After reading the 2 uploaded files, you would have explored the different underlying theories associated with SHRM, including the Universalist approach, the Contingency approach and the Resource-Based View of SHRM. One of the biggest challenges facing research in this area is defining what SHRM actually is and how it helps organisations achieve strategic goals.
Additionally you can also have a look at the video link provided below – https://youtu.be/DViVtgD0xwE
Based on the information provided above, Please have a read through the question provided below and answer the question with relevant references.
Question – Discuss whether SHRM can truly add value to a business at a strategic level and how it can deliver competitive advantage.
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By the end of this chapter you should be able to:
- Define and explain the concepts of strategy, strategic management, business strategy, and competitive strategy
- Critically evaluate the role of vision and mission statements.
- Understand the relationship between business strategy and competitive strategy.
- Appreciate the importance of competitive advantage and the different ways in which this can be achieved.
- Define and explain the concept of strategic alignment.
- Critically analyse key trends in strategic management.
Resource-based view (RBV)
In recent years vision and mission statements have become a popular way of summarizing and communicating an organization’s strategic direction. The vision is an aspirational statement about what the organization will look like in the future. It is used by some chief executive officers (CEOs) to inspire employees to higher levels of engagement and performance. Vision statements range from the succinct (e.g. UK retailer Morrison: ‘To be the food specialist for everyone’) to the more verbose (e.g. US computer company Dell: ‘Our future will take us from the desk top, to the data centre, to the cloud and into the hands of billions of potential new customers who are carrying the internet—essentially the world—with them everywhere they go’). In turn, the mission statement is an articulation of the strategic goals and organizational values that underpin the vision. For instance, a strategic goal of Google is ‘to provide the best user experience possible’. This contrasts with the strategic goal of the Vietnamese shipbuilder VinaShin which is ‘to make Vietnam the world’s fourth largest shipbuilder by the year 2018’ (Hayton, 2010). This identification with national success reflects the extent to which state-owned enterprises in the developing Asian economies operate a different business model to their Western business counterparts. The implications of this are discussed in section 3.6 on international trends. In terms of values, Finland’s Nokia is a typical example: the firm seeks to ‘focus on our customer; communicate openly; inspire; innovate; and, win together’ (Steinbock, 2010).
Vision and mission statements are most effective when they are expressed clearly and simply (Levis, 2009). For instance, Sunil Mittal’s vision for the Indian company Airtel is ‘being the provider of very low-cost telecommunication services to a very large population of customers’ (Cappelli et al, 2010). This captures the two principal features of India’s rapid economic growth in recent years: the success of low-cost business models coupled with the huge potential of India’s domestic market as more and more people are lifted out of poverty and join the country’s expanding middle class. Levis (2009) adds that vision and mission statements are also more effective when they focus on something that is wrong with or missing from existing markets. However, as Hamel and Prahalad (1996)warn, ‘not only must the future be imagined, it must be built’ (p. 117). Consequently, the principal purpose of strategic management is to build an organization’s strategy using the vision and mission statements as the underlying foundation.
The strategy that emerges from this process can be described as a plan that allocates resources to specific projects intended to achieve the organization’s strategic goals. Such projects might involve, for instance, mergers and acquisitions, joint ventures, or the innovation of new products and services. The strategic decisions that are made have important implications for an organization’s HR strategy and, in turn, HR policies, plans, and practices. For instance, a business that is expanding through mergers and acquisitions is likely to focus on culture change and team-building as part of its HR strategy. Whilst Ulrich and Brockbank (2005) argue that in ‘the last decade, HR professionals have worked to become strategic partners and to align their work with business strategies’ (p. 1) the reality for many HR practitioners is a lack of strategic credibility in the eyes of managers and other stakeholders (Mankin, 2009). This may be frustrating for many in the HR profession, but it is not particularly surprising when you consider that the HR function is often referred to as a support function (Haberberg and Rieple, 2008). Indeed, as Tappin and Cave (2008) observe, ‘many CEOs are scathing about the HR profession’ (p. 127).
Figure 3.1 presents these elements as a rational, top-down process. Although this is a simplification of what actually happens, it does provide a useful starting point for discussing strategic management and explaining the relationship between HR and organizational strategy (which is developed further in Chapter 4 on the role of the HR function). However, the reality is often very different for two principal reasons. First, the internal contexts of organizations tend to be messy, ambiguous, and conflict laden (Mankin, 2009). Second, external environments range from the relatively stable to the highly unstable; and the latter is a particular feature of global markets. For instance, the oil industry is struggling to adapt to a new and increasingly volatile economy as well as develop technologies for ever deeper drilling (and the inherent dangers of this were graphically illustrated by the BP oil spill in 2010). The challenges facing multinationals are summarized by Dana Wagner of Google: ‘we are in an industry that is subject to disruption and we can’t take anything for granted’ (New York Times, 2009b). It is important to remember that public- and non-profit-sector organizations also have to cope with the budget or income-generating implications of these market conditions.
Figure 3.1 Linear strategic process.
Source: adapted from Mankin (2009).
It is impossible to cover all aspects of strategic management in a single chapter. The aim is to provide an overview of the subject so that better sense can be made of the chapters in Part 2.
There are many definitions of strategy, ranging from the simple (strategy as a plan) to the more complex:
A strategy is the set of actions through which an organisation, by accident or design, develops resources and uses them to deliver services or products in a way which its users find valuable, while meeting the financial and other objectives and constraints imposed by key stakeholders (Haberberg and Rieple, 2008: 6).
Table 3.1 What is strategy?
|Guiding the evolution of an organization.||Delivering services or products.|
|Making choices about the nature and direction of an organization.||Creating sustained value for shareholders and other stakeholders.|
|Making decisions about the allocation and development of resources.||Sustaining competitive advantage.|
|Responding to the changing conditions posed by the external environment and internal capabilities.|
This may lack the simplicity of more succinct definitions, but it does make explicit some of the salient features of the concept (which are discussed below). Table 3.1 provides an initial analysis of this and two other definitions.
An interesting counterpoint to academic definitions is provided by General Electric’s famous former CEO, Jack Welch:
Look, what is strategy but resource allocation? When you strip away all the noise, that’s what it comes down to. Strategy means making clear-cut choices about how to compete. You can not be everything to everybody, no matter what the size of your business or how deep its pockets (Welch, 2005: 169).
Insights from strategic leaders are important because they help us to better understand the practice of strategy. In large, complex organizations CEOs have a significant influence on strategy (Porter and Nohria, 2010). Indeed, the CEO role has been described as the guardian of strategy (Tappin and Cave, 2010).
Strategy is a plan that integrates an organization’s vision, mission, goals, and objectives, and determines how resources will be used.
It is important to understand that strategy is not a monolithic concept. Whittington (2001) suggests that there are four generic perspectives on strategy—Classical, Evolutionary, Processual, and Systemic—and that these differ along two dimensions: outcomes and processes (see Fig. 3.2). Each perspective offers a different interpretation of strategy:
Figure 3.2 Generic perspectives on strategy.
Source: Whittington (2001: 3).
- Classical argues that managers can shape strategy through the utilization of rational planning and decision-making methods (usually with a long-term focus). Mintzberg (1994, 1996) refers to this as a deliberate strategy. From this perspective the aim of strategy is to maximize profits. However, the notion that strategic decisions rely solely on rational processes at the exclusion of intuition is highly questionable.
- Evolutionary is based on a Darwinian interpretation of the market (i.e. natural selection or ‘survival of the fittest’). Markets are too volatile for long-term planning and only the best performers will survive. Successful strategies are dependent on the ability of managers to react effectively to changes in the market. The aim of strategy is to maximize profits. The work of Michael Porter is associated with this perspective. He argues that there are five principal external forces that shape strategy: the threat of new entrants, the threat of substitute products or services, the bargaining power of buyers, the bargaining power of suppliers, and the level of rivalry between existing competitors (Porter, 2008).
- Processual reflects the imperfect nature of organizations and views strategy as an accommodation of internal and external factors. Mintzberg (1994, 1996) argues that strategy as a plan, which he describes as an organization’s intended strategy, invariably fails to materialize, with new strategies emerging (the term emergent is often used to describe this perspective). The aim of strategy is to achieve more than one outcome. This perspective reflects how difficult it is to make predictions about the future (Bryan and Joyce, 2007).
- Systemic views strategy as being inextricably linked to local social systems and cultures. The aim of strategy is to achieve more than one outcome. Whilst a multinational might have an overarching strategy, the specifics need to be adapted to fit the different local circumstances of its international operations. An example of this was Google’s acquiescence to the Chinese government request that some online content could not be made available to Chinese users of the site.
The reality is that organizations often exhibit a blend of two or more of these perspectives. As Kaplan and Norton (2004) argue, strategy ‘is developed and evolves over time to meet the changing conditions posed by the external environment and internal capabilities’ (p. 34, emphasis added). Arguably, the challenge is in knowing what the best blend should be at any given time.
Case study 3.1 A Taiwanese story about strategy and structure
Before 2000 the Taiwan-based company Acer had competing strategies. For 15 years one part of the firm had been building computers for other PC sellers who would put their own labels on the machines, while another part sold very similar computers under the company’s own brand. The latter strategy was predicated on direct sales to consumers, which had brought the firm into direct competition with companies such as Dell. However, in 2000 the firm decided to adopt a new business strategy in order to increase its global market share. Acer’s manufacturing division was made an independent company (Wistron) and this enabled a smaller and more nimble sales firm to emerge. The strategy based on direct sales was discarded and replaced with a strategy focused on selling as many low-cost laptops and netbooks as possible to consumers but via a network of partners and retailers. A new logo was adopted to reflect this new strategic direction, which had proved very successful despite the industry downturn. By 2008 Acer had replaced Hewlett-Packard as the market leader in Europe, the Middle East, and Africa, partly as a result of Acer’s success in the booming netbook market. This strategy enabled the firm to become the world’s second largest PC vendor. However, in 2011 tensions at board level over the firm’s strategic direction culminated in the resignation of Acer’s CEO Gianfranco Lanci. The difference in opinion appears to be about whether the firm’s future lay in PCs or mobile devices. Acting CEO J.T. Wang announced that the PC would continue to be the firm’s core business. In 2009 the firm had entered the smartphone market with the launch of four different smartphones and the promise of more in the pipeline. Unlike Apple, which has focused on developing one phone only, Acer’s strategy is based on targeting each of its phones at a different market segment. In March 2011 Acer announced that revenue projections for the first quarter in 2011 will fall short of expectations by about 10% due to weaker demand in the PC markets in the US and Europe.
- New York Times, 2009
(accessed 29 June 2009).
- Bloomberg Business Week
(accessed 19 June 2010).
- The Financial Times
(accessed 20 June 2010).
- PC Pro
(accessed 12 June 2011).
- Financial Times
(accessed 12 June 2011).
(accessed 12 June 2011).
(accessed 12 June 2011).
1.Which elements of Whittington’s four perspectives can be identified in the case study?
2.What does this case study tell us about the role of the CEO?
Strategic management is the process that enables organizations to turn strategic intent into action. It comprises four phases: analysis, selection, implementation, and review. These are inextricably linked, as illustrated in Fig. 3.3. Each phase represents a different aspect of an organization’s business and competitive strategies; so it is important that you appreciate the difference between these two types of strategy. Business strategy sets out an organization’s strategic scope or direction—essentially, the markets it wants to compete in (Grant, 2010). It is important to note that business strategy is often referred to as corporate strategy. Competitive strategy is about how an organization will compete in those markets:
A company’s competitive strategy provides a kind of template for day-to-day business decisions but is not itself subject to short-term alteration … the template provides a framework for engaging in the market and guiding operational decisions. It sets forward a view on how best to compete over the next three, five, or even ten years (Cappelli et al, 2010: 118).
Figure 3.3 Four phases of strategic management
The four strategic management phases provide a route-map for determining an organization’s business and competitive strategies:
- Analysis:data from external and internal environments can be analysed to provide information which then informs strategic decisions about business and competitive strategy. External sources include: economic forecasts, market trends, technological changes, labour market and demographic trends, and government initiatives. Internal sources include: business processes, performance metrics, staffing (and skills) levels, financial data, and attitude surveys. This analysis is not the preserve of a single function, although marketing usually plays an important role (Brassington and Pettitt, 2003). A particular problem with analysing information for strategic decision making is ‘bounded rationality’ (Simon, 1985). It is not possible to know everything about the external environment although it is assumed that people will always choose the best course of action and will make rational decisions based on that information. Any search for information is inevitably incomplete, thus resulting in satisfactory rather than optimal decisions (Simon, 1985).
- Selection:this involves making choices about what the strategy should be (i.e. business strategy) and how it should be achieved (i.e. competitive strategy). Freedman (2003)defines strategy as the ‘framework of choices that determine the nature and direction of an organisation’ (p. 2, emphasis added). From a business perspective it is about ‘winning’ (Grant, 2010: 4). The latter reflects the competitive nature of global markets. It is critical that the organization’s sources of competitive advantage are correctly identified. Ulrich and Brockbank (2005) provide several examples of these, including: innovating new products and services (e.g. Intel); quality (e.g. Toyota); branding (e.g. Coca-Cola); on-time delivery (e.g. FedEx); and customer service (e.g. Virgin Atlantic Airways). These sources of competitive advantage (or in the case of public and non-profit sectors performance advantage through the delivery of best value) reflect the core capabilities of an organization. This point is developed further in the next section on competitive advantage.
- Implementation:this involves a combination of resource investments in what can essentially be described as strategic projects. These projects lie at the heart of an organization’s competitive strategy. However, as Morgan et al (2007)point out, most strategies fail at the implementation phase, suggesting that it is not possible to plan for every possible contingency. It is during this phase that intended strategies are overtaken by events and replaced with new, emergent strategies. The ability of an organization to adapt to any changes is dependent on a combination of internal factors (see section 3.5).
- Review:it is critical that the projects underpinning the implementation phase are reviewed on an ongoing basis (Morgan et al, 2007). The outputs of the review phase become inputs for the analysis phase. Unfortunately, this can be a neglected aspect of strategic practice. Many organizations use the Balanced Scorecard (Kaplan and Norton, 1996) to measure the effectiveness of their strategies. The Balanced Scorecard is intended to encourage organizations to move away from a short-term reliance on financial measures by focusing on four areas: financial, internal business processes, learning and growth, and the customer (Kaplan and Norton, 2004). India’s Tata Steel relies heavily on this approach (Seshadri and Tripathy, 2006), while another Indian firm, Wipro, uses a modified version which is used to link individual performance to six rather than four areas (Hamm, 2007).
The aim of competitive strategy is to acquire or sustain competitive advantage. However, there is considerable variation in how organizations can do this. A common strategy is to be less expensive than competitors. A good example of this is the airline sector and low-cost airlines, such as Ryanair in Europe and Southwest Airlines in the US. Other strategies include differentiation, innovating new products and/or services, and occasional cost promotions to undercut competitors for short periods, although the latter is proving increasingly ineffective as companies learn how to respond to such deals much more quickly than in the past (Hall, 2008). Much of India’s business success has been achieved through competitive advantage based on a combination of low-cost business models and innovation (Kumar et al, 2009), while multinationals are using different strategies to establish and grow businesses in China (see Case study 3.2 below).
The resource-based view (RBV) of strategy (Wernerfelt, 1984) focuses on the role of organizational capabilities as a source of competitive advantage. These capabilities are intangible assets and represent something an organization does well relative to its competitors (Ulrich and Brockbank, 2005).
Competitive advantage involves building a relatively consistent pattern of returns for shareholders (Porter, 1985).
Case study 3.2 Tata Motors
Over the last 20 years US car producers have been focusing on trucks and sport-utility vehicles (SUVs). This strategic focus derived from the analysis of marketing information on consumers and competitors. Market analysis indicated that there was less immediate competition in the truck and SUV market segments than in conventional cars and this was seen as an opportunity for the greatest short-term profits. In contrast India’s Tata Motors was moving forward with a strategy focused on small inexpensive cars even though this was a highly competitive market segment, dominated by Japanese auto-makers. The company’s aim was to design a small car that would be significantly cheaper to make and buy than any other model and thus satisfy India’s mass market demand for low-cost transportation. The result was the Nano with a sales price of 100,000 rupees ($2,500), which was half the price of its closest competitor in India. Tata Motors achieved this by designing everything from scratch; deleting features that were taken for granted by other auto-makers (e.g. air conditioning, power brakes, radios); using lightweight steel and an aluminium engine; and building in fuel efficiency of 50 miles to the gallon. The car’s other important feature was its modular design enabling the Nano to be distributed in kit form and assembled across the country by local businesses. The global reaction to the Nano catapulted the Tata Group into sixth place on the Business Week’s list of the world’s most innovative firms (behind Apple, Google, Toyota, General Electric, and Microsoft in first to fifth places respectively).
Cappelli, P., Singh, H., Singh, U. and Useem, M. (2010) The India Way. Boston, MA: Harvard Business Press, pp. 12–15.
Moving into China
The world’s three biggest retailers have adopted different entry and growth strategies. Carrefour has expanded aggressively and set up joint ventures in China’s provinces. Walmart has been more cautious in expanding into the provinces. In 2007 the company paid $1 billion for a local chain, Trust Mart, to strengthen its expansion. In 2009 Walmart overtook Carrefour. Tesco bided its time before acquiring a 50% stake in the Hymall chain (which was a subsidiary of a Taiwanese company). This strategic decision was taken because the company viewed it as a way of better understanding China’s retail environment, particularly in relation to supply and distribution networks.
Torrens, C. (2010) Doing Business in China. London: Profile Books, p. 10.
- Compare Tata Motors’ approach to competitive advantage with that of a leading car manufacturer in the US, such as Ford or General Motors. What appears to be the principal difference between the approaches adopted by the two firms?
2.What role does the state play in China’s corporate sector and how does this impact on the ability of Western firms to penetrate China’s domestic markets?
Organizational capabilities can also be described as an organization’s core competence. This was a popular term in the management strategy literature of the 1990s (Le Deist and Winterton, 2005) and was defined as ‘a bundle of skills and technologies that enable a company to provide a particular benefit to customers’ (Hamel and Prahalad, 1996: 219). Whilst competitive advantage may be built on a combination of tangible and intangible assets (such as state-of-the-art production facilities and talented employees), ‘only valuable, rare, costly to imitate, and non-substitutable resources can be a source of sustained competitive advantage’ (Barney and Clark, 2007: 235). Petrobrás, the Brazilian oil producer, has used its technological competence, in the form of groundbreaking technologies in deepwater drilling, to underpin international expansion (Brainard and Martinez-Diaz, 2009). In contrast, Nokia, Finland’s leading multinational, was renowned in the 1990s for innovation (Steinbock, 2010) but is now struggling to keep pace with the levels of innovation being demonstrated by its competitors (Wall Street Journal, 2010).
The resource-based view of the firm is based on the premise that firms can achieve sustained competitive advantage if they secure and effectively deploy resources that are not available to, or imitable by, their competitors.
Core competence is associated with the concept of human capital. For instance:
Human capital that possesses organisation-specific knowledge is an invaluable asset that has the potential to produce a competitive advantage and sustain it. Hence, firms should be very selective with the employees they decide to train and develop (Carmeli and Weisberg, 2006: 202).
Leading CEOs in India assert that their competitiveness is derived from their firms’ human capital (Nilekani, 2008; Cappelli et al, 2010). However, human capital can be leveraged in very different ways. For instance, the two low-cost airlines referred to above, Ryanair and Southwest Airlines, have markedly different HR strategies. It is also important to note that this is not simply a large firm response: studies show that intangible factors, such as organizational change, innovation, and HRM contribute to the competitiveness of SMEs (Aragón-Sánchez and Sánchez-Márin, 2005). The current situation is complicated by the fact that many state-owned enterprises (SOEs) in developing countries, such as China and Vietnam, are receiving support, directly or indirectly, from their governments. For instance, state funding enables the Vietnamese shipbuilder VinaShin to win orders by bidding below cost (Hayton, 2010) (see section 3.6 on international trends). Chapter 6 covers the resource-based view and the role of human capital in more detail.
Global competition today is such that it can be very difficult to hold on to competitive advantage. For instance, Sony had long been regarded as the world’s leading electronics manufacturer, but in 2002 the firm was overtaken by Samsung. Sony’s competitive advantage lay in quality and miniaturization, which were of limited value in the age of DVDs and digital technologies (Chang, 2008). It can be argued that Sony lacked the capability for change.
Two models have been developed to explain options for an organization’s business and competitive strategies. The first is Ansoff (1987) who argues that there are four business strategic options: market penetration, product development, market development, and diversification. The second is Porter (1985) who argues that there are four generic options for competitive strategy: cost leadership, cost focus, broad differentiation, and differentiation focus. To undertake this activity you need to source a copy of these two models. You can do so by going back to the original sources (see below) or seeking out more recent journal articles that discuss the two models (both have been cited extensively). You also need to access any sources that can help you answer the following question:
- To what extent do these two models reflect the totality of options available to organizations?
An answer summary can be found on the OUP website at www.oxfordtextbooks.co.uk/orc/truss.
Ansoff, H.I. (1987) Business Strategy. London: Penguin.
Porter, M.E. (1985) Competitive Advantage. New York, NY: Free Press.
Strategic alignment is critical to competitive advantage. It combines strategic and operational practices in such a way that both levels are in effect intertwined. This can be seen in firms such as Toyota where managers treat employees as knowledge workers or assets, rather than resources, in order to sustain the firm’s strategic approach, which is based on the lean production model (Osono et al, 2008). Many Western firms have tried and failed to replicate the ‘Toyota Way’ (Liker and Hoseus, 2008) because Western business leaders have struggled to understand the management mindset within Toyota, instead viewing the ‘Toyota Way’ as little more than a set of techniques (Rother, 2009). However, Toyota also illustrates the fragility of competitive advantage: its capabilities for quality, improvement, and innovation have been compromised by following a strategy based on rapid expansion (Spear, 2010).
Figure 3.4 on the following page illustrates the principal internal factors that need to be aligned. Strategy and structure are linked together because an organization’s structure is critical to the achievement of business strategy (Bryan and Joyce, 2007). The importance of the relationship between strategy and structure can be traced back to Chandler (1962). An organization should be designed in such a way that its structure supports the competitive strategy (not the other way round). For instance, strategies that focus on close collaboration with customers and suppliers require a strong matrix structure that ‘promotes agility and responsiveness’ (Morgan et al, 2007: 116). Many of India’s leading CEOs believe that strategy drives structure (Cappelli et al, 2010). As K.V. Kamath, Chairman of India’s ICICI Bank observes, ‘We’ve always seen structure as living and play about with it as much as we can’ (Tappin and Cave, 2010: 40).
As Chapter 1 explained, organizations have become more varied in design as a result of globalization and improvements in information and communications technology. Many organizations are now characterized by flexibility, outsourcing of the supply chain, and virtual working. Brazil’s leading construction company, Odebrecht, uses ‘a flexible internal organizational structure that devolves as much autonomy—and entrepreneurial decision making—as possible to each manager. Traditional hierarchical structures are eschewed’ (Brainard and Martinez-Diaz, 2009: 212).
Arguably, changes in supply chains have had the most impact on the relationship between strategy and structure:
Strategic alignment comprises two elements. The first is vertical strategic alignment which is the process by which HR strategy, policies, and plans are aligned with an organization’s strategic goals and objectives. The second is horizontal strategic alignment which is the process by which functional strategies, policies, plans, and practices are aligned with each other.
As supply chains increase in their complexity, the owners of the work that makes up any given product or service is also accordingly more distributed among an ever-broadening number of organisations . . . [consequently] companies must rely on strategy and communication across multiple organisations and processes in order to find alignment (Koulopoulos and Roloff, 2006: 23).
Figure 3.4 The principal internal factors influencing strategic alignment.
Source: Mankin (2009).
Over 300 multinationals, including Pfizer, Microsoft, Sony, and Samsung, have now opened research and development centres in China, while others, such as Hornby, have relocated production there to maximize cost efficiencies (Torrens, 2010). A great many other Western companies have outsourced facilities to take advantage of cost savings. This has enabled countries such as India to build a strong reputation for call centres. Other types of structural change can be more substantial. For instance, in 2009 Shell, the Dutch oil company, announced it was planning to merge its power and gas division with its exploration business to create two new units in order to make the company more nimble by having fewer layers of bureaucracy (New York Times, 2009a).
The dilemma facing organizations is that any structure ‘hardens eventually’ according to K.V. Kamath (Tappin and Cave, 2010: 40). This can result in a loss of competitive advantage. Consequently, organizations need to ensure that the four phases of strategic management are ongoing processes rather than a once-a-year activity.
Definitions of organizational culture vary. It can be summarized as the ‘collective mindset of the company . . . that is, shared ways of thinking’ (Ulrich and Brockbank, 2005: 150) or as ‘a commonly held set of beliefs, values and behaviours’ (Smith and Sadler-Smith, 2006: 79). Schein’s (1992) definition of organizational culture highlights the role of basic assumptions and how these underpin values and beliefs:
A pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems (Schein, 1992: 12).
This definition suggests that it is the basic assumptions underlying culture that drive behaviour in the workplace. These basic assumptions usually exist at a subconscious level, manifesting in a ‘taken for granted’ fashion. This is why changing organizational culture is one of the biggest challenges confronting strategic leaders. Hewlett-Packard (HP) illustrates the importance of culture. The founders of the firm, Bill Hewlett and Dave Packard, ‘consciously developed a caring and consensus-oriented environment that cultivated long-term employees and allowed for bottom-up influence on strategic direction’ (Morgan et al, 2007: 95). Many of India’s leading CEOs believe that an organization’s culture is a key component of structure (Cappelli et al, 2010). Well-known brands such as Apple, Dell, and Google have strong cultures which are a source of innovation, but strong cultures can also be a force for rigidity (Levis, 2009). Again, this can be countered through an ongoing strategic management process.
In turn, if HR practices are going to have any impact they must be aligned with the organization’s strategy (Ulrich et al, 2009). Holbeche (2009) highlights the implications of strategic alignment for human resource management:
The business context drives the HR agenda, especially as work becomes progressively more knowledge- and talent-intensive. It also drives the transformation of the HR role, organisation, structure and skills sets. Delivering a value-adding agenda requires purpose, focus, a well-formulated strategy and effective methods, as well as effective measurement to ensure the right kinds of impact on organisational performance are being achieved (p. xi).
This requires a form of HR leadership which combines strategic acumen with pragmatism (Holbeche, 2010). CEOs of leading Indian firms emphasize the importance of HRM practices; in particular, employee engagement and culture (Cappelli et al, 2010) are encouraged.
To date, the literature on strategic management has been dominated by Western perspectives. This dominance is now being challenged as new indigenous business models emerge from developing nations such as China and India. This trend mirrors changes in the global political context, with America’s position as the sole superpower now being challenged by China (Clegg, 2009). It also reflects the extent to which new multinationals have been emerging over the last decade from developing countries: China’s Huawei in telecommunications equipment, India’s Tata Consultancy Services in information technology services, Brazil’s Embraer in regional jets, Russia’s Gazprom in energy, and Mexico’s Cemex in cement (Ramamurti, 2009). Although business plans and strategies were not really considered in the start-up phase of many Chinese private enterprises, most of them adopted what was in effect a low-cost model (Nie et al, 2009).
The problem for Western multinationals is that they are discovering that what has worked in the West does not necessarily work in countries such as China which is very different in terms of its business practices and competitiveness, as well as language and culture (Nie et al, 2009; So and Westland, 2010):
Many companies have relied on their strategies for developed markets to operate in the country. For most this has failed, and they have been forced to revise plans to take into account the idiosyncrasies of the Chinese market (Torrens, 2010: 1).
Initially many of China’s leading enterprises adopted a Western-influenced strategy but have since grown as a result of emergent indigenous strategies. For instance, the intended strategy for Sina was focused on adapting Yahoo’s business model (a diversified approach involving 10–20 services), but over time a new strategy emerged that was based on fewer services [the primary focus being the online aggregation of news (except politics) plus four supplementary services covering lifestyles, finance, entertainment, and sports]: Chinese consumers preferred this less diversified approach (So and Westland, 2010). The competitive advantage of Chinese firms is largely predicated on understanding of their own culture, which outside firms struggle with. For example, when the US travel firm Expedia acquired a majority shareholding in China’s eLong, its model floundered because the firm relied on the internet as its primary booking system and its payment system relied on consumers having credit cards; Chinese consumers want a call centre option and few of them have a credit card (ibid).
Strategy is often explained as a rational, top-down process and although this is a simplification of what actually happens, it does provide a useful starting point for discussing strategic management. However, the reality is that the internal contexts of organizations tend to be messy, ambiguous, and conflict laden, while external environments range from the relatively stable to the highly unstable. This means that practice or strategic management is highly problematic. It is one thing to state an organization’s strategic direction but a totally different matter to turn this intent into action. The latter is achieved through the adoption of a four-phase approach with all four phases being inextricably linked: analysis, selection, implementation, and review. The outcomes of these four phases is a business strategy (often referred to as corporate strategy), which explains what the strategy is and where it is focused (e.g. on specific markets), and a competitive strategy, which explains how the business strategy will be achieved (i.e. how competitive advantage will be acquired and sustained). Strategic alignment is critical to the success of a competitive strategy as it combines strategic and operational practices in such a way that both levels are in effect intertwined. The principal factors that need to be intertwined are strategy and structure, organizational culture, and HRM processes. This means that the HR function can play an important role in developing business and competitive strategies.
The chapter has highlighted the importance of strategic management to organizations around the world by discussing the following.
- It is through the adoption of the four phases of strategic management that organizations are able to achieve and sustain competitive advantage.
- Strategic management comprises four phases: analysis, selection, implementation, and review. These are inextricably linked.
- Whittington (2001) shows that there are different perspectives on strategy and each of these has different implications for the strategy that emerges from the strategic management process.
- The strategic management process embraces business and competitive strategies and enables an organization to identify and better understand those factors that contribute to an organization’s competitive advantage.
- The changing nature of global markets and developing economies in countries such as India, China, and Brazil means that multinationals can no longer take for granted the efficacy of traditional Western approaches to strategic management.
- What is the relationship between an organization’s vision and mission statements?
- How can the concept of strategy be defined?
- What is the difference between business and competitive strategies?
- What does RBV stand for and how is it relevant to the concept of competitive advantage?
- In what ways are developing economies impacting on global approaches to strategy?
End-of-chapter case study Tesco, Kraft Foods, and Haier: comparing strategies
When Tesco announced the early retirement of its CEO, Sir Terry Leahy, the company’s share price fell by 3% in a day. He is widely regarded as turning Tesco into a great company through a decade-long strategy of ‘organic’ growth based on domestic and, in particular, international expansion. Recent overseas acquisitions include the purchase of 38 stores in South Korea for £958 million. Current plans included adding 8.5 million square feet to its operations in 2010, up from 5.1 million in the previous year. It also plans to open nine new shopping malls in China. His explanation for his departure was brief: ‘My work here is done’, referring to his two ambitions of making Tesco Britain’s biggest supermarket chain and taking the business overseas. Today Tesco is the third largest retailer in the world. It operates in 14 countries and has 472,000 employees. The most recent annual performance figures are a profit of £2.34 billion on a sales turnover of £56.9 billion. The decision to grow the business through domestic and overseas expansion had actually been taken in 1995, two years before Sir Terry Leahy was promoted to CEO. But it is under his leadership that an aspiration or vision has been turned into reality, with 4,811 Tesco stores now operating worldwide. Presently, the firm’s success in Asia is helping to offset the problem of stalled growth in the UK. What makes the Tesco story so interesting is that the expansion strategy has been characterized by diversification into a wide range of non-food products and services, including electronics, books, music, and financial services. At the same time Tesco has striven to stay true to its underpinning values of simplicity, economy, and excellent service. There is speculation that Sir Terry Leahy’s successor, Philip Clarke, may have to preside over the break-up of the company because of increasing concerns that it has grown too big.
- Tappin, S. and Cave, A. (2010) The New Secrets of CEOs: 200 Global Chief Executives on Leading. London: Nicholas Brealey Publishing.
- Wall Street Journal
(accessed 18 June 2010).
- The Guardian
(accessed 18 June 2010).
- The Telegraph
(accessed 20 June 2010).
- Bloomberg Business Week
(accessed 20 June 2010).
In 2009 the US firm Kraft set in motion its strategy for acquiring Cadbury, the long-established British chocolate manufacturer. In February 2010 it was announced that Kraft had acquired Cadbury for £11.4 billion. The takeover was controversial and described as a ‘hostile’ takeover bid. The takeover was consistent with Kraft’s strategy of expanding the business through mergers and acquisitions under the leadership of CEO Irene Rosenfeld. Cadbury was an attractive brand because Kraft needed to expand into emerging economies and 40% of Cadbury’s sales were already in these markets. The aim of Kraft’s strategy is to improve profits by 9–11% per annum. As part of this strategy, innovation is preferred to cost cutting (indeed Irene Rosenfeld reversed some of the cost-cutting measures already in place when she took over as CEO). She has also focused on decentralizing business decision making, so that the most relevant strategic choices are taken, and implementing incentives that encourage collaboration across the company.
- Tappin, S. and Cave, A. (2010)The New Secrets of CEOs: 200 Global Chief Executives on Leading. London: Nicholas Brealey Publishing.
- The New York Times
(accessed 19 June 2010).
- Bloomberg Business Week
(accessed 19 June 2010).
- Bloomberg Business Week
(accessed 20 June 2010).
Haier is one of China’s leading firms with an annual turnover of over $15 billion. The company manufactures home appliances such as refrigerators and washing machines. When its CEO, Zhang Ruimin, took up his post in 1984 the company was on the brink of bankruptcy. In 2004 it was listed as one of the ‘World’s Top 100 Brands’, reflecting the extent to which its branded products can be bought around the world. Today, under his leadership, it is the world’s biggest refrigerator and washing machine maker by volume and is one of the few Chinese companies to expand overseas, starting with a production base in the US in 1999. Haier’s strategy, under the leadership of its CEO, Zhang Ruiman, is predicated on a commitment to quality, innovation, and a strong desire to be recognized as a global brand. The firm is now trying to build novel technologies and features into its products rather than emphasize the low-cost advantage it derives from being a Chinese company. Such values are consistent with those espoused by firms in other Asian ‘Tiger’ economies such as Japan and South Korea. Recent expansion includes a 20% share in New Zealand’s Fisher and Paykel Appliances Holdings Ltd for just under $34 million. The company is also benefiting from the Chinese government’s $586 billion stimulus package to boost domestic consumption as it includes cash subsidies for purchase of washing machines, refrigerators, and computers.
- Schuman, M. (2009) The Miracle: The Epic Story of Asia’s Quest for Wealth. New York, NY: Harper Business.
- Nie, W., Xin, K. and Zhang, L. (2009) Made in China: Secrets of China’s Dynamic Entrepreneurs. Singapore: John Wiley and Sons (Asia).
- McGregor, R. (2010) The Party: The Secret World of China’s Communist Rulers. London: Allen Lane.
- Tappin, S. and Cave, A. (2010) The New Secrets of CEOs: 200 Global Chief Executives on Leading. London: Nicholas Brealey Publishing.
- Bloomberg Business Week
(accessed 20 June 2010).
(accessed 20 June 2010).
Case study questions
- How might you explain the business and competitive strategies for each firm?
- What appear to be the principal sources of competitive advantage for each firm?
Mintzberg, H. (1987) Crafting strategy. Harvard Business Review, July–Aug.
This is a seminal article that is still relevant today.
Mintzberg, H. (1996) Five Ps for strategy. In H. Mintzberg and J.B. Quinn (eds) The Strategy Process. London: Prentice Hall.
This is a good book chapter for expanding your understanding of Mintzberg’s critique of deliberate and emergent strategies.
Mintzberg, H. and Lampel, J. (1999) Reflecting on the strategy process. Sloan Management Review, Spring.
This builds on this chapter’s content by introducing you to ten schools of strategy formation.
Porter, M.E. (2008) The five competitive forces that shape strategy. Harvard Business Review, Jan., pp. 78–93.
This article discusses in depth one of Porter’s principal models for analysing the external environment.
Whittington, R. (2001) What is Strategy—and Does it Matter? London: Thomson Learning.
At only 130 pages this is a relatively short book to read for improving your understanding of the author’s four perspectives on strategy discussed above.
|For additional material on the content of this chapter please access the OUP website www.oxfordtextbooks.co.uk/orc/truss.|
By the end of this chapter you should be able to:
- Appreciate how the field of SHRM has developed over the past 30 years.
- Outline the differences between personnel management, HRM, and SHRM.
- Explain the core features of universalist (best-practice) approaches to SHRM.
- Understand the diverse ways in which contingency theory (best-fit) has been applied to SHRM.
- Critically evaluate the universalist (best-practice) and contingency (best-fit) perspectives on SHRM.
Universalist (best-practice) approaches to SHRM
Contingency (best-fit) approaches to SHRM
Horizontal fit or alignment
Vertical fit or alignment
In this chapter we address the issue that lies at the heart of this book: what is SHRM? This may seem like a relatively straight-forward question, particularly to those who are busy practising HRM day-to-day in their jobs, but the enormous number of books, papers, and articles devoted to this issue bears testament to its complexity. We first review the historical development of the SHRM field, before turning our attention to definitions. Then, we examine two major approaches to the topic, universalist theories, which are predicated on the assumption that there is ‘one best way’ to manage people, and contingency theories, which assume that approaches to SHRM will vary in different contexts. In Chapter 6 we develop the ideas presented here by examining the resource-based view of the firm as it has been applied to SHRM, alongside the new institutionalist paradigm. In Chapter 7, we focus on the concept of HR strategy, and in Chapter 8 we look at the outcomes of SHRM.
The field of SHRM is so extensive that justice cannot be done to its complexity in just this one chapter. Our review of the field will therefore span this and the following three chapters. However, it is useful to take the opportunity now to briefly chart the development of the subject area, so that the more detailed investigations into each of the topics that follow can be set into broader context.
‘Human resource management’ as a concept originated in the US and first appeared in the 1960s (Kaufman, 2007), when it was used interchangeably with the term ‘personnel management’. However, it was not until the 1980s that research in the field expanded considerably following two highly influential studies in the US (Wright et al, 2005). The first was the development of the so-called Harvard framework (Beer et al, 1985). Beer and colleagues argued that HRM was an integrative, proactive, and longer-term approach to managing people. They argued that HRM could be seen as a system, comprising ‘situational factors’, such as organizational structure, stakeholder interests, for instance those of trade unions, policy choices in the HRM arena, and short-term outcomes such as performance, alongside longer-term positive societal consequences of firms adopting HRM. According to this model, HRM was regarded as being embedded within an organizational and broader societal context, and as being an arena where distinctive choices were available to organizations in terms of the way they managed people. The model was not normative, in the sense that it did not advocate ‘one best way’ of managing people, but instead was a map of the HRM terrain.
The second influential study was the ‘Michigan model’ (Fombrun et al, 1984). This approach, in contrast to the Harvard framework, focused on the links between HRM practices and business strategy. Fombrun and colleagues argued that HR strategies and policies in the core areas of selection, development, appraisal, and reward should be aligned with corporate strategic direction and be explicitly aimed at improving performance. The Michigan model was the precursor for the ‘best-fit’ or ‘contingency’ approach to SHRM (see section 5.5).
The question of why interest in HRM came to the forefront when it did is an interesting one. Millmore et al (2007: 62) argue that the crisis in US business performance in the early 1980s in the face of increasing competition from the Far East acted as one trigger. Seeking alternative ways of enhancing performance, the focus shifted to examining in more detail the way in which different styles of people management could foster organizational success. Equally important were societal level changes, such as the trend in Western countries towards individualism from the 1980s onwards, reflected in decreasing levels of social housing, and the privatization of state-owned industries such as railways and utilities. These were commensurate with declining trade union membership and the focus within HRM on the management of individual performance, accompanied by the shift away from more traditional industrial relations-type approaches (Millmore et al, 2007). These changes, alongside the will of HR practitioners to legitimize their role in helping achieve organizational success, paved the way for the development of HRM as an area of policy, practice, and study.
UK-based academics developed an interest in researching HRM in the late 1980s. Here, a particular concern was the distinction between different approaches towards managing people, distinguishing between ‘hard’ and ‘soft’ HRM (Truss et al, 1997; Storey, 2001). ‘Hard’ HRM was linked with the Michigan model, with the focus on people as resources to be deployed in order to maximize performance. ‘Soft’ HRM, on the other hand, was associated with the ‘human’ side of HRM, with a focus on garnering loyalty and commitment in order to raise performance levels (Legge, 1995). Generally, UK commentators have been more sceptical about the notion of HRM than their American colleagues, and some have highlighted the strong managerialist and unitarist underpinnings of HRM which downplay the needs and rights of workers (Legge, 1995) and take insufficient account of issues of power and inequality in the workplace (Watson, 2004).
Although there was a groundswell of support amongst both academics and practitioners for the notion that HRM, if approached appropriately (although no one agreed on what this entailed) could lead to enhanced performance, it was in the mid-1990s that research in HRM received a significant boost due to two major, interconnected developments. The first was the publication of a seminal article by Huselid in 1995, in which the author used a large-scale survey of 1,000 US companies to show that adopting certain HR practices was statistically associated with improvements in performance, share price, and productivity. This article inspired a significant number of studies around the world that sought to shed further light on which HRM approaches were the most important, and how the process of linking HRM and performance worked. This is explored in more detail in Chapter 8.
The second development was the application in this and other publications of the concept drawn originally from economics of the ‘resource-based view’ (RBV) of the firm to the field of HRM (Wernerfelt, 1984; Barney, 1991). The RBV provided a theoretical justification for the link between HRM and firm performance by suggesting that it is the management of internal firm resources that enhances performance, and that the HRM–performance link could be conceptualized under this umbrella as a means of capitalizing on the advantages that accrue to organizations through effective resource deployment. In light of critiques that have subsequently arisen of the RBV, the pendulum has now swung the other way, and a more balanced view is now being advocated by some researchers that combines a focus on internal firm resources with adaptation to the external environment, particularly in light of the fact that much of the research emanates from the US and may not be generalizable to a European context (Brewster, 1999; Paauwe and Boselie, 2005; Wright et al, 2005). This is explored in more detail in Chapter 6.
Overall, the development of the field of SHRM has been characterized by growing methodological and theoretical sophistication and the accumulation of significant amounts of empirical data (Wright and Boswell, 2002). However, it is also a complex area to understand, not least because of the sometimes confusing array of terminology that is used, the variety of approaches that have been adopted, and the differing levels of analysis.
The first issue that we need to consider is what is meant by the term ‘strategic human resource management’? Is it the same as ‘human resource management’, or even ‘personnel management’?
Early commentators were interested in the difference between personnel management and HRM (Martin-Alcazar et al, 2005). Whilst some argued that, essentially, there was no difference because both were concerned with the way in which organizations go about managing people, others suggested that HRM was distinctive in a number of ways. Legge (1989) considered HRM to be focused on the management of line managers, to encompass the management of organizational culture, and to be concerned with organizing resources towards achieving profit. Personnel management, on the other hand, was felt to be more administrative in focus, geared towards developing policies for the entire employee group, and to be concerned with policy development rather than any notion of how to link the management of people with performance. Others further noted that HRM was essentially unitary in perspective, in other words, built on the notion that the interests of employees and employers could be readily reconciled, in contrast with the collectivist approach of more traditional industrial relations, which acknowledged that the interests of all parties may well not coincide (Guest, 1989; Storey, 1989).
A key distinguishing feature was felt to be the linking of HR practices to the strategic aims of the organization (Miles and Snow, 1984; Storey, 1992). However, the advent of the term ‘strategic HRM’ served to muddy the waters (Wright and McMahan, 1992). If HRM is concerned with how HR practices linked with strategy, then what is SHRM (Wright and Boswell, 2002)? Truss and Gratton (1994: 666) suggest the following distinction: ‘we should, perhaps, regard SHRM as the over-arching concept that links the management and deployment of individuals within the organization to the business as a whole and its environment, while HRM could be viewed as an organizing activity that takes place under this umbrella’. However, Wright and Boswell (2002: 248) prefer the term ‘macro HRM’.
In Table 5.1 we analyse five different definitions of SHRM. These definitions suggest that SHRM is an overarching approach to people management within the organization in a broad, strategic sense. The focus is on the longer-term strategic needs of the organization in terms of its people, rather than day-to-day HR policies and practices. SHRM can be regarded as encompassing a number of individual HR strategies, for instance a strategy for rewards, for organizational development, and for performance management (CIPD, 2009d). The notion of SHRM implies that the management of people is critical for organizational success.
Wright and Boswell (2002) provide a helpful distinction between four different perspectives in HRM research, which further sets SHRM within a broader context of research on approaches to managing people at work. Their typology distinguishes between:
- The number of HRM practices concerned, whether the focus is on one practice, such as recruitment, training, or rewards, or on multiple practices at a systemic level.
- The level of analysis, whether the focus is on the organizational level and firm performance, or on the individual level.
The four approaches identified are as follows (see Fig. 5.1):
- Multiple practices at the organizational level—SHRM: the focus here is on establishing which classifications or configurations of HR practices are best linked with firm performance. This is the dominant paradigm within the field, and we review research on SHRM in this and other chapters in Part 2 of this book.
- Single practices at the organizational level—isolated functions: the focus here is on how a particular practice, such as recruitment, rewards, and training, is linked with firm performance. Historically, this approach predominated prior to the development of interest in holistic HRM systems. Much of the research seeking to link individual practices with firm performance has been inconclusive.
- Single practices at the individual level—functional HRM: the focus in this strand of research is on examining the impact of individual practices. This might perhaps be most closely associated with traditional personnel management.
- Multiple practices at the individual level—psychological contract: here the focus is on the link between systems of HR practices and individuals, such as research into the psychological contract or employee engagement, which we examine in Chapter 12. Wright and Boswell (2002) make the point that SHRM research could usefully draw heavily on theories from the psychology field more than it has hitherto, as this could help to shed further light on how and why HRM practices, policies, and systems impact on people.
Table 5.1 Definitions of SHRM
|‘A set of processes and activities jointly shared by human resources and line managers to solve people-related business issues’ (Schuler and Walker, 1990: 7)||Suggests that SHRM comprises both activities and processes. Also suggests SHRM’s focus is on people-related business issues, rather than business issues per se.|
|‘The pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals’ (Wright and McMahan, 1992: 298)||Suggests that SHRM is focused on helping achieve organizational outcomes, but SHRM itself is regarded as a ‘pattern’ observed in organizational practice, rather than an actual strategy.|
|‘Organizational systems designed to achieve sustainable competitive advantage through people’ (Snell et al, 1996: 62).||Regards SHRM as an overarching ‘system’ geared towards competitive advantage, which is not a goal relevant for public or third sector organizations.|
|‘A set of activities aimed at building individual and organisational performance’ (Boxall and Purcell, 2008: 5).||SHRM is seen as a set of activities, rather than as an overarching system. Outcome is seen as performance, which is relevant in all sectors.|
|‘A general approach to the strategic management of human resources in accordance with the intentions of the organisation on the future direction it wants to take. It is concerned with longer-term people issues and macro-concerns about structure, quality, culture, values, commitment and matching resources to future need’ (CIPD, 2009d: 1).||A more holistic definition that specifies multiple outcomes and suggests the importance of ‘fit’ between SHRM and organizational goals.|
Research at the level of SHRM that we are concerned with in this book mainly falls into the top left-hand quadrant of the model shown in Fig. 5.1, with growing numbers of studies encompassing the bottom left-hand quadrant. Research that falls within the remit of the two right-hand quadrants with a focus on individual HR functions can be regarded as having a somewhat less overtly strategic focus.
Figure 5.1 Typology of HRM research.
Source: Wright and Bosewell (2002: 250).
Considering Wright and Boswell’s (2002) typology of HRM research, what do you think are some of the main challenges in research in this area?
Next, we explore two important perspectives on SHRM that have been proposed by researchers:
- The universalist approach, which is based on the idea that there is ‘one best way’ of managing people applicable to all organizations.
- The contingency perspective, which argues that the best way of managing people is likely to vary according to organizational circumstances.
Case study 5.1 Tarmac
Tarmac was established in 1903 and is the UK’s leading supplier of building materials and aggregates to the building industry. The company has two main divisions: Tarmac UK, comprising Tarmac Ltd which extracts key building aggregates and materials and Tarmac Building Products Ltd which turns raw materials into products usable in the building sector, and Tarmac International, which develops building products for supply around the world. The company has almost 11,000 employees working in a variety of settings, including quarries and wharves. Tarmac’s vision is to ‘achieve exceptional value’ through five core goals: develop markets, reduce costs, engage employees, act responsibly, and manage assets (DREAM). A particular focus is on setting clear objectives, employee development, and recognition and reward.
Whilst in the past most employees would have been manual labourers, this is no longer the case, since many employees are in high-skill, externally facing roles such as sales and customer service. Workforce planning is therefore regarded as key to the company’s HR strategy, particularly in light of the changing skill profile that is needed for the future. Each employee has a personal development plan to help him or her grow personally and professionally within the business. Tarmac takes corporate social responsibility very seriously, as well as issues of health and safety of both employees and the communities within which the company operates.
Adapted from http://www.thetimes100.co.uk.
Considering the business in which Tarmac operates, what do you think might be some of the key SHRM challenges the company faces? Do you think that the same HR approaches should be used for different types of workers, for instance manual workers as opposed to office workers?
Universalist approaches to SHRM are based on the assumption that there is ‘one best way’ of managing people in order to enhance organizational performance, and that it is the task of the researcher to identify what this is, and the task of the HR professional to implement it (Delery and Doty, 1996). These approaches are held to impact positively on performance for all types of organization. A large number of studies, many emanating from the US, have focused on identifying what the precise components of these approaches are.
The universalist approach assumes that there is one ‘best way’ to manage people that is applicable across all contexts.
One of the best-known proponents of the universalist approach is Jeffrey Pfeffer, who has published an influential series of books and articles where he describes a set of HR practices that he argues is positively associated with competitive success. In an article published in 2005 in the Academy of Management Executive, Pfeffer outlines 13 interrelated ‘best practices’ that are derived from his reading and discussions with HR executives:
- Employment security:offering secure employment reflects a long-standing commitment to the workforce and increases the likelihood that they will reciprocate with higher levels of performance.
- Selective recruitment:it is important to select the best people for jobs through a rigorous selection process.
- High wages:in order to attract and retain high-calibre staff, relatively high levels of pay are desirable.
- Incentive pay:provide people with the opportunity to share in the financial rewards of organizational success in order to motivate them.
- Employee ownership:allowing employees to have shares in their company helps to align the interests of employees with those of shareholders and encourages a longer-term view.
- Information sharing:in order to ensure people perform to their best, they require access to all the information they need.
- Participation and empowerment:encouraging the decentralization of decision making and fostering a climate of involvement enhances satisfaction and productivity.
- Self-managed teams:where organizations have used self-managed teams, this can raise levels of performance.
- Training and skill development:organizations need to have a commitment to training and skills development alongside a recognition of the need to change organizational structures to enable the successful deployment of these skills.
- Cross-utilization and cross-training:enabling people to perform multiple jobs can make work more interesting and be motivational. It fosters the cross-fertilization of ideas.
- Symbolic egalitarianism:symbols can act as a barrier to decentralized decision making and self-managed teams. Signalling equality amongst the workforce through eliminating status symbols such as executive dining rooms and parking spaces enhances communication and empowerment.
- Wage compression:ensuring that pay variations within the organization are limited helps foster a climate of collaboration and enhance performance overall.
- Promotion from within:creating a strong internal labour market helps to foster training and skill development, encourages participation, and helps promote trust.
Look at Pfeffer’s list of 13 best HR practices. Imagine first that you are the manager of a fast-food store employing mainly part-time and sessional staff, including several students, to cook and serve food. Now imagine that you are the CEO of a medium-sized law practice, employing mainly highly qualified lawyers. For each of the 13 practices, consider how you might apply them in these two contexts. What do you think would work well, and what would be problematic and why?
Pfeffer (2005) argues that the precise number of best practices is less important than considering the overall approach to managing people [elsewhere he has advocated 16 and 7 practices (Pfeffer, 1994; 1998)]. Although the best-practices approach is very persuasive, several commentators have pointed out the difficulties potentially associated with trying to implement a set of practices such as these within an organization, and the lack of underpinning theory. We look in more detail in section 5.4.3 at the critiques levelled against the universalist approach.
Moving beyond the relatively simple, list-like enumerations characteristic of the universalist approach, some researchers have explored in more detail the interrelationship between various HR policies and practices, and have suggested that particular configurations of practices impact more on organizational performance than do others (Delery and Doty, 1996). This body of research has focused on high-performance, high-commitment, or high-involvement work practices and systems, and has relied on the use of quantitative techniques applied to large-scale datasets to identify their precise components. The suggestion is that there are patterns of choices available to organizations in their approach to SHRM (Martin-Alcazar et al, 2005), and that where coherent bundles of practices are adopted, then they are more likely to impact positively on performance.
Huselid’s (1995) seminal paper explored the link between high-performance HR practices and performance in 1,000 US organizations. He found that two groups of HR practices, termed employee skills and organizational structures (including, for instance, job design, enhanced selectivity, training, participation, and profit sharing) and employee motivation (including, for instance, appraisal linked to pay and focus on merit in promotion decisions), were associated with higher levels of firm financial performance and productivity and lower levels of labour turnover.
Other studies have since explored the potential association between practices such as these and a range of performance outcomes, with very mixed results. This is discussed in more detail in Chapter 8 where we look at the relationship between SHRM and performance. The configurational approach has clear commonalities with the universalist approach, since the implication is that if organizations deploy the best bundle of practices, then performance will be enhanced.
Several commentators have, however, noted that although the notion that organizations should be coherent in their approach to HRM makes sense, empirical research has lent little support to the contention that organizations are in fact adopting consistent bundles of practice (Truss et al, 1997; Wood and de Menezes, 1998). Marchington and Grugulis (2000: 1113) argue that the achievement of some practices may actually undermine others. For example, how can employment security be reconciled with performance-related pay through difficult times?
The best-practice view of SHRM is very persuasive, and also very appealing to practitioners keen to ensure they are focusing their energies and resources on the activities most likely to yield positive results. However, the approach has attracted a considerable amount of criticism on several counts.
- It has been pointed out that there is generally little agreement between commentators as to which practices are the most important (Becker and Gerhart, 1996). First, although some practices tend to be advocated by a number of writers, including training and development, contingent pay and reward, performance management, careful recruitment and selection, job security, and employee voice (Boselie et al, 2005), there is considerable variety in the approaches that have been suggested (Boselie et al, 2001; Martin-Alcazar et al, 2005). For example, whilst Pfeffer’s work attaches importance to job security, this is not included in other lists (Marchington and Grugulis, 2000). Furthermore, those practices that are generally advocated tend to be at a very generic level and therefore lacking in any specificity. For example, recommending that ‘training’ is a ‘best HR practice’ does not explain much about the type of training or development actually required. Some have therefore argued that the focus should be more on the overarching orientation of the practices, rather than on the detail of the practices themselves (Wood, 2003).
- No account is taken of the potential costs to the firm of adopting high-performance work practices (Marchington and Grugulis, 2000).
- Best-practice approaches may remain aspirational, rather than represent the realities of people management. Several studies have shown that HR management in many organizations tends to be piecemeal and fragmented, rather than to follow the prescriptions of best practice (Guest, 1997; Wood and de Menezes, 1998). For example, in a study of 4,500 employees in seven large organizations based in the UK over 10 years, Gratton and Truss (2003) found that only 20% felt their HR department had a clear strategy guiding its activities.
- Marchington and Grugulis (2000: 1118) argue that there are two sets of circumstances where best-practice HRM is most likely to make a difference: when employee skills are essential to organizational goals, e.g. in high-tech industries, and where the time taken to learn to do jobs effectively is relatively long. In other circumstances, where training time is short, there is a ready supply of labour, or performance can be readily assessed, then the rationale for a costly best-practice approach is less clear.
220.127.116.11 Theory and methods
- The universalist approach has been criticized for being atheoretical; no underlying theory has been proposed to explain why some practices, more than others, might influence performance, or how the process works (Guest, 1997; Martin-Alcazar et al, 2005).
- No account is taken of context. For example, Datta et al (2005) argue that industrial setting or sector may be an important factor in determining what approach to HRM may be most effective. Equally, no consideration is made of corporate strategy, which may be an important determinant of the best HR approach to adopt (Purcell, 1999).
- Methodologically, studies that have examined the relationship between HR practices and performance have important shortcomings in terms of the use of single questionnaires (Marchington and Grugulis, 2000; Boxall and Purcell, 2008). These are explored further in Chapter 8.
- Studies reliant on factor analysis of responses to large-scale questionnaire surveys sometimes create spurious groupings that are hard to justify in practice. For example, participation and profit sharing emerge in Huselid’s (1995) ‘employee skills and organizational structures’ factor rather than in ‘employee motivation’, which is difficult to justify in theoretical terms (Marchington and Grugulis, 2000).
18.104.22.168 Broader societal considerations
- Boxall and Purcell (2008) note that the best-practices perspective does not consider for whom the practices may be considered ‘best’. For example, downsizing may be in the best interests of shareholders, but would clearly not be in the interests of employees who risk losing their jobs. Simply advocating a best-practices perspective does not allow a consideration or exploration of these tensions (Legge, 1978). Kochan (2007: 604), for instance, provides the example of executive remuneration, which in the US has risen from an average of 40:1 in relation to the average worker salary in the 1960s and 1970s to over 400:1 today. Contingent pay may be welcomed by executives on high salaries who have benefited personally, but the widening gap between the richest and the poorest in Western nations is a matter for social concern. Marchington and Grugulis (2000) comment on the potential for work intensification and insidious forms of control to be masked by the rhetoric of best practices, whilst Hope-Hailey et al (2005) note the damaging long-term effects on performance of neglecting people. Boxall and Purcell (2008) argue that best practices that serve the interests of both shareholders and employees are more likely to lead to sustainable performance over time, to enjoy higher levels of social legitimacy, and to benefit both employers and wider society.
- The notion of a best-practice approach to HRM is culturally specific. For instance, whilst highly individualized approaches such as structured interviewing, performance management, and performance-related pay may be welcomed in a Western setting, such approaches may not fit well within other more collectivist cultures (Trompenaars and Hampden-Turner, 1997; Boxall and Purcell, 2008). Firms are further constrained in their approach to labour management by the prevailing employment law framework, which will vary between countries (Gooderham et al, 1999).
Case study 5.2 Hennes and Mauritz (H&M)
H&M is a multinational clothing retailer headquartered in Stockholm, Sweden, with presence in over 33 countries and in excess of 53,000 employees. The company’s values include having a commercial mindset, simplicity, constant improvement, cost-consciousness, and entrepreneurship. Its long-term goal is to make fashion available to everyone through both increasing the number of stores and sales within each store and maintaining a focus on quality and profitability. The company’s HR strategy states that it seeks to be a good employer, including in those countries where employment law falls below the company’s expectations. There are therefore global guidelines on diversity, equality, and discrimination. The company has an open-door policy giving all employees the right to discuss any work-related issue directly with management and it also supports employees’ rights to organize and decide who should represent them in the workplace. It has agreements with a wide range of trade unions around the world. The company’s underpinning values and strategy are global and upheld around the world.
H&M aims to have high levels of employee commitment and responsibility and places emphasis on the ‘H&M spirit’, where employees are committed to their work and are prepared to take on new challenges, work hard, and collaborate in teams. The structure at H&M is flat, but employees are encouraged to take on new roles and to take personal responsibility for their careers and development within the company. The selection process is aimed at finding individuals who are able to cope with the fast pace of work and who appreciate responsibility and decision making. Training takes place largely in-house; for example, when a new store was opened in Japan, locally recruited staff were sent to stores in Norway and Germany for training. The reward strategy focuses on benefits such as staff discounts and private health care rather than on titles and status. However, store managers have considerable delegated power.
Adapted from: .
In light of the discussion above concerning universalist approaches to HRM, what elements of HRM ‘best practice’ can you detect at H&M? Which elements of its HRM approach are contingent to the company?
In contrast to universalist approaches, contingency, or best-fit, approaches are premised on the notion that the way in which people are managed in organizations will vary according to circumstances. Whereas the universalist perspective suggests that there is one best way of managing people, the contingency approach takes account of factors such as organizational size, location, sector, strategy, and the nature of work. This is founded in a long history of contingency theory within the social sciences that stresses the importance of setting in influencing management practice.
Contingency approaches to SHRM suggest that the best approach to managing people will vary according to organizational circumstances, most particularly, corporate strategy.
Over the years, various contingency approaches have been explored. Some have stressed that the most appropriate approach to managing people depends on the stage the organization has reached in the organizational life cycle. For example, Baird and Meshoulam’s (1988) model suggests that appropriate HRM approaches will vary according to the different life-cycle stages from start-up to maturity. As organizations grow and mature over time, becoming increasingly complex, so there is a need for increasingly sophisticated HR systems and policies. Kochan and Barocci (1985) propose a three-phase model of start-up, maturity, and decline, and associated HR policies in the areas of recruitment, rewards, development, and employee relations.
More often, though, it has been argued that HRM is contingent upon the strategic direction of the organization (Devanna et al, 1984; Miles and Snow, 1984), and the underlying assumption is that the stronger the degree of alignment between strategy and HR strategy, the higher the level of organizational performance will be (Delery and Doty, 1996). This idea lies, in many ways, at the heart of SHRM, and a key concern has been to explore how the relationship between strategy and SHRM works. Some have approached this by examining the link between popular strategy typologies, such as that of Porter (1985; see Chapter 3), and HRM. This body of literature derives particularly from the work of Beer et al (1984), which first stressed the importance of stakeholder interests and situational factors in HRM decision making. They identified three overarching models which could be combined in complex environments:
- Bureaucratic model: with a focus on control and efficiency, using traditional hierarchical models most relevant in stable markets with stable employment conditions.
- Market model: where employees are viewed as subcontractors, with a focus on short-term relationships and performance management, most relevant in rapidly changing environments.
- Clan model: associated with more diffuse ties based on shared values, teamworking, commitment, and innovation.
Miles and Snow (1984) similarly link HR approaches with the three strategic options of Defender, operating in a stable market and concerned with defending their position, Prospector, with a strategy of innovation and operating in a dynamic market, and Analyser, in an intermediary position.
Schuler and Jackson (1987) argued in favour of a behavioural approach towards SHRM as a way of linking firm strategies with desired employee behaviours; HR practices should be aligned with the prevailing strategic focus of the organization using the strategic options outlined by Porter (1985) of cost leadership, quality, or innovation (see Chapter 3). Their argument is that performance will improve if HR policies and practices are aligned to strategic focus because employees will be encouraged to behave in ways that support the overarching strategic direction of the organization. For instance, a strategy of innovation will require behaviours focused around creativity, cooperation, risk taking, and tolerance of ambiguity, which they argue can be fostered through HR techniques such as selecting highly skilled staff, appraisals focusing on individual and group performance, broad career paths, high levels of discretion, and tolerance for failure.
On the other hand, a cost-reduction strategy will require predictable behaviours, a short-term focus, concern for quantity rather than quality, and low risk-taking, which can be achieved through HR policies focused on concern for results, use of flexible working practices, little attention to training and development, tightly defined jobs, and work simplification. A strategy of quality enhancement tends to require a high concern for quality, low risk-taking, high commitment to organizational goals, and long- to medium-term focus, fostered by HR practices that encompass fixed job descriptions, high focus on empowerment, concern for feedback, job security, and training and development (Schuler and Jackson, 1987).
This model represents an important contribution to debates around SHRM, but there are a number of drawbacks. First, it does not account for the fact that in large, complex organizations, there will be different groups of employees, and it is perhaps overly simplistic to expect that the same behaviours will be appropriate for all. Equally, the model is predicated on the assumption that there is one, clearly defined organizational strategy with which HR policies can be aligned, which may well not be the case, either because the strategy is not clearly articulated or because there are multiple strategies being pursued (see Chapter 3).
Researchers within the contingency perspective have argued that there are two forms of fit, or alignment, that are relevant: vertical fit, or the linkage between HRM and corporate strategy, andhorizontal fit, or the interlinkages between the various elements of the HR strategy (Truss and Gratton, 1994; Gratton and Truss, 2003; Ericksen and Dyer, 2005). Wright and Snell (1998) suggest that flexibility to enable the reconfiguration and redeployment of resources is also a desirable organizational feature, and that approaches that enable both a degree of fit and the option of flexibility are the most desirable. Fit, they argue, relates to the link between HR and corporate strategy at a particular point in time, whereas flexibility can be regarded as a long-term organizational characteristic, and the two are therefore not incompatible. However, as Purcell (1999) argues, there is little agreement about which HR policies, in particular, should be linked and not much evidence about the link with performance.
Vertical fit refers to the relationship between HR strategy and corporate strategy, whilst horizontal fit refers to the relationship between individual HR policy areas.
Contingency approaches to SHRM have been criticized on a number of counts:
- There is little empirical evidence to support the idea that matching HR practices to business strategy leads to positive outcomes (Truss and Gratton, 1994; Huselid, 1995).
- The concept of ‘fit’ implies rigidity and inflexibility that could be incommensurate with positive outcomes (Lengnick-Hall and Lengnick-Hall, 1990). It is also not clear which contextual aspects may be most important and relevant for HRM in terms of creating a ‘fit’ (Boxall and Purcell, 2008; Marchington and Wilkinson, 2008).
- Matching HR and business strategies implies that all organizations have an articulated strategy with which HR approaches can be matched, which is frequently not the case (Boxall, 1991; Purcell, 1999).
- There are a variety of ways in which HRM and strategy can be linked, and the best-fit approach implies that corporate strategy precedes HR strategy. However, as Golden and Ramanujam (1985)argue, this may not necessarily be the case, and an integrative linkage where they are developed together may be more appropriate.
- There are different perspectives on strategy (see Chapter 3) and the best-fit approach is commensurate with only one of these, the ‘classical’ approach (Truss and Gratton, 1994; Purcell, 1999).
- The role of human agency needs to be taken into consideration; Monks and McMackin (2001) note that a multi-level perspective can reveal the processes by which HR systems are constructed, shedding light on the role of group, divisional, and strategic business units in the construction of the HR system. The negotiation and interpretation that takes place in the development of HR strategies at these varying levels militates against the emergence of a coherent system.
- A disconnect between intended HR strategy and implemented HR strategy is to be expected. Building on Mintzberg’s seminal (1978) work on strategy (see Chapter 3), Dyer (1985) argues that it is necessary to distinguish between planned or intended HR strategy, and implemented or experienced HRM. Since both corporate and HR strategy may be emergent, this raises questions about the possibility of creating strong linkages between the two. In light of the evidence of a gap between what is planned and what is implemented (Gratton et al, 1999), Gratton and Truss (2003) propose a three-dimensional model of HR strategy that juxtaposes vertical and horizontal integration, together with an ‘action’ dimension that evaluates the extent to which intended policy is put into practice (see Chapter 7).
- Organizations are complex and comprise different employee groups. In some cases, these may require different HR approaches and strategies. The best-fit model does not account for these (Boxall, 1991; Truss and Gratton, 1994).
- Contingencies do not of themselves determine the approach that should be taken towards HRM; managers make strategic choices in light of the circumstances in which they find themselves, and therefore issues around the nature of decision making, bounded rationality, and politics come into play (Leopold et al, 2005).
Contingency theorists argue that the context within which SHRM takes place is an important influencing factor. Thinking about an organization known to you, what factors within and outside the organization do you think would be relevant to consider when developing a strategic approach to HRM?
In this chapter, we have begun to consider the domain of SHRM and have traced the origins of the topic back to its roots within industrial relations and personnel management. We have focused on two opposing views of what marks out an SHRM approach as being successful, the universalist, or best-practice approach, and the contingency, or best-fit approach, and we have evaluated the strengths and weaknesses of both of these. As Marchington and Grugulis (2000: 1116) note:
There are several reasons why the ‘HRM as best fit versus best practice’ question is so difficult to answer. First, organizations are dynamic and complex, and typically operate in multiple product markets, whereas contingency models rely on examining links betwen two sets of static variables… . In addition, similar HR techniques may be perceived in quite dissimilar ways by employees in different situations. Second, empirical research is dogged by problems of causality and prescription/description.
Ultimately, there are useful elements to both views; as Boxall and Purcell (2008) argue, it is helpful to differentiate between the surface level and the underpinning layers of SHRM. At the surface level, where we are concerned primarily with HR policies and practices, there is certainly merit in trying to adopt best-practice approaches, for example, to use generally advocated approaches to interviewing. However, there is also an underpinning layer, where the focus is more on the particularities of the organization, on examining how the overarching approach to SHRM contributes to organizational success, and it is here that the contingency framework may be most usefully applied. We continue to explore these issues over the next few chapters.
In the next chapter, we consider the contribution made to debates around SHRM by the resource-based view of the firm and the new institutionalist perspectives.
- Significant interest in SHRM first arose during the 1980s.
- There are various definitions of SHRM, but they tend to suggest that it is a holistic approach to managing people geared towards helping achieve organizational objectives.
- Contingency approaches suggest that SHRM should ‘fit’ with organizational strategies and other organizational factors.
- Universalist approaches suggest that there are SHRM ‘best practices’ that all organizations should adopt.
- Research evidence on the efficacy of either approach is equivocal.
- There is some agreement that SHRM systems should include elements of best practice at the level of HR activities, and elements of best fit at the strategic level.
- If you were an HR Director charged with developing an HR strategy for your organization, would you be considering a universalist or contingent approach to designing the HR system, and why?
- What do you think are the key contextual variables that influence HR strategy? Which are the most important and why?
- For you, what are the key distinguishing features of a strategic as opposed to a non-strategic approach to managing people?
End-of-chapter case study Specsavers: developing HR’s strategic role
(Based on an interview with Mark Moorton, International HR Director, Specsavers Ltd)
Specsavers is an international, family owned and run business based in Guernsey, the Channel Islands, providing eyecare and hearing services. The business employs around 20,000 staff worldwide, most of whom work in the Specsavers stores, which are run as joint ventures rather than franchises. In addition to the stores, the group also includes manufacturing sites for lens production and coating, most of which, like its stores, are based in the UK and Ireland, although manufacturing also takes place in Hungary and Australia.
The company pursues a strategy of active growth and now has a network of over 1,500 stores worldwide. Due to its ownership structure, Specsavers still has a family-based, paternalistic feel to its culture.
SHRM is a relatively new concept within the company. Prior to 2008, the HR function was small and largely operated in a reactive way responding to the needs of the line. In 2008, a Group HR Director was recruited, tasked with moving the function towards a more strategic role. The function is now structured with HR business partners working alongside line managers, and two small centres of expertise in recruitment, development and resourcing, and reward.
The development of an HR strategy has been a relatively recent undertaking for the organization and has focused on the core areas of performance management, reward, and recruitment. The international HR function is even more recent, and one focus has been how to develop an overarching strategic framework worldwide, whilst also allowing for flexibility at the national level to ensure that policies and practices fit with local needs.
The HR challenges faced by the company vary between countries, and the HR team work hard to ensure that solutions are consistent, whilst not necessary identical, across locations. For instance, whilst in the UK, performance review is linked with pay, the process being launched in the Netherlands and Finland is based around behaviours and competencies. A job family system is being introduced to the Netherlands as this fits well within the culture, although this is not used in other countries.
At the heart of the HR agenda are the company’s core vision and values which have developed from a situation where they varied between countries to one where there is a consistent message around the world identifying what is unique about Specsavers. HR strategy development has been embedded in the business planning cycle, so that senior HR managers are involved from the outset in setting the overall business strategy.
In developing its approach to HR, Specsavers has considered some of the generic frameworks and models for structuring the HR function and developing an HR strategy, but has not found them to be helpful, as there is little fit between these and the company’s unique ownership structure and the way the stores are set up. The approach has very much been to establish a high-level framework and set of aims, and then to allow local flexiblity in how to achieve these.
The success of the HR operation is evaluated through customer feedback, alongside the more traditional quantitative measures such as turnover, salary levels, and attendance. A strong emphasis is placed on personal relationships and the need to talk to people face-to-face to get their views. The idea of developing shared service HR call centres is not one that would fit well with the culture at Specsavers.
Case study questions
- What do you see as being the key challenges faced by Specsavers in developing an international HR strategy?
- How can the interests of the company overall be balanced with those of different country locations?
Boxall, P. and Purcell, J. (2008) Strategy and Human Resource Management, 2nd edn. Basingstoke: Palgrave Macmillan.
An extremely thorough and incisive overview of the topic of SHRM.
Huselid, M. (1995) The impact of human resource management practices on turnover, productivity and corporate financial performance. Academy of Management Journal, 38(3), pp. 635–672.
A seminal article in the field of SHRM.
Marchington, M. and Grugulis, I. (2000) ’Best Practice’ human resource management: perfect opportunity or dangerous illusion? International Journal of Human Resource Management, 11, pp. 1104–1124.
A very helpful review of the issues raised by the best practices approach to SHRM.
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