SHRM Unit 2-2011

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MBAIV SEM

Strategic Human Resource

Management

Manav

RachnaCollegeofEngg.

Presentation by Tanushree Gulati

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Unit 2 Syllabus

Strategic Fit Frameworks

Linking Business Strategy and HR Strategy

HR Bundles Approach

Best Practice Approach Business Strategy and Human Resource Planning

HRM and Firm Performance Linkages-measures of

performance linkages

Sustained competitive advantages throughinimitable HR Practices

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Strategic Fit Frameworks

Strategic Fit refers to the strategic integration of HRactivities with business strategies

Guest in 1997, identified the following 5 Fits:

Best Fit Approach

Fit as Contingency

Fit as an ideal set of practices (Best PracticeApproach)- best practices which all firms can

adopt Fit as Gestalt

Fit as Bundles(the configuration approach)

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FitPerspectiv

e

Fit as anideal set

ofpractices

Fit asgestalt

Fit asbundles

configuration approach)

Fit asContinge

ncy

Fit as astrategicinteractio

n

TYPES OF FIT BETWEEN HR & BUSINESS

STRATEGY

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Best Fit Approach-

HR practices linkages

withthe external context

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Types of Business

Strategy

Characteristics Examples

Cost leadership The firm increases its efficiency , cuts costs so thatproducts or services may be priced lower than the industry

average.

Assumes that a small change in price will significantlyaffect customer demand

Assumes that the customers show greater price sensitivity

than brand loyalty- this is because the products / services of

each firm are non- distinguishable.

Retailers such as

Vishal Mega Mart

Differentiation The firm distinguishes its products/ services fromits competitors or at least attempts to make

consumers perceive that there are differences .

The firm charges a premium for its products/

services because it offers its customers something

that is unique , extraordinary, or innovative.

The firm seeks to develop brand loyalty

Nike, Sony

Focus

The firm recognizes that different segments of the markethave different needs and attempts to satisfy one particular

group.

The firm can charge a premium for its services since the

market has overlooked these market segments.

Clothes manufacturesthat cater to petite

women, restaurants

that target only

families.

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HR PRACTICES CORRESPONDING TO STAGES OF LIFE CYCLE OF ORGANISATION

Life cycle

stages

HR Practices

Start up Flexible patterns of work

Competitive payLittle formality

No unions

Recruitment of highly motivated and committed employees

Growth More sophisticated recruitment and selection

Training and development

Reward systemsFocus on high commitment

Developing stable high commitment

Performance management processes

Maturity Attention to the control of labor process

Focus on increasing productivityStrained employee relations

Control compensation

Decline Emphasis on rationalization of workforce and downsizing

Abandoning some longstanding practices to cut costs

Trade unions have some marginalized roles

Retraining and career consulting services

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Business Strategy HR Strategy

Cost Leadership

Suitable for repetitive and

predictable behavior

Concerned with short term focus

and qualities (volumes)

Result oriented

Utilization HR StrategyHR strategy focused on short term

performance measures ,i.e, results or

outcomes.Efficiency is the norm, job assignments are

specialized, explicit job descriptions.

Hierarchical pay, few incentives

Narrow career paths, limited training

limited employment security

Limited participationCost cutting involve incentives for

employees to leave the organisation.

Differentiationlong term focus

Creative job behaviorModerate concern for quality and

quantity

Facilitation HR StrategyBroad career paths

Extensive trainingLong term performance measures

High employees participation

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Business strategy HR Strategy

Some employees security

Equal and fair pay, manyincentives for creativity.

External recruitment and hiring

of people who bring in new ideas

Focus High concern for quality

Moderate concern for quantity

Long / Medium term focus

Accumulation HR StrategyEqual and fair pay with many

incentives

Hiring employees belonging to the

target market

Broad career paths with extensive

trainingHigh employees participation

Some employees security

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Miles & Snows classification of business strategy and HR strategy

DOMINANT CULTURE OF THE

ORGANIZATIONHR STRATEGY

Defenders

Find change threatening

Favor strategies which encourage

continuity and security

Bureaucratic approach

Planned & regularly maintained policies tp provide

for lean HrBuild human resources

Likely to emphasize training programmers and

internal promotion.

Prospectors

Thrive on change

Favor strategies of product andor/ market development

Creative and flexible management style

Have high quality human resource

Emphasis redevelopment & flexibility of HRLittle opportunity for long term HR planning

Acquire human resources

Likely to emphasis on recruitment , selection and

performance- based compensation

Analyses

Seek to match new ventures with thepresent business set up

These firms are followers- the

ventures are not to the market, only

new to the firm

Low levels of monitoring and coordination

Buy as well as make key human resourcesEmphasize HR planning

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Fit as Contingency, Fit as Gestalt

Fit as Contingency -HR approaches to ensure that

internal practices of organization respond to externalfactors such as:

Nature of market,

Skills availability, Nature of competition

Federal and Union Laws

Market and Environment Analysis etc.

Fit asGestalt- emphasizes on the importance of finding anappropriate combination of practices

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Fit as Bundles

Bundling refers to the development and implementation of

several HR practices together so that they are interrelated andinternally consistent.

Each HR practice complements and reinforces the other.

Mac Duffie (1995) referred to bundling as

complementarities and Delery, Doty (1996) called it theadoption of configurational mode.

Bundles approach is also known as internal fit or

horizontal integration.

Fit as Bundles(the configuration approach)- suggests a

search for distinct configuration or bundles of HR practices

that compliment each other, in order to determine which

bundle is likely to be most effective.

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Best Practice Approach

Fit as an ideal set of practices (Best Practice Approach)-

best practices which all firms can adopt

Pfeffers (1994) list of 16 practices, later summarized into 7,has been the most significant influence on the definitions ofbest practice.

Employment Security

Selective Hiring

Team working

High pay contingent on company performance

Extensive Training Reduction of Status Differences

Information Sharing

HRM and firm performance linkages-measures of HRM performance

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HRM and Firm Performance Linkages

Huselid 1995, Delery & Doty 1996, Huselid &

Delaney 1996, Boselie, Paauwe & Jansen 2001,

Datta, Guthrie & Wright, 2005, Tzafrir 2005, Guest,

et al. 2008 have established a linkage between

human resource management practices and firmperformance

The understanding of the interconnectivity of

various areas within HRM and the actual

performance of the organization in whole, ordepartmentally has yet to be thoroughly studied.

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Performances may be measured through assessing

each individuals characteristic contributions to the

organization.

Huselid and Delaney (1996) contended HRM

practices, particularly selection and training, are

associated with perceived firm performance in profit

and nonprofit organisations.

Youndt, Snell, Dean and Lepak (1996) have

examined the impact of HRM strategy on firmperformance of 512 manufacturing plants and found

a moderate relationship between HR system and

plant performance.

HRM and Firm Performance Linkages -

measures of performance linkages

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Wright, Snell, and Dyer (2005) asserted that firm

competitiveness can be enhanced by a high

performance work system, and that it has a positive

relationship with organisational effectiveness.

Similar results are reported by Gooderham,

Ringdal, and Parry (2006) who found a positive

impact of HRM practices on firm performance of

3,281 firms in Europe.



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HR Performance and Benchmarking

Benchmarking

Comparing specific measures of performance against

data on those measures in other best practice

organizations

Common Benchmarks

Total compensation as a percentage of net income

before taxes

Percent of management positions filled internally Sales per employee

Benefits as a percentage of payroll cost

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Doing the Benchmarking Analysis

Return on Investment (ROI)

Calculation showing the value of expenditures for HR

activities.

A = Operating costs for a new or enhance system for the time period

B = One-time cost and implementation

C = Value of gains from productivity improvements for the time period

BA

CROI

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HR Business Performance Calculations

Figure 2

11aSource: Adapted from Jac Fitz-Enz, Top 10 Calculations for Your HRIS, HR Focus, April 1998, S-3.

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HR Business Performance Calculations

Source: Adapted from Jac Fitz-Enz, Top 10 Calculations for Your HRIS, HR Focus, April 1998, S-3.

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Sustained competitive advantages

A firm is said to have a sustained competitive

advantage when it is implementing a value creating

strategy not simultaneously being implemented by

any current or potential competitors and when

these other firms are unable to duplicate thebenefits of this strategy

Day and Wensley (1988) focused on two

categorical sources involved in creating acompetitive advantage : superior skills and superior

resources.

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Sustained competitive advantages through

inimitable HR Practices

Superior Skills and Superior Resources (Human)

An organizations competitive advantage in itsbusiness environment is vital to understand forreasons of strategic planning, and the HRM systemplays an important role in interpreting theorganizations position.

In understanding this element of strategic planningfor the organization, it is essential for the leadership

to first understand the firms performance levels,and how to use HRM as a tool to make tacticalmaneuvers within the organization in order to attainthe results needed to meet performance level goals(Wright, 1998).

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For example, a strategy of innovation should foster

adoption of HRM practices that share a focus on

innovation; a strategy of customer service should

be linked to a set of practices that center around

service (Bowen, 2004).

Sustained competitive advantages through

inimitable HR Practices

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QUESTIONS ANSWERS

Documents

SHRM Unit 2-2011