Strategic Human Resources Management Research Paper

1. What Is Strategy?

First, a simple answer: Strategy may be defined as a set of fundamental choices about the ends and means of an organization. More recently it might be defined as policies and procedures that are aimed at securing competitive advantage. That said, there are several different approaches in exploring the question ‘what is strategy?’ Some focus on the content of strategy and its positioning in relation to factors internal or external to the organization that might be seen as salient to its securing competitive advantage. An example of the internal, firm-focused approach would be the ‘resource-based’ view of strategy of the firm (e.g., Barney 1991). This perspective defines firms as unique bundles of resources and suggests that the route to developing sustained competitive advantage is to develop resources internally that meet the criteria of value, rarity, being costly to imitate, and nonsubstitutability. Examples of the latter, market-focused approach might be Porter’s (1980) generic strategies (low cost, differentiation, segment, or niche) in relation to his five-forces model or Miles and Snow’s (1978) categorization of firms as prospectors, analyzers, defenders, and reactors, both models emphasizing market-oriented choices. Theories that bring together internal and external perspectives are life-cycle theories of the firm or product (for example, the Boston Consultancy Group’s portfolio planning growth-share matrix).

A second approach, which can subsume the content approaches, focuses on the processes of strategy making. A famous distinction is that between ‘planned’ and ‘emergent’ strategy (Mintzberg and Walters 1985). Building on this is a useful typology of Whittington (1993), based on two axes, relating to continua of outcomes (profit maximizing/pluralistic) and of processes (deliberate/emergent). Four perspectives on strategy are identified: the ‘classical’ (profit maximizing/deliberate), ‘evolutionary’ (profit maximizing/emergent), ‘processual’ (pluralistic/emergent) and the ‘systemic’ (pluralistic/deliberate). The processes of strategy making that are ‘deliberate’ comprise of rational, planned, top-down decision making (‘classical’ model) and decision making shaped by the social systems in which organizations are embedded (‘systemic’ model). ‘Emergent’ processes are those that reflect the very bounded, incremental, and political nature of decision making (‘processual’) or, in contrast, the ‘population ecology’ view of the competitive processes of natural selection, where the market picks the winners, rendering ineffective any deliberate strategizing (‘evolutionary’). Writers typical of each of these perspectives would be Ansoff (1965) (‘classical’), Hannan and Freeman (1988) (‘evolutionary’), Mintzberg and Walters (1985) (‘processual’), and Granovetter (1985) (‘systemic’).

2. What Is Strategic HRM?

Even leaving aside the work on HRM by European writers, such as Anthony, Keenoy, Legge, Townley, and Willmott, that lies within a critical discourse tradition and which, as such, will not be considered here, there has been much debate on this question since the mid-1980s (see, e.g., Beer and Spector 1985, Fombrun et al. 1984, Guest 1987, Walton 1985). For many years, especially in the USA, human resource management was just another term for personnel management. Both terms referred to the management of the employment relationship and of the indeterminacies in the employment contract. In the early 1980s, however, a combination of factors—increased globalization of markets and perceived intensification of competition, the rise of the ‘enterprise culture,’ the Japanese ‘Janus’ and models of excellence, the decline in trade union pressure and disillusionment with ‘traditional’ personnel management, changes in the nature of work and in the workforce—awoke senior managers to the importance of human resources in the achievement of competitive advantage, and to a recognition that HRM/personnel management was too important to be left to personnel specialists.

Indeed, whether HRM was considered to be different from personnel management largely depended on the point of comparison. Sharp distinctions and contrasts emerged if the normative aspirations of HRM were compared to the descriptive practices of personnel management, but otherwise faded into several different emphases, all of which, though, pointed to HRM, in theory at least, being an essentially more central strategic management task than personnel management. As one commentator put it, the real difference between HRM and personnel management was ‘not what it is, but who is saying it. In a nutshell HRM represents the discovery of personnel management by chief executives’ (Fowler 1987, p. 3). Hence the idea of strategic human resource management.

However, different commentators espouse different models and approaches to strategic HRM. A major distinction may be found between the ‘hard’ model of the Michigan school (Fombrun et al. 1984), reflecting what has been termed a utilitarian instrumentalism and the ‘soft,’ ‘mutuality’ model of the Harvard school (Beer and Spector 1985, Walton 1985), more reminiscent of de elopmental humanism (Hendry and Pettigrew 1990). The ‘hard’ model stresses HRM’s focus on the crucial importance of the close integration of human resources policies, systems, and activities with business strategy, requiring that they are not only logically consistent with and supportive of business objectives, but achieve this effect by their own coherence. From this perspective, employees are regarded as a headcount resource to be managed in exactly the same rational, impersonal way as any other resource, i.e., to be exploited for maximal economic return. Thus its focus is on human resource management and the implied perspective on strategy seems to have much in common with Whittington’s ‘classical’ profit-maximizing/deliberate model of strategy.

In contrast, the ‘soft,’ ‘developmental humanism’ model, while still emphasizing the importance of integrating HR policies with business objectives, sees this as involving treating employees as valued assets, a source of competitive advantage through their commitment, adaptability, and high quality (of skills, performance, etc.). Employees are proactive and resourceful rather than passive inputs into the productive process. Rather than exploitation and cost minimization, the watchwords in this model are investment and value added, with the focus on human resource management. The strategic perspective here, in Whittington’s terms, is, therefore, pluralistic and echoes some of the ideas of the resource-based view of strategy.

Throughout the 1990s this model of HRM became increasingly seen, in both the USA and UK, as the exemplar of what HRM, as a distinctive philosophy of managing the employment relationship, was all about (see, e.g., Becker and Gerhart 1996, Guest 1987, Huselid 1995, MacDuffie 1995). Termed variously, the ‘high commitment’ (HCM), ‘high performance,’ or ‘mutuality’ model of HRM, at an operational level it was seen to comprise such policies as:

(a) Careful recruitment and selection with an emphasis on traits and competencies;

(b) Extensive use of systems of communication;

(c) Team working with flexible job design;

(d) Emphasis on training and learning;

(e) Involvement in decision making with responsibility (empowerment);

(f) Performance appraisal linked to contingent reward systems.

Increasingly, throughout the 1990s, particularly among US commentators, this model came to be equated with strategic HRM, reflecting the popularity of resource-based views of strategy in its belief in acquiring and developing employees as assets (see, e.g., Becker and Gerhart 1996, Boxall 1996). In some ways this reflects the interests of HR specialists and academics alike. Fitting HR policy and practice to business strategy always leaves HR as the ‘third order’ strategic decision, designed to reinforce prior ‘first order’ decisions about portfolio planning and ‘second order’ business decisions about organizational design and operating procedures, still reactive if no longer as powerless as traditional personnel management. The resource-based view of strategy accords a more proactive role to HRM as it can be valued not just for reinforcing predetermined business strategies, but for developing strategic capability, improving the long-term resilience of the firm.

However, it would be a mistake to see these two contrasting models of HRM as necessarily incompatible. If the stress is on integrating HRM policies with business strategy, in certain situations, choosing HCM policies may be appropriate to driving the business strategy. HCM appears the logical choice where employee discretion is crucial to the delivery of added value, and reciprocal high-trust relations are essential to organizational performance. Such a situation is often equated with organizations pursuing a strategy of producing high value-added goods and services, in a knowledge-based industry, where it adopts a policy of value-added goods and services rather than asset management. But if the organization’s chosen business strategy is to compete in a labor-intensive, high-volume, low-cost industry, generating profits through increasing market share by cost leadership, such a policy of treating employees as assets may be deemed an expensive luxury. For such an organization the HR policies that may be most appropriate to driving strategic objectives are likely to involve treating employees as a variable input and cost to be minimized. Further, human resource management, in line with the ‘soft’ HCM model, is only viable if the organization is seen to be economically successful or ‘hard,’ if it manages effective human resource management.

At the heart of the distinction between ‘hard’ and soft’ models of HRM lies a fundamental contradiction that personnel management HRM—whatever the nomenclature—is called upon to mediate: needs it to achieve both the control and the consent of employees. Integration with business strategy may require the design and interpretation of an employment contract that veers toward control (with assumptions of labor as a commodity, embedded structural conflict, low trust, and transactional contracts) for some groups of employees; but consent (with assumptions about the employee as a valued asset, a unitary frame of reference, high trust, and relational contracts) for others.

This raises a major question about what precisely we mean by ‘integrating HRM with business strategy,’ the cornerstone of the ‘hard’ model of HRM. ‘Integration’ appears to have two meanings: integration or ‘fit’ with business strategy, and the integration or complementarity and consistency of ‘mutuality’ employment policies aimed at generating employee commitment, flexibility, quality, and the like. This double meaning has been referred to also as the ‘external’ and ‘internal’ fit of the HRM policies. The problem is that while ‘fit’ with strategy, as suggested above, would argue a contingent design of HRM policy, internal consistency—at least with the ‘soft’ human resource values associated with ‘mutuality’—would argue a universalistic approach to the design of employment policy. Can this contradiction be reconciled without stretching to the limit the meaning of HRM as a distinct approach to managing people at work? Indeed, should we focus on HRM as a ‘special variant’ of personnel management, reflecting a particular ideology about how employees should be treated? Or should we regard it as a variety of very different policies and practices designed to achieve the desired employee contribution, judged solely ‘against criteria of coherence and appropriateness (a less rigid term than ‘‘fit’’)?’ (Hendry and Pettigrew 1990, pp. 8–9).

This distinction is critical as the contingent and universalistic approaches rest on very different and contradictory theoretical perspectives about organizational competitveness. The universalistic approach is consistent with institutional theory and arguments about organizational isomorphism (DiMaggio and Powell 1983). In other words, the assumption here is that organizations that survive do so because they identify and implement the most effective, ‘best’ policies and practices. As a result, successful organizations get to look more and more like each other through practices like benchmarking and so on. (Here we have echoes of Whittington’s ‘evolutionary’ perspective on strategy.) In HR terms this equates with the belief that treating employees as assets via the HCM model will always pay off, irrespective of circumstances. Contingency approaches, on the other hand, are consistent with the resource-based theories, referred to earlier, that argue that sustained competitive advantage rests not on imitating so-called ‘best practice,’ but on developing unique, nonimitable competencies (Barney 1991). This approach rests on a recognition of the importance of idiosyncratic contingencies that result from causal ambiguity and path dependency. From this perspective organizational performance is not enhanced merely by following ‘best’ HR practice (the HCM model), but from knowledge about how to combine, implement, and refine the whole potential range of HR policies and practices to suit the organization’s idiosyncratic contingencies (Boxall 1996).

This brings us to what has become the key research question about strategic HRM, in both the USA and UK: what is its relationship to organizational performance?

3. Strategic HRM And Organizational Performance

Is strategic HRM linked to organizational performance on a universalistic (additive), configurational (patterned), or contingency (idiosyncratic) basis (Delery and Doty 1996)? At first sight the greatest support appears to be for the universalistic model: that the greater the extent to which the characteristics of the ‘high commitment’/’high performance’ model of HRM are adopted the better the organizational performance (see, e.g., empirical studies in both the UK and USA by Delery and Doty 1996, Guest 1997, 1999, Huselid 1995, MacDuffie 1995, Patterson et al. 1997). (For support of the contingency position, see Arthur 1992.) However, on examination, the empirical evidence for such universalism is more equivocal than it might appear at first sight.

The problems stem from methodological concerns with research design (see Legge 2000) and empirical observation (see Cully et al. 1999). Leaving aside disagreements about the specification and measurement of HCM HR practices, there are several major difficulties in drawing clear inferences from this re- search. Much of the work has been cross-sectional and survey-based, relying on the responses of one senior executive. The level of analysis is generally at corporate level, given the reliance on financial measures of performance, as it is at this level that much of the publicly available financial data exist. This leads to a range of difficulties. Where the research design is cross-sectional (as opposed to longitudinal), while causality may be inferred from correlation, technically it is not tested. This results in three possibilities.

A causal relationship may exist in the direction inferred, i.e., HCM HR policies and practices may give rise to positive outcomes, although even if this did exist, it might reflect no more than a temporary ‘Hawthorne’ effect in response to a change program (Purcell, 1999). (Of course it is possible, with the same direction of causality, that strategic HRM, particularly contingently chosen ‘hard’ HRM, may give rise to negative outcomes, or, positive outcomes on organizational performance measures but negative outcomes on employee measures, such as turnover and absenteeism.) Or, reverse causality may exist. Thus, as a firm becomes more profitable, it may invest in HCM HR practices, such as expenditure on training, or profit sharing, in the belief that such practices will further enhance performance, or that they will reduce the risk of performance declines, or from a belief in the justice and efficacy of wealth distribution. However, it is the profits that generate HCM practices rather than vice versa.

A further possibility is that the observed relationship between HR practices and performance may be an artefact of the implicit performance theories of survey respondents. In other words, if respondents have little detailed knowledge of the HR practices in their firm (highly likely if the firms are large, diverse and multisite and the research is being conducted at corporate level) but know that the firm is performing well in terms of productivity and profitability, they may infer that ‘high performance’ HR practices must exist, given this level of performance, based on the implicit theory that such practices are related to high performance (Wright and Gardener 2000). Similarly, the groups of employees that are likely to be most visible to such a respondent are those core employees to whom HCM is most likely to be applied, not the contingent workers to whom more transactional contracts are likely to be applied. The workers on the periphery of an organization may simply not be visible to the senior management single respondent to a corporate-level survey (Purcell 1999). Issues of workforce segmentation appear to be consistently neglected in such research (Boxall 1996).

Second, there is a theoretical problem with the heavy reliance on financial measures of performance (return on assets, Tobin’s q) or organizational measures (productivity, quality, customer satisfaction) without equal concern to measure employee outcomes. (This is particularly marked in the US studies cited. Some recent UK studies, such as Guest 1999 and Cully et al. 1999 have attempted to measure employees’ responses, such as satisfaction and employee relations climate.) The HCM model of HR practices rests on the assumption that they will result in a positive psychological contract between employees and the organization that will give rise to employees’ high commitment, quality, and flexibility, that in turn will have a positive effect on organizational performance and, ultimately, financial results. Reliance solely on financial and performance measures seems misguided as the theoretical rationales of how HR effects organizational performance rest on the assumption that it is through employee behaviors and outcomes. However, while the corporate level of analysis is consistent with the collection of financial data, it is not conducive to assessing employee attitudes and behaviors. Failure to open the ‘black box’ of employee behavior is a major limitation of many of these studies. However, to do so within the confines of quantitative positivistic designs (deemed necessary to establish generalizable causal relationships) raises immense problems about how many and what variables should be in the ‘black box’ and how these variables should be specified.

Then there is the issue of distinguishing between espoused and actual HR practices and employee skills and behaviors. The greater the number of intervening variables identified and the greater the level of specificity, the greater the multiplicative effect in determining the processes of a model, as the model building requires specification of the relationships between each of the specifications of the major intervening variables, giving rise to potentially unmanageable complexity (Wright and Gardner 2000).

Turning to empirical observation, we are confronted with a puzzling finding. If we are to accept at face value the research studies that suggest that there is a universalistic relationship between ‘high commitment,’ ‘soft’ model HRM and organizational performance, why do we find such relatively little implementation of this model of HRM? In the UK, for example, the latest Workplace Employee Relations Survey (WERS) in 1998 (Cully et al. 1999) found that only 14 percent of the responding workplaces have ‘soft’ HRM fully in place (defined as eight plus out of 15 ‘high commitment’ management practices) as opposed to 29 percent which had three or fewer, 22 percent of which, with three or fewer HCM practices and no unions, may be defined in Guest’s own memorable phrase as constituting a ‘black hole.’ As several commentators have observed, the implementation of any management best practice is likely to fall foul of vested interests, politicking, organizational history, and culture—precisely the factors that undermine the exercise of the ‘classical’ model of strategizing, but which are central to the ‘processual’ model. Indeed, it has been suggested that in the Anglo-American world, since about the mid- 1980s, the dominant emphasis in practice has been on short-term survival rather than the development of long-term resource-based advantage, with the widespread, ad hoc adoption of the ‘hard’ policies of delayering, downsizing, and increasingly contingent forms of employment (Boxall 1996). Such initiatives seem consistent with Whittington’s ‘processual’ model of strategizing, emerging as a stream of incremental, politically feasible actions in response to pressing problems.

4. Future Directions Of Research On Strategic HRM

Whether from a practitioner or academic viewpoint, interest in the HRM performance relationship appears to be here to stay. Most of the commentators already cited have suggestions for the improvement of research designs (e.g., more within-industry, businesslevel and plant-level designs; more consistent and valid measures of HR practices; more longitudinal studies; recognition of a broader range of organizational outcomes; opening up the ‘black box’, and so on). Guest (1997) and Purcell (1999) present two contrasting approaches, one from a universalistic and one from a contingent perspective.

Guest (1997, 1999) suggests that expectancy theory might provide a theory of process to link HRM practices and performance, as it links motivation and performance. Specifically, expectancy theory proposes that, at the individual level, high performance depends on high motivation, coupled with the necessary skills and abilities and appropriate role design and perception, equating skills and abilities with quality, motivation with commitment and role structure, and perception with flexibility. HR practices designed to foster these HR outcomes (e.g., selection and training for skills and abilities/quality, contingent pay and internal promotion for motivation/commitment, and team-working design for appropriate role design and perception/flexibility) should facilitate high individual performance, which in turn is a contributory factor in high performance outcomes (e.g., high productivity, low absence and labor turnover) that should contribute (other things being equal) to financial outcomes. In an empirical study of employees’ reactions to HCM HR policies. Guest (1999) suggests that the psychological contract may be a key intervening variable in explaining the link between HR practices and employee outcomes such as job satisfaction, perceived job security, and motivation. Furthermore, although Guest’s research is cross-sectional and, hence, raises the usual caveats about causality, the inferred direction of his empirical findings is supported by a similar longitudinal study (Patterson et al. 1997).

Nevertheless, Guest acknowledges the limitations of these models in terms of explaining organizational outcomes. While we may be able to measure the impact of HRM practices on HRM outcomes (quality, commitment, and flexibility), the measurable impact on organizational and financial outcomes is likely to become progressively weaker because of the range of potentially intervening variables. Guest also suggests that we need a theory about the circumstances when human resources matter more and a theory about how much of the variance between HR practices and performance can be explained by the human factor.

Purcell (1999, pp. 36–8), building on a resource-based view of strategy has some interesting observations here. He recognizes that, on the one hand, the claim that the bundle of ‘best practice’ HCM HR is universally applicable ‘leads us into a utopian cul-desac,’ ignoring dual labor markets, contingent workers, and business strategies that logically do not require ‘high commitment’ HR practices to achieve financial success. On the other hand, the search for a contingency model of HRM is a ‘chimera,’ ‘limited by the impossibility of modelling all the contingent variables, the difficulty of showing their interconnection, and the way in which changes in one variable have an impact on others, let alone the need to model idiosyncratic and path-dependent contingencies.’ The way forward, Purcell argues, is the analysis of how and when HR factors come into play in the management of strategic change. Purcell suggests that we should explore how organizations develop successful transition management, build unique sets of competencies and distinctive organizational routines, and, in situations of ‘leanness,’ with greater dependency on all core workers, develop inclusiveness and the trust of such workers. The focus of research on strategic HRM (indeed, the focus of strategic HRM itself ) should be on ‘appropriate HR architecture and the processes that contribute to organizational performance in the short and medium term, and which positively contribute to the achievement of organizational flexibility or longevity.’

Bibliography:

1. Ansoff H 1965 Corporate Strategy. Penguin, Harmondsworth, UK
2. Arthur J B 1992 The link between business strategy and industrial relations systems in American steel minimills. Industrial and Labor Relations Review 45: 488–506
3. Barney J 1991 Firm resources and sustained competitive advantage. Journal of Management 17(1): 99–120
4. Becker B, Gerhart B 1996 The impact of human resource management on organizational performance: Progress and prospects. Academy of Management Journal 39(4): 779–801
5. Beer M, Spector B 1985 Corporate-wide transformations in human resource management. In: Walton R E, Lawrence P R (eds.) Human Resource Management, Trends and Challenge. Harvard Business School Press, Boston, pp. 219–53
6. Boxall P 1996 The strategic HRM debate and the resource-based view of the firm. Human Resource Management Journal 6(3): 59–75
7. Cully M, Woodland S, O’Reilly A, Dix G 1999 Britain at Work. Routledge, London
8. Delery J, Doty H 1996 Models of theorizing in strategic human resource management: Tests of universalistic, contingency, and configurational performance predictions. Academy of Management Journal 39(4): 802–35
9. DiMaggio P, Powell W 1983 The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review 48(2): 147–60
10. Fombrun C, Tichy N M, Devanna M A (eds.) 1984 Strategic Human Resource Management. Wiley, New York
11. Fowler A 1987 When chief executives discover HRM. Personnel Management 19(1): 3
12. Granovetter M 1985 Economic action and social structures: The problem of embeddedness. American Journal of Sociology 91(3): 481–510
13. Guest D E 1987 Human resource management and industrial relations. Journal of Management Studies 24(5): 503–21
14. Guest D E 1997 Human resource management and performance: A review and research agenda. International Journal of Human Resource Management 8(3): 263–90
15. Guest D E 1999 Human resource management—the workers’ verdict. Human Resource Management Journal 9(3): 5–25
16. Hannan M T, Freeman J 1988 Organizational Ecology. Cambridge University Press, Cambridge, MA
17. Hendry C, Pettigrew A M 1990 Human resource management: An agenda for the 1990s. International Journal of Human Resource Management 1(1): 17–43
18. Huselid M 1995 The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal 38: 635–72
19. Legge K 2000 Silver bullet or spent round? Assessing the meaning of the ‘high commitment management’ performance relationship. In: Storey J (ed.) Human Resource Management: A Critical Text. Thomson Learning, London, pp. 20–36
20. MacDuffie J P 1995 Human resource bundles and manufacturing performance: Organizational logic and flexible production systems in the world auto industry. Industrial and Labor Relations Review 48: 197–221
21. Miles R E, Snow C C 1978 Organizational Strategy, Structure and Process. McGraw-Hill, New York
22. Mintzberg H, Walters J A 1985 Of strategies, deliberate and emergent. Strategic Management Journal 6: 257–72
23. Patterson M, West M, Lawthom R, Nickell S 1997 Impact of People Management Practices on Business Performance. IPD, London
24. Porter M 1980 Competitive Strategy. Free Press, New York
25. Purcell J 1999 Best practice and best fit: Chimera or cul-de-sac? Human Resource Management Journal 9(3): 26–41
26. Walton R E 1985 From control to commitment in the workplace. Harvard Business Review 63(2): 77–84
27. Whittington R 1993 What is Strategy and Does it Matter? Routledge, London
28. Wright P M, Gardener T M 2000 Theoretical and empirical challenges in studying the HR practice-performance relationship. Paper presented at the special workshop on Strategic Human Resource Management, EIASM, INSEAD, Fontainebleau, France, 30 March–1 April