Models of strategic HRM

Contest between The best fit school: HR strategy will be more effective when it is appropriately integrated with its specific organizational and broader environmental context
The best practice school: all firms will be better off if they identify and adopt best practice in the way they manage people: advocates universalism

Best Fit (Contingency) School of Strategic HRM

External Fit (Vertical Fit): HR activities should fit the organizations stage of development/competitive strategy. Internal Fit (Horizontal Fit): Individual HR policies are designed to fit with and support each other

BEST FIT: Linking HR practices to competitive

strategy: Miles and Snow Model (1984)

PROSPECTORS Continually search for product and market opportunities Compete through innovation and prime mover advantages Efficiency is much lower priority

DEFENDERS
Narrow and relatively stable product-market domains. Limited product line Strong efficiencies

ANALYZERS
Have some stable operations. Also keep a lookout for opportunities to emulate creative rivals through fast follower strategies

Generic Strategies for HRM

Miles and Snow (1984)
Growth-prospector-high tech entrepreneurial strategies
Requires creative, innovative and risk taking behavior

Mature-defender-cost efficiency strategies

Requires repetitive, predictable and carefully specified efficient behavior

Analyser-stable-follower strategies
Focus on predictable and efficient behavior but also fast follower ship

Prospectors
Recruit at all levels. Assess people based on results Tend to look to the long term for success Performance incentives serve as the basis for compensation which is based on external competitiveness. Bonus, profit sharing and stock options are common, base salaries are modest.

Defenders
Recruit primarily at the entry level and promote from within Assess people based on the process, emphasize on doing things the right way. Focus on quantifiable short term results. Compensation is based on hierarchical wage structures determined by job evaluation and internal equity Length of service, loyalty and other traits are rewarded rather than performance. Financial incentives may be present but tend to be available only to a few select employee groups. Oftentimes, retrenchment and restructuring strategies resulting in layoffs and reduction in force occur.

Analysers
Emphasis on recruitment and also on internal training and development. Performance appraisal mostly process oriented Pay policies concerned with both internal equity and external competitiveness

BEST FIT: Schuler and Jacksons Model (1987)

Company mission and values Desired competitive strategy
Cost leadership, differentiation or focus

Required employee behaviors

Predictability, teamwork, quality focus, risk taking etc.

Supportive HR Practices
Staffing, appraisal, remuneration, training etc

HR outcomes
Employee behavior aligned with company goals

Schuler and Jacksons Model

Differentiation
Selection of highly skilled individuals More discretion to employees Minimal controls Greater investment in HR Allowing and even rewarding failures More resources for experimentation Appraisal on long-run implications

Schuler and Jacksons Model

Cost Leadership
Fairly repetitive jobs As little training as practical Cutting staff numbers to minimum Rewarding high output and predictable behavior

External Fit: Theoretical Critique

Overlooks Employee interests (issues of social norms, legal requirements, motivation). How does the firm fit for the potential employee? Lack of sophistication in the description of competitive strategy: Most resilient firms are superb all rounders: In an environment of strategic ambiguity and rivalry, it is desirable to build a management team which can think beyond its current competitive posture Sometimes, the job (managerial or non-managerial) has more influence on some HRM practices than firm strategy. Most firms prefer internal recruitment and have similar selection or appraisal criteria. A more helpful model is one in which fit with existing competitive strategy is developed simultaneously with flexibility in the range of skills and behaviors that may be needed to cope with different competitive scenarios in the future.

Internal Fit
Internal coherence of HR policies and practices
Single Employee Consistency - Avoiding deadly combinations Among Employee Consistency across employees doing the same kind of work Temporal Consistency across a reasonable period of time

Critique: Management increasingly needs a blend of forcing and fostering behavior as it renews the firm

Evolution of Best Fit

It is helpful to see business strategy as a configuration or gestalt of critical interdependent elements. These elements include competitive strategy (sectoral choice and desired position), operations strategy (suitable supplies, technology and methods) and appropriate strategies for finance and human resources.

Best Practice Models (AMO)

Jeffrey Pfeffers list of 16 practices for competitive advantage through people
Employment Security, Selectivity in recruiting, High Wages, Incentive Pay, Employee Ownership, Information Sharing, Participation and Empowerment, Teams and Job Redesign, Training and skill development, Cross-utilization and cross-training, Symbolic egalitarianism, Wage compression, Promotion from within, Long term perspective, Measurement of the practices, Overarching philosophy

Best Practices-Theoretical Critique

Lists of desirable practices vary significantly Best practice definitions are silent on the collective issues of work organization and employee voice. Pfeffers lists of key practices seem to lack a strong commitment to independent worker representation and joint regulation Practices seem to become ends in themselves, apparently disconnected from the companys goals in its specific context Divergent interests are represented in firms. Labour laws vary from country to country There are national variations in cultural practices and management styles.

Best Practices-Theoretical Critique

Considerations of cost effectiveness: High commitment HR practices are most popular in sectors where quality is a major competitive factor and where firms need to exploit advanced technology or engage in highly skilled interaction with clients. Employers adopt more modest employment policies in other sectors where output per employee in not high

 BOTH GENERAL PRINCIPLES AND SPECIFIC CONTEXTS PLAY AN IMPORTANT ROLE IN THE THEORY AND PRACTICE OF STRATEGIC HRM

Edith Penrose (1959)

A firm is an administrative organization and a collection of productive resources (physical and human) Focused on the ways in which firms might build unique clusters or bundles of human and technical resources that generate enviable levels of performance. Countered the marketing oriented models quality of the management process and firms workplace culture are seen as major factors for business performance.

RESOURCE BASED VIEW OF STRATEGIC HRM How might a firm obtain and manipulate its resources (human and non-human) to become the best adapted, the most consistently profitable of all firms in its sector

RBV
Resources are not simply assets in the formal accounting sense but include any feature of the firm with value-creating properties. Most CEOs rated the quality of employee know-how and their firms reputation with customers as their most strategic assets.

RBV : Work of Barney (1991)

Distinguished between competitive advantage and sustained competitive advantage Desirable resources are inimitable and non-substitutable

Qualities of Desirable Resources

Valuable and Scarce Inimitable Non-substitutable Appropriable

Key Barriers to Imitation of Resources

Unique timing and learning: unique historical conditions, first mover advantages Social Complexity: complex patterns of teamwork and coordination Causal Ambiguity: cause-effect relationships importance of BSC

Applications of RBV
Importance to companys competencies and capabilities Core Competency framework of Hamel and Prahalad (1994) argued for developing a knowledge based rather than product based understanding of the firm.

Applications of RBV
Leonard (1998) used the word capability instead of competency. Core Capabilities are composed of
Content dimensions: Employee skills, knowledge and technical systems Process dimensions: Managerial systems, values and norms

Human Resource Advantage: Better People and Better Processes

Firms unable to realise full benefit of human talentIn-fighting between departments Failure to offer opportunities Benefits to a few Lack of top management support Inadequate financial resourcing

Applications of RBV
Concept of Knowledge Management Intellectual Capital and Learning Organization