MGMT90010 Strategic Human Resource Management

Week 2:
HR and Strategy

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DAEJEONG CHOI
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Department of Management & Marketing

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 Learning objectives

§ Describe competitive business strategy and HR

strategy that organizations use.

§ Explain the three approaches to HR strategy

including key characteristics of each strategy.

§ Understand strategic planning processes.

§ Explain how human resource strategies and

competitive business strategies are aligned.

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What is strategic HRM?
One definition, many parts

• “Compared to a more traditional approach… strategic HRM focuses on

whether and how systems of HR practices help organisations [to] achieve
strategic goals and enhanceperformance.”
market shares & profitability

Source: Boon et al. (2018, pp.38-39) https://doi.org/10.1080/09585192.2017.1380063

Compensation

• This definition has just 26 words.

• But notice all the different elements that it includes.
• This short definition raises many questions.
 Heuristic framework

STRATEGY FORMATION STRATEGY IMPLEMENTATION

External
LINK
analysis

Competitive advantages
Mission Business Firm
Goals strategy HR strategy HR practices performance

Internal
analysis

Individual Individual
Skill vs. Ability
Abilities are often considered innate or natural aptitudes, KSAOs, performance
while skills are learned competencies developed through attitudes, etc.. and results
practice and training
Green boxes = traditional HRM
blue boxes = strategic mgt.
The VRIO framework (Valuable, Rare, Inimitable, Organized)
 What is Strategic Planning?
expectation
§ A strategic plan is a road map to lead an organization from
where it is now to where it would like to be.
§ Strategy formation is a set of processes involved in creating or
determining the organization’s strategies.
§ Strategy implementation are the methods by which strategies
are operationalized or executed.

Griffin, R. W. (2002). Management (7th ed.). Boston: Houghton Mifflin Company.

A mission is a broad, overarching statement of an organization's purpose and why it exists, while goals are specific, measurable, achievable,
relevant, and time-bound targets that help an organization achieve its mission
Goals must be connected to mission to be meaningful.

Strategic planning

§ Determine goods and services to provide; customers to

target; threats and opportunities
External § HR strategy must also consider external environment (e.g.
analysis employment market/conditions)
§ Frameworks: e.g. PESTLE, SWOT, PORTER’s 5 Forces

Mission Business
Goals strategy

Internal § Assessment of an organization’s internal resources and

analysis capabilities.
§ The organization’s people and HR practices can be an
internal strength (RBV)
§ Lack of effective HRM can represent a major weakness.
§ Analysis of HR capabilities is therefore vital in determining
strategy
VRIO Framework: make people VRIO

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 BUSINESS STRATEGIES
§ Cost leadership strategy

• Organizations seek to become low-cost producers of

goods and services.

• Their goal is to develop efficient production methods

that enable them to sell at a lower price than
competitors
§ Differentiation strategy
• Organizations using this strategy seek to produce
goods and services that are somehow superior to the
goods and services provided by competitors.

• Their goal is to create unique value for which

customers are willing to pay a higher price
 Strategic HRM, HR strategy, and practices
Traditional HRM

SHRM HR Strategy HR practices

Focus Human capital HRApractice system
Bundle of HR practices
Single HR practice
Level of interest Organization or Job level Job level
business level
Responsibility Designed jointly Designed mostly by Designed entirely by
between line and HR HR
HR
Goal or objective Get the right people Get people to have, Get people to have,
in the right place in feel, and do things feel, or do things
the business to that lead to job and that lead to job
maximize business business success success
success
 Three approaches to HR
strategy (1)

§ Universalistic approach: identify a set of human

resource practices that is beneficial for all
organizations.
• This approach has identified a bundle of
practices, labeled a high performance work
system (HPWS) approach (e.g., Best practice).
• Table 1 (Wright, 2008, p. 6): job analysis, formal
training, etc
 Three approaches to HR strategy (2)
The commitment HR strategy
• Broadly defined tasks. § Contingency approach:
• High levels of employee participation. align human resource
• Highly skilled workers. practices with
• Extensive training.
competitive business
• High wages.
• High benefits. strategies.
No single practice is the best

• Align with cost leadership

The control HR strategy versus differentiation.
• Narrowly defined jobs.
• Low participation.
• Low skill requirements.
• Intense supervision or control.
• Limited training.
• Low wages.
• Low benefits.
 Value matrix approach
get people from market want to internalise people
Externalization Internalization

Collaborative HC Strategic HC
High

Relational
Partnership HR strategy Commitment-based HR strategy don't want to
• Select on past experience • Staff based on potential let them go
• Develop the relationship • Develop (firm-specific) ,not generic trainings
• Evolving scope • Autonomy/self-direction
• Rewards for ideas • Extensive pay and benefits
UNIQUENESS

• Fail forward

Support HC Core HC

Transactional
Compliance-based HR strategy Performance-based HR strategy
• Limited scope (outsource) • Staff on current need/skill
get them easy
• Rules and procedures very clear • Targeted development in market
• Contract/hourly pay • Market-driven pay
• Error avoiding • Reward productivity
Low

can have many HR strategies • Mistake above water line

pick up already-to-use staff in the market

Low High
STRATEGIC VALUE The job with the least Strategic value should be outsourced.
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Engage HR in strategic planning

§ What should CHRO do on

people side to add value
to the business?
• Predicting outcomes
• Diagnosing problem
• Prescribing actions
1. Plan outcomes:
 Strategy formation begins

§ Information gathering
• A business needs to be constantly scanning its external and internal
environment.
• One method is to look at:
• Strengths
• Weakness
• Opportunities
• Threats
 Assessing the External
Environment

§ Understanding of external business environment

helps a business determine what goods and services
to provide.
§ Guide choices about whether to focus on lowering
costs or on providing goods with superior features.
§ Understanding broad changes outside the
organization is critical for HR strategy as well.
§ Organizations need information about demographic
and cultural changes to forecast how many workers
with particular skills will be available in the future.
 Assessing Internal Capabilities

Assessment of an HR practices can Lack of effective Gathering

organization’s represent a critical HRM can represent a information about
internal resources internal strength for major weakness. HR capabilities is
and capabilities. organizations. therefore a vital part
of an effective
assessment of
organizational
strengths and
weaknesses.
 Heuristic framework

you can control e.g., regulation, out of

Firm Strategy control

Competitive advantages
Firm
HR strategy Firm internal Firm external
Resource and
performance performance
Climate
HR practices

Individual Individual
KSAOs, performance and
attitudes, etc.. related outcomes

focus on these factors

Strategic talent management:
Dow Chemical

§ Dow Chemical’s strategic objective:

• create more “short-cycle” innovation alongside
the company’s traditional long-cycle R&D.
§ Aspects of the HR strategy:
• aggressively hiring entrepreneurial millennials
was the fastest way to create more “short-cycle” Dow = Srategic HR
innovation
• Grew share of employees under 30 (from 9% to
15%)
• Revamped career paths to move the 20 and 30-
somethings into bigger jobs quickly, and invited
them to global leadership meetings early
• Why? To benefit from this new talent.
 Strategic alignment

Strategy can be viewed as a set of From an HRM perspective, there are

coordinated choices and actions. two types of strategy
Competitive business strategy, focuses on
choices and actions about how to serve the
Making
needs of customers
these aligned
HR strategy, focuses on choices and actions
concerning the management of people
within the organization
 Strategic alignment
STRATEGY FORMATION § Organizations are likely to
have human resource
practices that fit with their
External
analysis competitive business
strategies.
§ Organizations whose
human resource strategies
Mission Goals
Business
HR strategy
match their competitive
strategy
strategies do indeed
perform better.

Internal
analysis
 Our belief is that
happy employees
make for happy
customers, which
make for happy
shareholders.

Create people-
oriented culture and
an emphasis on fit

https://hbr.org/2015/12/how-southwest-airlines-hires-such-dedicated-people

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 How do we determine the “systems of HR”:
Context is King?
- Boxall &Purcell (2011, Ch. 3) criticise “best-practicism” and instead emphasise the “law of
context” inHR. Does that mean the idea of ‘best practice’ is invalid?

Best fit: contingency approach. Best practice: universalist approach. All

Optimal HR strategy depends on organisations can benefit from adopting
specific context, firm strategy, and the those practices that are proven to work
wider environment. best.

Key issue: which contextual factors Key issue: how is ‘best’ defined, and for
matter? whom?

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 Congruence model
§ Opportunity gap vs. Performance gap
§ The role of HR is critical

Executive
leadership
Culture
Input Output

Organization
Formal
Environment Strategy Critical tasks Division
organization
Department

People

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 Key takeaways
— The role of HR strategy in achieving business goals and improving business
performance.
— When developing HR strategies, three approach can be taken (universalistic,
contingency, and value matrix).
— Remember collaboration among CEO, CFO, and CHRO in strategic planning process.
HR capital is critical to forecast outcomes, diagnose business problems, and
prescribe behaviours.
— Business strategy and HR strategy are to be aligned in order to sustain competitive
advantages.

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