning compared to competitors (Hamel and Prahalad, 1989). Kamoche (1996) suggests that, in the resource-based view, the firm is perceived as a combination of tangible and intangible resources and capabilities essential for product/market competition. 
• Following human capital theory, the resource-based theory emphasizes that investing in people enhances their value to the firm. The strategic objective is to enable firms to become more intelligent and flexible than their competitors by recruiting and developing more capable employees and expanding their skills (Boxall, 1996). Ulrich (1998) notes that knowledge has become a direct competitive advantage for companies focusing on ideas and relationships. The organizational challenge is to ensure the capability to identify, integrate, balance, and retain talented staff.
• Grant (1991) provides a logical rationale for employing a resource-based strategy. In situations where the external environment is marked by instability, a firm's internal resources and capabilities may serve as a more stable foundation for defining its identity. Consequently, defining a business based on its capabilities may offer a more enduring strategic basis than one based solely on external needs. Talented employees contribute to an organization's competitive position through enhanced performance, productivity, flexibility, innovation, and the ability to provide high levels of personalized customer service. Delery and Shaw (2001) assert that adopting the resource-based view offers several advantages for researchers examining the strategic nature of human resource management. However, they also acknowledge criticisms of the approach, particularly concerning its failure to meet the criteria for a genuine theoretical perspective and the presence of several tautological elements (Priem and Butler, 2001).

Resource Based Approach to Strategic Analysis

Strategic Fit

• Alignment with Business Goals (Vertical Fit): Think of aligning human resource strategy with business strategy as making sure all gears in a machine turn together. This alignment supports and even defines the business goals.
• Comparison for Harmony (Horizontal Fit): Just like different instruments in an orchestra blend together, various aspects of human resource strategy should harmonize. It's about making sure all the pieces fit well as a whole.
• Consistency in People Management: Picture a well-coordinated dance where every step contributes to the performance. Similarly, a consistent approach in managing people means that different practices work together for the overall benefit.
• Gaining Competitive Edge: Imagine a chess player strategically positioning pieces on the board for victory. In business, gaining a competitive advantage involves matching internal resources and skills with external opportunities.
• Types of Fit:
  • Best Fit Approach: Like finding the right key for a lock, this approach seeks the best match between human resource practices and specific business needs.
  • Fit as Contingency: Think of adjusting your plans based on unexpected changes. In business, it means adapting human resource practices to specific situations.
  • Best Practice Approach: Similar to using proven recipes for cooking, this approach suggests adopting the most effective human resource practices.
  • Fit Gestalt: Imagine creating a beautiful mosaic where each piece contributes to the whole picture. Fit gestalt emphasizes the overall harmony of human resource practices.
  • Fit Bundles: Consider getting a bundled deal with a combination of services. In human resources, fit bundles involve combining different practices for overall effectiveness.

Two fits of SHRM

High-Performance Management: Achieving Excellence through People

High-performance management aims to elevate a company's performance by leveraging its workforce to enhance productivity, quality, customer service, growth, profits, and overall shareholder value. Key practices encompass precise recruitment and selection procedures, comprehensive training, robust management development initiatives, incentive-based pay systems, and effective performance management processes.

High-Involvement Management: Fostering Collaboration and Communication

In the realm of high-involvement management, employees are regarded as partners whose perspectives are valued. This practice emphasizes open communication and active participation. The objective is to create an environment where ongoing dialogue between managers and team members occurs, outlining expectations and sharing information about the organization's mission, values, and goals. This fosters a shared understanding of objectives and establishes a framework for managing and developing individuals to ensure successful achievement.

Limitations of Strategic HRM

• Strategic HRM theory operates under the assumption that strategy development is a logical and linear process. According to this perspective, the HR strategy is derived directly from the business strategy, leading to the formulation of specific HR strategies across key areas. This structured process involves systematic assessments of the internal and external organizational environment, identifying pertinent business, organizational, and HR issues. However, real-world instances of strategic HRM often deviate from this formal and linear approach outlined by Mintzberg (1987).
• Mello (2001) outlined eight obstacles impeding successful strategic human resource management. The first obstacle is the short-term focus of many firms. Since numerous HR interventions or practices have enduring implications, a myopic focus on short-term outcomes can hinder effective human resource management. The second obstacle involves the incapacity of human resource managers to think strategically. Their insufficient training in general management or their inability to influence colleagues in other departments is perceived as a barrier to the implementation of SHRM.

Challenges and Importance of Strategic Human Resource Management

Challenges

• The third obstacle in the way of successful SHRM is the lack of recognition for HRM as a function. 
• The fourth barrier stems from a lack of collaboration from line managers and their reluctance to handle HR functions within their departments. 
• The fifth challenge is the increasing emphasis on quantifying results. 
• The sixth obstacle is the perceived risk in making substantial investments in human resources, hindering the development of employees to enhance organizational performance. 
• The seventh challenge is the inability of HR practices to adapt to changing business requirements. 
• The final challenge is the resistance to change associated with SHRM. Implementing SHRM may require significant changes in work practices and other HR processes, potentially affecting a large number of employees. 
• Overcoming resistance to change is a complex process, and those who have experienced negative consequences from previous unsuccessful change efforts may impede future change processes.

Importance

Despite these challenges, strategic human resource management is crucial for organizational success as it addresses the following factors:

• Analysis of External Environment: SHRM helps analyze opportunities and threats in the external environment.
• Strategic Formulation: It aids in formulating strategies that align the organization's strengths and weaknesses with external threats and opportunities.
• Execution of Strategies: SHRM facilitates the implementation of formulated strategies.
• Assessment and Control: It enables the assessment and control of activities to ensure the achievement of organizational objectives.

Strategic management offers both financial and non-financial benefits to firms that adopt it. Organizations practicing SHRM can thrive in a competitive business environment by identifying, prioritizing, and exploiting opportunities. It provides an objective perspective on management issues, establishes a framework for improved coordination and control of activities, reduces the impact of adverse conditions and changes, aligns major decisions with established objectives, allows more effective allocation of time and resources, facilitates better internal communication, integrates individual behaviors into a collective effort, clarifies individual responsibilities, supports forward thinking, fosters a positive attitude toward change, and provides discipline and formality to business management.

Conclusion

In summary, Strategic Human Resource Management is a crucial process for developing human resource strategies that align both vertically with the business strategy and horizontally with each other. It is an efficient process that involves identifying and implementing the organization's mission by aligning its capabilities with the demands of its environment. It establishes a connection between human resource management and strategic goals, aiming to enhance business performance and foster a culture conducive to innovation and flexibility.