Strategic Approach to Human Resource Management

Strategic Approach to Human Resource Management
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HR Strategies and Audit
A Presentation by Atul Chanodkar

Why Strategy
 Environment is Dynamic
 External and Internal Forces are Continuously Changing
 To Remain Competitive, Organizations Adopt or Amend Strategies
A change in strategy will determine the direction of each function within the
organization, including the human resource management (HRM) function.

Why StrategyStrategy
A strategy is a way of doing something.
It is a game plan for action.
It usually includes the formulation of a goal and a set of action
plans for accomplishing that goal.
It implies consideration of the competitive forces at work in
managing an organization and the impact of the outside
environment on an organization’s actions.

Why Strategy
Strategy
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Definition
strategy is the formulation of organizational missions,
goals, and objectives, as well as action plans for
achievement that explicitly recognize the competition
and the impact of outside environmental forces.

The Strategic Approach to Human Resource Management
The strategic approach
to HRM applies the
concept of strategy to
managing a firm’s
human resources.
Six Key Elements
 Recognition of the Impact of Outside Environment
 Recognition of the Impact of Competition and
Dynamics of the Labour Market
 Long-range Focus
 Choice and Decision Making Focus
 Consideration of All Personnel
 Integration with Corporate Strategy

The Strategic Approach to Human Resource Management
The key idea behind overall strategic management is to coordinate all of the
company’s resources, including human resources, in such a way that everything
a company does contributes to carrying out its strategy. If all the resources are
integrated within an overall, appropriate strategy, additional value to the
company is generated by the effective combination of integrated forces. There
is no counter-productivity, and everything works together in the firm’s chosen
direction. Excellent coordination and combination of functions often result in a
very special phenomenon known as synergy, the extra benefit or value realized
when resources have been combined and coordinated effectively. This concept,
often referred to as economies of scope or scale, makes the combined whole of
the company (or companies) more valuable than the sum of its parts. It is a true
benefit of good strategic management of resources.

Differentiating Traditional and Strategic HRM

Integrating HR Strategies with Corporate and Functional Strategies
Corporate Strategy drives Functional Strategy
 A firm determines its overall strategy and then sets functional strategy to carry it out.
 Functional strategy can affect corporate strategy. A firm must consider existing
functional strategy when setting corporate strategy. For example, the existing human
resource strategy and capabilities are major factors to consider in the formulation of
corporate strategy.
 In addition, various functional strategies must be integrated with one another.

Integrating HR Strategies with Corporate and Functional Strategies
The implication for HR managers is that they must be acutely aware of overall corporate
strategy and how HR strategy dovetails with it.
HR managers need to be aware of functional strategies and attempt to integrate HR
strategy with them. This awareness argues for participation in the strategy formulation
process at both the corporate and functional levels.

Integrating Human Resources in Strategic Decisions
In this section, we examine the HR impact of decisions from four perspectives:
1. Issue of substitutability of capital for labour.
2. The impact of strategic decisions on HR within the organization.
3. Political forces at work in HR.
4. Role of HR unit in strategic decision making

Theory:
From a strategic and economic perspective, the underlying decision that an organization
must make regarding its human resources is its capital: labor ratio. Each organization must
decide to what extent it will substitute capital for labor and vice versa. In other words, an
organization must determine to what extent it will fill its jobs by substituting machines for
people.
Organizations have substituted capital for labor by using machine power to replace human
power. Generally, this has led to higher levels of productivity and lower per-unit costs of
production.
Issue of Substitutability of capital for labour

Organizations invest in smart machines because:
 Machines do the job more cheaply and efficiently than people do.
But these changes do not come without both monetary and human costs:
 Some people who are laid off may never get a job again.
 Those who do find work may find much lower-paying jobs.
 Other people enter retraining programs to learn new skills to operate the smart
machines.
 Still others must move and relocate to cities in parts of the country offering suitable
employment.
 Finally, others may become alienated and drop out of society as a form of rebellion
against technology.

This technological change brings dislocations, which are the costs of substituting capital for
labor. Society as a whole, rather than individual firms, largely bears these costs, so firms
often do not consider them when making a technological decision to automate a job or
process. In fact, some firms often have no choice. To remain competitive from a cost basis in
worldwide markets, they must automate.

Many important or strategic decisions are often considered nonhuman resource decisions.
Yet all of these decisions have an HR dimension.
People who make strategic decisions in an organization constitute what is called the
dominant coalition. The dominant coalition almost always includes top management, but it
also often includes people with technical expertise in an area under consideration.
The composition of the dominant coalition may change, depending on the strategic decision
under consideration. The extent to which people further down in the organization have
input into or membership in the dominant coalition is a major factor in determining the
extent of participation in the decision-making process.
The theory behind employee involvement is that by giving lower-level managers and
employees more of a role to play in decisions, they will have a greater commitment to the
decision output.
The impact of strategic decisions on HR within the organization

Examples:
Japanese auto companies exemplify this policy through their quality circles, which are
groups of employees who meet to recommend ways to improve production and quality.
The Motorola Participative Management Program and Florida Power and Light’s (FPL’s)
Quality Improvement Program (which won Japan’s prestigious Deming Award in 1989) are
patterned after the Japanese participative model.
Involving people throughout the organization in decisions provides an opportunity to
consider the HR impact of the decision. People who eventually have to carry out the
strategic decision made by the dominant coalition may be in the best position to provide
input and advice on what must be done to make the decision work.
The impact of strategic decisions on HR within the organization

In keeping with the discussion on the dominant coalition, the members in the organization
influence the HR information system.
They influence not only who will be hired and promoted but also the criteria used in hiring
and job evaluation decisions.
Not all behavior is political, but it becomes political when it attempts to manage or control
the meanings, norms, and behaviors of employees in an organization.
Political Influence in Human Resource Management

Political influence, like any other behavior in organizations, does not operate in a vacuum.
People answer for their actions.
This accountability to others can have a substantial impact on their behavior, including
political influence behavior. Politics is not bad per se; it is a fact of life in most
organizations.
Managers may hire employees based on political influence. Although, at the time, they may
say that the person hired fit better in the organization, the definition of fit may be a political
one based on whom the managers think they can influence or control. If they hire enough
employees who fit their mold, then they can create a powerful political base in the
organization. This may not be the best situation for the organization, and the consequences
of such behavior will soon become apparent.
Political Influence in Human Resource Management

Human resource professionals are in the best position to advise and otherwise influence the
decision process. To become true business partners, HR managers must focus their
attention on issues that are of concern to the company’s chief executive.
Traditionally, the HR unit has not been part of the dominant coalition. This is largely
because of the staff or advisory role that HR plays. However, even though the role of HR is
still largely advisory, the level of HR units has been elevated.
Today, companies have vice-presidents of HR both at the corporate and divisional level.
This enhances their membership in the dominant coalition. Yet because HR is essentially
staff oriented, the models of influence on decisions tend to fall along the continuum of staff
involvement in decision making.
Role of HR Unit in Strategic Decision Making

Fig.:
Continuum of Staff Involvement for Human Resources Unit in Strategic Decisions Affecting
Human Resources
Role of HR Unit in Strategic Decision Making

Organizational Human Resource Strategy: A Quick Look

Thank You
HR Strategies and Audit
-----------------------------------------------------------------------
Strategic Approach to Human Resource Management
HR Strategies with Corporate and Functional Strategies
Strategic Decisions
A Presentation by Atul Chanodkar

Strategic Approach to Human Resource Management

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