Strategic Human Resource Management

(SHRM)
Strategic human resource management refers to adopting a specific plan
in regard to human resources, and revamping human resource policies
and practices, and developing employee competencies to cope with the
special or challenging situations.
SHRM is essential in both large as well as in small companies. In small
companies, it can be a simple process as owner or manager takes very
little time every day to observe, assist and assess employees and provide
regular reviews. Large companies can have a whole department in
charge of human resource and development.

In the words of David A. De Cenzo and Stephen P. Robbins,

“Strategic human resource management creates a clear connection
between the goals of the organisation and the activities of the people
who work there. All employees should see the link between their daily
tasks and achievement of a purpose or goal.”

Strategic Human Resource Management (SHRM) – Meaning and

Definition
The word “strategic” literally means something done as a part of a plan
to achieve a particular purpose or to gain an advantage. Strategic
management may be conceived as the process of identifying and
formulating strategic goals, selecting strategies to achieve the goals,
executing the strategic plan and evaluating its effectiveness.
Strategic human resource management, thus, refers to adopting a
specific plan in regard to human resources, and revamping human
resource policies and practices, and developing employee competencies
to cope with the special or challenging situations.
In the words of Gary Dessler and Biju Varkkey, “Strategic human
resource management means formulating and executing human resource
policies and practices that produce employee competencies and
behaviours the company needs to achieve its strategic aims.”

In the words of David A. De Cenzo and Stephen P. Robbins, “Strategic

human resource management creates a clear connection between the
goals of the organisation and the activities of the people who work there.
All employees should see the link between their daily tasks and
achievement of a purpose or goal.”
Upon facing certain new and special situations, a company may demand
the formulation of a strategic plan appropriate for ensuring desired
contributions from employees. For example, a company may be in
urgent need of computerising its various departments, which calls for
immediate recruitment of persons conversant with handling of
computers.
For this, the company may either hire competent hands from outside on
lucrative terms, or may launch a crash training programme for the
suitable existing employees. Similarly, a company may be in urgent
need of improving both the quality and quantity of products or
substantial reduction in production costs for surviving in competition
and enhancing consumer satisfaction.
This requires formulation of strategic plans for improving the
competencies and skills of employees and for ensuring their effective
implementation, which may require employees’ active cooperation and
involvement. Adoption of strategic human resource policy, plan and
programme is also needed in extraordinary situations such as a sudden
increase in the demand for the products or unprecedented contraction of
business.
Mergers, acquisitions and collaborations also, very often, create
challenging situations, which necessitate the adoption of suitable human
resource strategic plans and their effective implementation. Similarly,
local issues such as installation of manufacturing units in an area may
involve pressures for giving employment to local people, even though
they do not have the required skills and qualifications.
Managements may also have to face certain other difficult situations
such as deterioration in law and order situation, drastic change in
governmental policy and conditions created by natural calamities.
Strategic Human Resource Management (SHRM) – Evolution (In
Chronological Order)
The evolution of strategic human resource management in
chronological order is presented below:

1. Strategic Human Resource Management is an area that continues to

evoke a lot of debate as to what it actually embraces. The definitions
range from a human resource system that in tailored to the demands of
the business strategy to the pattern of planned human resource activities
intended to enable an organization to achieve its goods. – Miles and
Snow, 1984

2. SHRM is a concept that integrates traditional human resource

management activities within a firm\s overall strategic planning and
implementation. SHRM integrates human resource considerations with
other physical, financial and technological resources in the setting of
goals and solving complex organizational problems. – Lignick Hall,
1988

3. SHRM can be regarded as a general approach to the strategic

management of human resources in accordance with the intentions of the
organization on the future direction. It is concerned with long term
people issues and macro concerns about structure, quality, culture,
values, commitment and matching resources to future need. It has been
defined as all the activities affecting the behaviour of individuals in their
efforts to formulate and implement the strategic needs of business. –
Schufer. R. S., 1992

4. SHRM also emphasizes the implementation of a set of policies and

practices that will build employee pool of skills, knowledge and abilities
that are relevant to organizational goals. – Jackson and Schuler, 1995

5. A larger variety and more complete set of solutions for solving

organizational problems are provided and the likelihood that that
business goals of the organization will be attained is increased. –
Mectielin, 1996

6. Although the human resource management is a reactive management

field in which human resources becomes a tool to implement strategy, in
the later definition it has a proactive function in which HR activities
actually create and shape the business strategy. -Sanz-Valle, et al, 1999

Human resources are critically important strategic resources. The

successful organization will be able to attract, motivate, develop and
retain competent employees through appropriate human resource
management practices. They will be able to create and implement
strategic changes in an atmosphere of close cooperation and
participation while trying to manage people, of course, there is no best
way of getting results.

The competitive advantage refers to the ability of an organization to

formulate strategies to exploit profitable opportunities, thereby
maximizing its return on investment (ROI). It occurs if customers
perceive that they receive value from their transaction with an
organization, this requires single minded focus on customer needs and
expectations.

To achieve this, the organization needs to tune its policies in line with
changing customer requirements. The second principle of competitive
advantage derives from offering a product or service that your
competitor cannot easily imitate or copy. An organization should always
try to be unique in its industry along with dimensions that are widely
valued by customers.

Strategic Human Resource Management (SHRM) – Concept

In today’s intensely competitive world, competitive advantage lies not
just in differentiating a product or service or in becoming a low cost
leader, but in also being able to capture company’s special skills or core
competencies, as well as rapidly responding to customer’s needs and
competitor’s moves.
The concept of SHRM was developed in 1984. This term was first
coined by Fombrun, Tichy and Devanna. They suggested that HR
systems and organizational structures should be managed in such a way
that is congruent with organizational strategy. SHRM is the result of two
major radical shifts, first the shift from old Personnel Administration to
Human Resource management.
This change is based on the belief that people are an important asset in
organizations that can be managed systematically by coordinating the
shape and the substance of several traditional policies and practices.
Second major shift is the reorientation of generic strategic models to the
modern concept of SHRM. This reorientation is based on the philosophy
that in addition to coordinating HR policies and practices with each
other, this also needed to be coordinated with the needs of the
organization.

Major impetus in the field of SHRM came in the mid-1990s when

Huselid (1995) published his landmark study demonstrating statistically
significant relationship between HRM practices and corporate
performance. Also in the same year, MacDuffies industry focused study
illustrated how particular bundles of HR practices when aligned with an
organizational logic lead to plant level performance.
Thus, all over the world HR practitioners have realized that in addition
to personal and developmental aspects, there is urgent need to use
strategic management concept too. This reorientation of generic strategic
models to internal aspects of the organizations became a focal point for
strategic HRM.
An important aspect of SHRM is employee development. This is
possible when the company has employed effective recruitment and
selection technique. Human beings are the most important asset of an
organization. Motivated human resource can help the organization to
achieve unimaginable heights of success. So, it is necessary to invest in
the development of the employees.
SHRM is essential in both large as well as in small companies. In small
companies, it can be a simple process as owner or manager takes very
little time every day to observe, assist and assess employees and provide
regular reviews. Large companies can have a whole department in
charge of human resource and development.
Let’s understand some terms which are used in SHRM:
i. Core competencies – A unique capability in the organization that
creates high value and differentiates organization from its competitors.
ii. Mission Statement – It explains the purpose and reason for existence,
it is usually broad but does not go beyond couple of sentences and it
serves as a foundation for everything that organization does.
iii. Strategy – It is the company’s plan for how it will balance its internal
strengths and weaknesses with external opportunities and threats in order
to maintain a competitive advantage.

Strategic Human Resource Management (SHRM) – Objectives

Strategic HRM is the improved version of HRM over a period of time
under drastically changing business environment and stiff competition.
For survival, growth stabilize and excel in business performance, the
need for willing cooperation was needed from employees.

To do so the approach of human resource management went under

drastic changes with the interest to match the HR requirement with the
business strategies so that the goals are achieved. The new concept of
SHRM developed and it is nothing but HRM plus strategy.
The main objectives of SHRM are the following:
(a) Plan for manpower requirements for its business located in national
and international markets.
(b) Conduct scientific selection and appointment of employees for
business operation of right type and right in number.
(c) Train the employees on technology in use and working procedure for
developing their skills and knowledge.
(d) Place the employees at jobs according to their areas of specialization.
(e) Provide opportunities for the employees deserving on the scientific
basis.
(f) Compensate employees according to their skills, experience and
contributions.
(g) Maintain employees motivated, satisfied and cooperative in
organisation.
(h) Improve industrial relations, industrial peace and harmony at
workplace.
(i) Encourage employees for their cooperation, commitments and higher
performance at work.

j) Contribute through manpower in improvement of organisational

performance and organisational effectiveness in business.
(k) Contribute in profitability, progress and image of the organisation.
(l) Stay competitive and effective in business for growth and excellence
in global market.
For effective accomplishment of the objectives the Strategic HRM
should keep in mind the interests of all concerned parties or stakeholders
in the organisation in designing its strategies. The main stakeholders are
employees, employer and management. The focus of SHRM should be
on human relations, regular development, empowerment of employees;
leadership, communication, welfare and security of employees, quality
of work life.
The efforts should be there and must be considered these as investment
in human resources in the interest of the organisation and its business.
Strategic HRM should put the efforts and achieve the proper balance
between organisational requirements and employees’ requirements.
Every organisation uses its resources effectively and efficiently for
achieving an objective.

But management should keep always human consideration in mind.

Employees should be considered as human being and must be treated
accordingly. They should not be ignored for the sake of organisational
gains. Generally, the problem is that in dealing the organisation comes
first and it not a healthy practice.

So for strategic dealing there should be proper balance between these

two aspects. Quinn Mills supported this point and advocated that they
should plan with people in mind, taking into accounts the needs and
aspirations of all the members of the organisation.

Strategic Human Resource Management (SHRM) – Importance

Human resources are the most needful assets in any organisation. The
development of dynamic, excellent, motivated and committed
employees are the means to achieve better organisational performance.
There are different approaches based on the strategical viewpoints may
be fruitful to initiate, facilitate and promote the strategical design
towards making the HR strategies in signifying directions.
The Importance of Strategic Management of Human Resource:
For many decades such responsibilities as selection, training, and
compensation were considered basic functions of the area historically
referred to as personnel management. These functions were performed
without much regard for, how they are related to each other. From this
narrow view we have seen the emergence of what is now known as
human resources management.
Personnel management performs the basic functions of selection,
training, compensation, etc., in the management of an organization’s
personnel.

Strategic management of human resource, as it is currently perceived,

represents the extension rather than the rejection of the traditional
requirements for managing personnel effectively. An understanding of
human behavior and skill in applying that understanding are still
required.

Also required are knowledge and understanding of the various personnel

functions performed in managing human resources, as well as the ability
to perform those functions in accordance with organizational objectives.
An awareness of existing economic, social, and legal constraints upon
the performance of these functions is also essential.

Strategic management of human resource extension of the traditional

requirements of personnel management, which recognizes the dynamic
interaction of personnel functions with each other and with the strategic
and planning objectives of the organization.

Strategic management of human resource, as it is practiced today,

recognizes the dynamic interaction of personnel functions with each
other and with the objectives of the organization. Most important, it
recognizes that HR planning must be coordinated closely with the
organizations strategic and related planning functions. As a result,
efforts in HRM are being directed toward providing more support for the
achievement of the organization’s goals, whether it is a profit, not for
profit, or governmental organization.

Strategic Human Resource Management (SHRM) – Different Core

Areas for HR Strategies
Within SHRM, the strategical viewpoints aims to create and develop the
skill, knowledge and capabilities of HR in some perspective ways.
Overall the HR strategies are the focal points to make them effective at
their cognitive work performance.
There are different core areas to develop the HR strategies as
stating here:
1. For Competitive Advantages:
Within the competitive environment, it is a differentiate situation in that
the product and services have some upgraded and qualitatively better
position from those of its competitors. It increase their market share and
gains and maintain an edge over its competitors. Here the role of HR
practices are more important and some of the strategies as intensive
specialisation, more learning capabilities proper job enlargement and
prepare explicit job design are to be included.
2. For Developmental Prospective:
With the growth and expansion of business houses, there is a need to
upgrade the level and structure of human resource capabilities. In order
to meet new change environment, innovations, modernisation, upgraded
the level of better quality of products and services, there is a need to
follow the prospective approaches and systems with creative and
optimistic HR policies, better HR opportunities and most appropriate
HR motivation and compensation etc.
3. For Resource Based Setup:
It is a view to holds that human resources contribute to sustained
qualitative perform and advantage when they are valuable resources. In
fact HR develops a resource based set up in any organisation. As such,
HR are the resources on which other resources depends for their
effective and efficient utilisation. The HR strategies may be determined
in context of capacity utilisation, developing competitive strength,
identifiable HR practices and skills upgradation etc.
4. For Better Work Culture:
It is needful to make some desirable strategical viewpoints for better and
healthy work culture. Here within the purview of SHRM the internal and
external environmental analysis is being helpful to develop different
motivational measures for work culture. The code of conduct,
disciplinary measures, value based tasks, behavioural aspects might be
helpful to make better work culture.
5. For Technological Upgradation:
The strategical view points are based on some new and innovative
technological upgradations. The technical skill and knowledge are
important for human resources in perspective ways. Within, strategical
design, the R & D programmes, training and development, intensive job
specifications, core competencies are needful for technological
upgradation of HR.
6. For Behavioural Practices:
Within HR strategies, there is an upmost need to make proper interaction
between individual and group behaviour. The streamline of HR practices
might be able to develop the approaches of ethical norms and
behavioural science in organisation.
As such, over a long time, the HR functions, practices and their efficient
utilisation are based on HR managerial and organisational setup in an
organisation. There is an alarming recognition that HR referred to as
human capital or human assets. It is important to integrate HRM with the
business strategy and try to develop and better utilise the HR towards
most competitive strength of business.
Now, the HR practices are the drivers that lead to core competencies as
well as business strategies. There are certain and major core areas like
competitive, developmental, resource based, work cultural and
technological upgradations etc., provide some targeted bases in that the
HR practices might be developed and HR strategies are being outcome
of the organisation.

Strategic Human Resource Management (SHRM) – Major Role of

SHRM in an Organisation: Strategic, Informational, Decision
Making, Functional and Administrative Roles
The HR managers need to be instrumental in taking the responsibility of
the effective planning and implementation of the policies and decisions
in tune with the business changes. They should act as strategic partners
and be proactive in their role than mere reactive, passive spectators.
The HR managers should understand how far their decisions contribute
to business surplus incorporating human competency and performance
to the organization. Strategic HR managers need a change in their
outlook from seeing themselves as relationship managers to strategic
resource managers.
Kossek (1987, 1989) argues that major HRM innovations occur when
senior management takes the lead and adoption of innovative SHRM
practices is dependent on the nature of relationship of the HR
department with the CEO and the line managers. HR department and HR
managers in these innovative organizations play a strategic role linking
the HR strategy with the business strategy of the organization.
A crucial aspect concerning SHRM is the concepts of fit and flexibility.
The degree of fit determines the human resource system’s integration
with organization strategy. It is the role of HR managers to ensure this
fit in between Human Resource System with the Organization Strategy.
Ideally HR and the top management of an organization should work
together so as to formulate the company’s overall business strategy; that
strategy then provides the framework within which HR activities such as
recruiting and appraising must be crafted. If it is done successfully, it
should result out in the employee competencies and behaviour that in
turn should help the business implement its strategies and realize its
goals.
The major roles of Strategic HRM in an organisation are given
below:
1. Strategic role – The strategic role of HR involves formulating
business decisions, translating corporate strategy into a human resource
strategy, and training employees to concentrate on customer needs.
2. Information and decision-making role – In this role, the HR
department must inform and advice the organisation about the various
best practices like efficiency in customer services or new product
development. In the information and decision- making role, HR must
take decisions about problems in employee relations.
3. Strategic HR functional role – This is a very important role. In this
role, HR must select, design and implement planning and appraisal
systems for the employees. These systems should fit both the strategy
and the culture of the organisation concerned.
4. Administrative role – In this role, HR must implement policies and
procedures for the organisation. In addition, the HR department must try
to improve the administrative system of the organisation.
SHRM organises various training and development programmes to
encourage employee involvement. It thus, motivates the employees to
become flexible to achieve the strategic goals of the organisation.

Strategic Human Resource Management (SHRM) – Top

5 Approaches: Performance Based, Commitment Based, Resource
Based and a Few Others
Over a long period of time, many experts have opined about the concept
of Strategic Human Resource Management. They discussed it with slight
different approach. From their literature study some approaches have
been identified. These approaches are based on performance,
commitment, resources, involvement and strategic match based
strategies.
These are explained below:
1. Performance Based Approach:
This approach is a backward integration approach. The focus of this
approach is on the output or performance of employees, machines or
systems and organisation as a whole. To get the better performance the
performance affecting factors are to be studied backward. As strategies
are prepared for other factors, the strategy is prepared for human
resource also because human resource is an important factor that affects
the performance.
The approach of management to SHRM is on performance base. The
strategies can be prepared for technology, materials, operating
procedure, supply, maintenance, etc. The strategy is prepared for human
resource also. So it is the performance based approach of the top
management to SHRM. The performance of individual is kept in mind
and calculation is done backward to design HR strategy to improve the
performance of employees.
The individual performance contributes in organisational performance in
products, services, quality of work, customers’ relationship, behaviour
profit, growth and organisational effectiveness, etc. To achieve higher
performance at all levels, HR strategy is designed for procurement,
development, compensation, motivation and good relations. All these
contribute to keep the people talented, satisfied, and motivated and
retained In return, they give their best contribution in achievement of the
objectives.
The approach includes backward integration keeping in view the end
results and then HR strategy is designed performance based approach is
similar to the United States high performance work systems or practices
aims to make an impact on the performance of the firm through its
employees’ performance. This approach was advocated by US
Department of Labour.
2. Commitment Based Approach:
Commitment based approach is more psychological in nature. It is
related the psychological and internal feelings of the employees. For
designing the strategies, the commitment level of employees to their
work and organisation is the focus point. The high level of commitment
makes everything favourable for the organisation.
Employees’ higher contribution to their jobs impacts positive on
production volume, quality of products or services, employer-employees
relationship, industrial relations and peace. All the results in higher
performance of the organisation as a whole, profitability, progress of
business, overall effectiveness in business, and reputation in markets.
Higher level of commitment of employees is kept in mind while
designing HR strategy.
Factor affecting employees, commitment level are considered for
improving it. The strategies are prepared to keep the employees satisfied
and happy so they willingly cooperate everywhere. HR strategies are
prepared regarding planning, recruitment and selection, development,
compensation, incentives and rewards, motivation, opportunities for
development, management approach, etc.
Through these functions the persons can be talented, satisfied and highly
motivated that can give higher contribution towards job and
organisation.
High-commitment management approach was given by Wood stated
that, ‘A form of management which is aimed at eliciting a commitment
so that behaviour is primarily self-regulated rather than controlled by
sanctions and pressures external to the individual, and relations within
the organisation are based on high levels of trust’.
This approach was also supported by Beer and Walton separately by
mentioning certain functions for enabling higher contribution. Wood and
Albanese further added that the higher level of commitment can be
achieved through proper job design, good industrial relations, proper
system for compensation and incentive. In brief it is concluded that the
different experts have advocated for higher level of commitment in
different styles but focus point is higher level of commitment from
employees.
3. Resource Based Strategy:
This approach is a forward integrated approach. The focus is on input
resources to achieve the desired objectives. Resources are being utilized
by every organisation for achieving the pre-planned objectives. The
resources are being utilized to avail the opportunities in the global
markets. Under this approach, human resource is one of the resources
and considered the most important resource.
For every resource the management prepares a strategy. In similar way
the management prepares a strategy for human resource also. The human
resource is deployed; capability to perform the tasks developed and tasks
are performed as planned. Further, manpower can be motivated to learn
faster and apply the expertise on the jobs better and before their rivals.
This approach is from starting to end. The quality of human resource as
input is focused to achieve competitive advantage. Human resources
competency can include their ability, capability, skills, knowledge,
experience, problem-solving ability, etc. With good performance the
employees add value to products or services of the organisation.
The proper utilization of human resources ensures that the individual
performance, overall organisational performance, and organisational
effectiveness in business are achieved. This leads to progress of all
stakeholders. Keeping in view this, the strategies are designed by human
resource management.
This is called human resource based strategy. The focus is on human
resource because it is human resource utilizes other resources to
generate other resources further. It can be said definitely that the human
resource is most important. The strategies are prepared accordingly for
procurement, development, motivation, and commitment to achieve
competitive advantage over rival competitors in local and international
markets.
Barney supported this approach stated that the human resource based
approach increase firm’s strategic capability by the development of
managers who are well trained, motivated and committed to the
organisation and have good knowledge of the strategic issues relating to
the business of the company.
Hamel and Prahalad also supported this approach by saying that
develop, motivate and enable further to learn faster and apply expertise
on job so that performance enhances before competitors. Human
resource based strategy believe that expenses on human resource is not a
cost but an investment because it adds value to human resources and
organisation as well.
Human resource based strategy is only concerned with enhancement of
human competencies or human capital of the organisation. Ulrich
advocated in favour of this approach and said that through knowledge
the company gets direct competitive advantage over its competitors. The
organisations must have expertise to procure, develop, compensate,
motivate, utilize and retain the talented employees.
It is a great challenge for the management of the company. Human
resource based strategy has been strongly supported by Grant He argued
that the main factor for getting competitive advantage is the unique
talent or ability to differentiate between the products or services
provided to the customers by the company and its competitors. This can
be done by a learning organisation.
The HR strategy ensures that company is having talented and motivated
people better than that of competitors.
4. Involvement Based Approach:
This approach is combination of psychological and physical aspects of
the individual. In this approach of management the involvement of the
employees in their job is most important. In this first, the employees
must be satisfied and motivated and they should involve physically in
the job.
The employees’ psychological satisfaction is possible by treating them
properly in procurement, development, compensation, incentives and
rewards, opportunities for development, communication, employees’
empowerment, favourable attitude of management and better
employees-employer relationship. All these contribute in maintaining
good industrial relations and harmony.
The healthy working environment of mutual understanding, openness,
confidence, cooperation and team-spirit should be created. The workers
must be treated the partners and profit sharing scheme would contribute
further in this.
Keeping in view all these things the HR strategies are to be designed so
the employees are satisfied and involved in their assigned jobs at
different level. SHRM is responsible for all these strategies to tackle the
global and competitive business environment.
5. Strategic Match Approach:
This approach is broader in nature and can be called vertical integrated
approach. The focus is on business environment. Keeping in view the
rapidly changing business environment, the corporate and HR strategy
are prepared to carry-out the business activities effectively and
efficiently. The business environment changes drastically. The internal
and external environmental factors are undergoing drastic changes.
The organisation operates its business in the environment where it is
located and influenced by global environment. The business cannot be
carried out in isolation because the environment influences the
performance of the business. Due to globalisation, the multinational
companies are entering in different countries for business purpose
wherever they find the opportunity.
A high degree of competition is faced by the companies from local and
multinational companies as well. Now, it is the question of survival,
growth, stabilize and excel in business. The companies are at the crucial
juncture and they are not sure what to do and what not to do.
In this situation, to tackle multiple challenges the right approach is to
design the corporate strategy according to environment and business
condition and act accordingly. For achievement of the corporate
objectives, at department level strategies are also prepared. The
corporate strategy is vertically integrated with departmental strategy so
that these can contribute in accomplishment of the corporate goals and
achieve competitive advantage over their competitors.
With the objective of corporate objective accomplishment, under vertical
integration HRM is an integral part of corporate management, HRM
should also prepare the strategy accordingly. The HR strategy should be
aligned in line with the business corporate strategy. HR strategy should
be an integral part of the business strategy along with strategies of other
departments.
The HR strategy should be supportive to corporate business strategy.
Through vertical integration, there must be proper match or strategy fit
between corporate business strategy and HR strategy. HR strategy
should be in position to contribute in accomplishment of the corporate
objectives. According to the requirements of corporate business strategy,
through HR strategy the required manpower would be obtained, trained,
maintained, motivated and enabled the employees to give their best
contribution in job performance.
This way the individual performance improves and organisational
performance as a whole also. The effectiveness of the organisation in
business performance improves and it gets competitive advantage over
the competitors in the markets. The sales, revenue, profitability and
image of the organisation improve. This leads to progress of all
stakeholders such as – employees, employers and management and
society as a whole.
It is only possible when the corporate business strategy is prepared
according to business environment and corporate business strategy is
vertically integrated with departmental strategy that HR strategy. It can
be concluded that there must be proper strategic match between
corporate and HR strategy for effective working and better future. This
approach starts from business at the top and moves downward to
corporate and HR strategies. It is an example of vertical integration.
Strategic Human Resource Management (SHRM) – 3
Major Challenges: Environmental, Organizational and Individual
Challenges
Today’s organizations are facing challenges upon following levels:
1. Environmental Challenges
2. Organizational Challenges
3. Individual Challenges.
Challenge # 1. Environmental:
Environmental challenges refer to forces external to the firm that are
largely beyond management’s control but influence organizational
performance. They include – rapid change, the internet revolution,
workforce diversity, globalization, legislation, evolving work and family
roles, and skill shortages and the rise of the service sector.
Seven important environmental challenges today are:
a) Rapid Change:
Many organizations face a volatile environment in which change is
nearly constant. If they are to survive and prosper, they need to adapt to
change quickly and effectively. Human resources are almost always at
the heart of an effective response system. Here are a few examples of
how HR policies can help or hinder a firm grappling with external
change.
b) Work Force Diversity:
All these trends present both a significant challenge and a real
opportunity for managers. Firms that formulate and implement HR
strategies that capitalize on employee diversity are more likely to
survive and prosper.
c) Globalization:
One of the most dramatic challenges facing as they enter the twenty-first
century is how to compete against foreign firms, both domestically and
abroad. Many companies are already being compelled to think globally,
something that doesn’t come easily to firms long accustomed to doing
business in a large and expanding domestic market with minimal foreign
competition.
Weak response to international competition may be resulting in upwards
layoffs in every year. Human resources can play a critical role in a
business’s ability to compete head-to-head with foreign producers. The
implications of a global economy on human resource management are
many.
Here are a few examples:
Worldwide Company Culture:
Some firms try to develop a global company identity to smooth over
cultural differences between domestic employees and those in
international operations. Minimizing these differences increases
cooperation and can have a strong impact on the bottom line. For
instance, the head of human resources at the European division of
Colgate Palmolive notes, “We try to build a common corporate culture.
We want them all to be “Colgaters”.
Global Alliances:
Some firms actively engage in international alliances with foreign firms
or acquire companies overseas to take advantage of global markets.
Making such alliances work requires a highly trained and devoted staff.
For instance, Phillips (a Netherlands lighting and electronics firm)
became the largest lighting manufacturer in the world by establishing a
joint venture with AT&T and making several key acquisitions.
These illustrations show how firms can use HR strategies to gain a
worldwide competitive advantage.
d) Legislative:
Much of the growth in the HR function over the past three decades may
be attributed to its crucial role in keeping the company out of trouble
with the law. Most firms are deeply concerned with potential liability
resulting from personnel decisions that may violate laws enacted by the
state legislatures, and/or local governments. These laws are constantly
interpreted in thousands of cases brought before government agencies,
federal courts, state courts, and the Supreme Court.
How successfully a firm manages its human resources depends to a large
extent on its ability to deal effectively with government regulations.
Operating within the legal framework requires keeping track of the
external legal environment and developing internal systems (for
example, supervisory training and grievance procedures) to ensure
compliance and minimize complaints.
Many firms are now developing formal policies on sexual harassment
and establishing internal administrative channels to deal with alleged
incidents before employees feel the need to file a lawsuit.
Legislation often has a differential impact on public- and private sector
organizations. (Public sector is another term for governmental agencies;
private sector refers to all other types of organizations.) Some legislation
applies only to public-sector organizations.
For instance, affirmative action requirements are typically limited to
public organizations and to organizations that do contract work for them.
However, much legislation applies to both public- and private sector
organizations. In fact, it’s difficult to think of any HR practices that are
not influenced by government regulations.
e) Technology:
The world has never before seen such rapid technological changes as are
presently occurring in the computer and telecommunications industries.
One estimate is that technological change is occurring so rapidly that
individuals may have to change their entire skills three or four times in
their career. The advances being made, affect every area of a business
including human resource management.
f) Evolving Work and Family Roles:
The proportion of dual-career families, in which both wife and husband
work is increasing every year. Unfortunately, women face the double
burden of working at home and on the job, devoting 42 hours per week
on an average to the office work and an additional 30 hours of work at
home. Men spend 43 hours per week working in the office and only 12
hours at home.
More and more companies are introducing “family-friendly” programs
that give them a competitive advantage in the labor market. These
programs are HR tactics that companies use to hire and retain the best-
qualified employees, male or female, and they are very likely to payoff.
For instance, among the well-known organizations / firms, half of all
recruits are women, but only 5% of partners are women.
Major talent is being wasted as many women drop out after lengthy
training because they have decided that the demanding 10- to 12-year
partner track requires a total sacrifice of family life. These firms have
started to change their policies and are already seeing gains as a result.
Different companies have recently begun offering child-care and
eldercare referral services as well to facilitate women workers as well as
are introducing alternative scheduling to allow employees some
flexibility in their work hours.
g) Skill Shortages and the Rise of the Service Sector:
Expansion of service-sector employment is linked to a number of
factors, including changes in consumer tastes and preferences, legal and
regulatory changes, advances in science and technology that have
eliminated many manufacturing jobs, and changes in the way businesses
are organized and managed. Service, technical, and managerial positions
that require college degrees will make up half of all manufacturing and
service jobs by 2000.
Unfortunately, most available workers will be too unskilled to fill those
jobs. Even now, many companies complain that the supply of skilled
labor is dwindling and that they must provide their employees with basic
training to make up for the shortcomings of the public education system.
To rectify these shortcomings, companies currently spend large amount
year on a wide variety of training programs.
Challenge # 2. Organizational:
Organizational challenges refer to concerns that are internal to the firm.
However, they are often a by-product of environmental forces because
no firm operates in a vacuum. These issues include – competitive
position (cost, quality, and distinctive capability), decentralization,
downsizing, organizational restructuring, self-managed work teams,
small businesses, organizational culture, technology, and outsourcing.
Organizational challenges are concerns or problems internal to a firm.
They are often a by-product of environmental forces because no firm
operates in a vacuum. Still, managers can usually exert much more
control over organizational challenges than over environmental
challenges. Effective managers spot organizational issues and deal with
them before they become major problems. One of the themes of this text
is proactively – the need for firms to take action before problems get out
of hand.
Only managers who are well informed about important HR issues and
organizational challenges can do this. These challenges include the need
for a competitive position and flexibility, the problems of downsizing
and organizational restructuring, the use of self-managed work teams,
the rise of small businesses, the need to create a strong organizational
culture, the role of technology, and the rise of outsourcing.
An organization will outperform its competitors if it effectively utilizes
its work force’s unique combination of skills and abilities to exploit
environmental opportunities and neutralize threats.
HR policies can influence an organization’s competitive position by:
a) Controlling costs
b) Improving quality
c) Creating distinctive capabilities
d) Restructuring.
a) Controlling Costs:
One way for a firm to gain a competitive advantage is to maintain low
costs and a strong cash flow. A compensation system that uses
innovative reward strategies to control labor costs can help the
organization grow. A well-designed compensation system rewards
employees for behaviors that benefit the company.
Other factors besides compensation policies can enhance a firm’s
competitiveness by keeping labor costs under control. These include –
better employee selection so that workers are more likely to stay with
the company and to perform better while they are there, training
employees to make them more efficient and productive; attaining
harmonious labor relations); effectively managing health and safety
issues in the workplace and structuring work to reduce the time and
resources needed to design, produce, and deliver products or services.
b) Improving Quality:
The second way to gain a competitive advantage is to engage in
continuous quality improvement. Many companies are implementing
total quality management (TQM) initiatives, which are programs
designed to improve the quality of all the processes that lead to a final
product or service. In a TQM program, every aspect of the organization
is oriented toward providing a quality product or service.
c) Creating Distinctive Capabilities:
The third way to gain a competitive advantage is to utilize people with
distinctive capabilities to create unsurpassed competence in a particular
area (for example, 3M’s competence in adhesives, Carlson
Corporation’s leading presence in the travel business and Xerox’s
dominance of the photocopier market).
d) Restructuring:
A number of firms are changing the way the functions are performed.
For example, some companies are restructuring HR for reasons such as
time pressures, financial considerations, and market pressures. This
restructuring often results in a shift in terms of who performs each
function. Organizations still perform the majority of a firm’s HR
functions inside the firm.
Adjusting to HR restructuring trends—who performs the human
resource management tasks? The traditional human resource manager
continues to be in place in most organizations, but some organizations
are also using shared service centers, outsourcing, and line managers to
assist in the delivery of human resources to better accomplish
organizational objectives.
Additionally, the size of some HR departments is getting smaller
because certain functions are now being accomplished by others. This
shift permits the HR managers to focus on more strategic and mission-
oriented activities.
i. The Human Resource Manager:
An individual who normally acts in an advisory or staff capacity,
working with other managers to help them deal with human resource
matters. One general trend is that HR personnel are servicing an
increasing number of employees. The human resource manager is
primarily responsible for coordinating the management of human
resources to help the organization achieve its goals. There is a shared
responsibility between line managers and human resource professionals.
ii. Shared Service Centers:
Take routine, transaction-based activities that are dispersed throughout
the organization and consolidate them in one place.
iii. Outsourcing Firms:
The process of transferring responsibility for an area of service and its
objectives to an external provider. The main reason for this movement
was to reduce transaction time, but other benefits include cost reductions
and quality improvements. Companies found that administrative,
repetitive tasks are often performed in a more cost-effective manner by
external sources.
iv. Line Managers:
Line managers, by the nature of their jobs, are involved with human
resources. Line managers in certain firms are being used more to deliver
HR services. When implemented, this change reduces the size of the HR
department.
v. Decentralization:
In the traditional organizational structure, most major decisions are
made at the top and implemented at lower levels. It is not uncommon for
these organizations to centralize major functions, such as human
resources, marketing, and production, in a single location (typically
corporate headquarters) that serves as the firm’s command center.
Multiple layers of management are generally used to execute orders
issued at the top and to control the lower ranks from above. Employees
who are committed to the firm tend to move up the ranks over time in
what some have called the internal labor market.
However, the traditional top-down form of organization is quickly
becoming obsolete, both because it is costly to operate and because it is
too inflexible to compete effectively. It is being replaced by
decentralization, which transfers responsibility and decision-making
authority from a central office to people and locations closer to the
situation that demands attention. HR strategies can play a crucial role in
enhancing organizational flexibility by improving decision-making
processes within the firm.
vi. Downsizing:
Periodic reductions in a company’s work force to improve its bottom
line-often called downsizing-are becoming standard business practice,
even among firms that were once legendary for their “no layoff”
policies, such as AT&T, IBM, Kodak, and Xerox.
In addition to fostering a lack of emotional commitment, transient
employment relationships create a new set of challenges for firms and
people competing in the labor market, as well as for government
agencies that must deal with the social problems associated with
employment insecurity (including loss of health insurance and mental
illness). However, the good news for laid-off employees is that the poor-
performance stigma traditionally attached to being fired or laid off is
fading.
Challenge # 3. Individual:
Human resource issues at the individual level address concerns that are
most pertinent to decisions involving specific employees. These issues
almost always reflect what is happening in the larger organization. How
individuals are treated also is likely to have an effect on organizational
issues.
For instance, if many key employees leave a firm to join its competitor,
it will affect the competitive posture of the firm. The individual issues
include matching people and organization, ethics and social
responsibility, productivity, empowerment, brain drain, and job
insecurity.
Human resource issues at the individual level address the decisions most
pertinent to specific employees.
These individual challenges almost always reflect what is happening in
the larger organization. For instance, technology affects individual
productivity; it also has ethical ramifications in terms of how
information is used to make HR decisions (for example, use of credit or
medical history data to decide whom to hire). How the company treats
its individual employees is also likely to affect the organizational
challenges.
For example, if many key employees leave the firm to join competitors,
the organization’s competitive position is likely to be affected. In other
words, there is a two-way relationship between organizational and
individual challenges. This is unlike the relationship between
environmental and organizational challenges, in which the relationship
goes only one way few organizations can have much impact on the
environment.
The most important individual challenges today involve, productivity,
ethics and social responsibility, productivity, empowerment, brain drain,
job security and matching people and organizations. Here we discuss
each of them –
a) Productivity is a measure of how much value individual employees
add to the goods or services that the organization produces. The greater
the output per individual, the higher the organization’s productivity.
Two important factors that affect individual productivity are ability and
motivation. Employee ability, competence in performing a job, can be
improved through a hiring and placement process that selects the best
individuals for the job.
It can also be improved through training and career development
programs designed to sharpen employees’ skills and prepare them for
additional responsibilities. Motivation refers to a person’s desire to do
the best possible job or to exert the maximum effort to perform assigned
tasks. Motivation energizes, directs, and sustains human behavior. A
growing number of companies recognize that employees are more likely
to choose a firm and stay there if they believe that it offers a high quality
of work life (QWL).
b) Ethics and Social Responsibility Corporate social responsibility refers
to the extent to which companies should and do channel resources
towards improving one or more segments of society other than the firm’s
owners or stockholders. Ethics is the bedrock of socially responsible
behavior.
People’s expectations that their employers will behave ethically are
increasing, so much that many firms and professional organizations have
created codes of ethics outlining principles and standards of personal
conduct for their members. Unfortunately, these codes often do not meet
employees’ expectations of ethical employer behavior. These negative
perceptions have worsened over the years.
In a recent poll of Harvard Business Review readers, almost half the
respondents indicated their belief that managers do not consistently
make ethical decisions. The widespread perceptions of unethical
behavior may be attributed to the fact that managerial decisions are
rarely clear-cut. Except in a few blatant cases (such as wilful
misrepresentation), what is ethical or unethical is open to debate. Even
the most detailed codes of ethics are still general enough to allow much
room for managerial discretion.
In other words, many specific decisions related to the management of
human resources are subject to judgment calls. A company that exercises
social responsibility attempts to balance its commitments-not only to its
investors, but also to its employees, its customers, other businesses, and
the community or communities in which it operates.
For example, McDonald’s established Ronald McDonald houses several
years ago to provide lodging for families of sick children hospitalized
away from home. Sears and General Electric support artists and
performers, and many local merchants support local children’s sports
teams.
c) Empowerment in recent years many firms have reduced employee
dependence on superiors and placed more emphasis on individual
control over (and responsibility for) the work that needs to be done. This
process has been labelled empowerment because it transfers direction
from an external source (normally the immediate supervisor) to an
internal source (the individual’s own desire to do well).
In essence, the process of empowerment entails providing workers with
the skills and authority to make decisions that would traditionally be
made by managers. The goal of empowerment is an organization
consisting of enthusiastic, committed people who perform their work
ably because they believe in it and enjoys doing it (internal control).
This situation is in stark contrast to an organization that gets people to
work as an act of compliance to avoid punishment (for example, being
fired) or to qualify for a paycheck (external control).
d) Brain Drain – With organizational success more and more dependent
on knowledge held by specific employees, companies are becoming
more susceptible to brain drain-the loss of intellectual property that
results when competitors lure away key employees. High-Tec firms are
particularly vulnerable to this problem.
Such important industries as semiconductors and electronics suffer from
high employee turnover as key employees, inspired by the potential for
huge profits, leave established firms to start their own businesses. This
brain drain can negatively affect innovation and cause major delays in
the introduction of new products. To make matters worse, departing
employees, particularly those in upper management, can wreak
considerable havoc by taking other talent with them when they leave.
To combat the problem of defection to competitors, some firms are
crafting elaborate ant defection devices. For example, Compaq computer
has introduced a policy that revokes bonuses and other benefits to key
executives if they take other employees with them when they quit.
Micron Technology staggers key employees’ bonuses; they lose un-
awarded portions when they leave.
e) Job Insecurity:
In this era of downsizing and restructuring, many employees fear for
their jobs. For most workers, being able to count on a steady job and
regular promotions is a thing of the past. Even the most profitable
companies have laid off workers. Companies argue that regardless of
how well the firm is doing, layoffs, have become essential in an age of
cutthroat competition.
f) In addition, the stock market often looks favourably on layoffs. For
employees, however, chronic job insecurity is a major source of stress
and can lead to lower performance and productivity. Though union
membership has been declining in recent years, many workers still
belong to unions, and job security is now a top union priority. In return
for job security, though, many union leaders have had to make major
concessions regarding pay and benefit.
g) Matching People and Organizations Research suggests that HR
strategies contribute to firm performance most when the firm uses these
strategies to attract and retain the type of employee who best fits the
firm’s culture and overall business objectives. For example, one study
showed that the competencies and personality description of top
executives could hamper or improve firm performance, depending on
what the firm’s business strategies are.
Fast-growth firms perform better with managers who have a strong
marketing and sales background, who are willing to take risks, and who
have a high tolerance for ambiguity. However, these managerial traits
actually reduce the performance of mature firms that have an established
product and are more interested in maintaining (rather than expanding)
their market share.
Other research has shown that small high- tech firms benefit by hiring
employees who are willing to work in an atmosphere of high
uncertainty, low pay, and rapid change in exchange for greater intrinsic
satisfaction and the financial opportunities associated with a risky but
potentially very lucrative product launch

Strategic Human Resource Management (SHRM) – Advantages and

Disadvantages
Strategic HRM is concerned with the relationship between human
resource management and strategic management in an organization. It
caters to provide overall direction to the organization in order to achieve
its goals through people.
As people or the intellectual capital is a major source of competitive
advantage, and it is the people who implement the strategic plan, top
management must take these key considerations fully into account for
developing its corporate strategies. Strategic HRM is an integral part of
such people strategies.
Strategic HRM addresses broad organizational issues relating to
organizational effectiveness and performance, changes in structure and
culture, matching resources to future requirements, the development of
distinctive capabilities, knowledge management and the management of
change.
It is concerned with both meeting human capital requirements and the
development of process capabilities, that is, the ability to get things done
effectively. On an overall, SHRM considers any major people issues that
affect or are affected by the strategic plan of the organization. The
critical concerns of HRM such as choice of executive leadership and
formation of positive patterns of labour relations form the core strategic
concern in any firm.
Advantages of SHRM:
SHRM has the following advantages, namely:
1. Identifying and analyzing external opportunities and threats that may
be crucial to the company’s success.
2. Provides a clear business strategy and vision for the future.
3. To supply competitive intelligence that may be useful in the strategic
planning process.
4. To recruit, retain and motivate people.
5. To develop and retain of highly competent people.
6. To ensure that people development issues are addressed
systematically.
7. To supply information regarding the company’s internal strengths and
weaknesses.
8. To meet the expectations of the customers effectively.
9. To ensure high productivity.
10. To ensure business surplus thorough competency
Disadvantages of SHRM:
Barriers to successful SHRM implementation are complex. The main
reason is the lack of growth strategy or failure to implement one.
Other major barriers are summarized as follows:
1. Inducing the vision and mission of the change effort.
2. High resistance due to lack of cooperation from the bottom line.
3. Interdepartmental conflict.
4. Lack of commitment of the entire senior management team.
5. Ineffective plans that integrate internal resource with external
requirements.
6. Limited time, money and the resources.
7. Resistance of employees.
8. Resistance of senior level managers to take up strategic steps.
9. Diverse work-force with competitive skill sets.
10. Fear towards victimization in the wake of failures.
11. Improper strategic assignments and leadership conflict over
authority.
12. Ramifications for power relations.
13. Vulnerability to legislative changes.
14. Resistance that comes through the legitimate labour institutions.
15. Presence of an active labour union.
16. Economic and market pressures influencing the adoption of strategic
HRM.