MASTER OF
BUSINESS
ADMINISTRATION
Human Resource
Management and
Organizational Strategy
Dr. Franco Gandolfi
School of Global Leadership & Entrepreneurship
August 13, 2007
REV: July 29, 2017
 Franco Gandolfi
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Human Resource Management (HRM) and
Organizational Strategy
“However beautiful the strategy, you should occasionally look at the
results” (Sir Winston Churchill)
“What business strategy is all about – what distinguishes it from all
other kinds of business planning – is, in a word, competitive
advantage. Without competitors there would be no need for a
strategy… Corporate strategy thus implies an attempt to alter a
company’s strength relative to that of its competitors in the most
efficient way” (Kenichi Ohmae, The Mid of the Strategist)
Introduction
Strategy, or the Greek term strategos, was originally a military term
and associated with the role of a military general (Boxall & Purcell,
2003). It was management guru Peter Drucker in his seminal book
The Practice of Management in 1955 who stressed the importance
of strategic decisions within organizations. Since then, the term
strategy has been defined in various ways by many writers: For
instance:
“Strategy is the determination of the basic long-term goals and objectives of an
enterprise, and the adoption of courses of action and the allocation of resources
necessary for carrying out these goals” (Chandler, 1962)
“Strategy is concerned with the long-term direction and scope of an organization.
It is crucially concerned with how the organization positions itself with regarding
to the environment and in particular to its competitors” (Faulkner & Johnson,
1992)
Broadly speaking, strategy may be defined as a statement of what
the organization wants to become, where it wants to go, and how it
means to get there (Armstrong, 2000). Strategy determines the
direction in which the firm is going in relations to its environment in
order to achieve sustainable competitive advantage. Thus, it is a
declaration of intent and concerned with the long-term allocation of
company resources (Purcell, 1999).
This second essay is concerned with the relationship between
strategy and HRM. The overall purpose of the paper is to determine
the basic concepts of strategy and strategic HRM and to explore
practices in which HRM can be strategic to business success. Finally,
the paper explores practical ways in HR’s pursuit of becoming a
legitimate Strategic Partner.
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Key Concepts of Strategy
There are at least three key concepts of strategy that are regularly
discussed in association with strategy – competitive advantage,
distinctive capabilities, and strategic fit:
Competitive advantage
The father of modern strategy, Michael Porter (1985), formulated
the concept of competitive advantage which arises out of a firm
creating value for its stakeholders. Porter emphasized the
importance of differentiation and focus. The former refers to a
product or service that is unique, whereas the latter serves a buyer
group or product market more efficiently or effectively than its
competitors. Porter then developed a framework of three strategies
to gain competitive advantage – innovation (being the unique
provider), quality, and cost leadership.
Distinctive capabilities
Quinn (1980) describes distinctive capabilities as features that
confer superiority on the organization. Kay (1999) distinguishes
between distinctive and reproducible capabilities. The former are
characteristics that can only be imitated with great difficulty, while
the latter can be purchased, imitated, or created. Armstrong (2000)
points out that most technical capabilities are reproducible.
Distinctive capabilities or ‘core competencies’ (Prahalad & Hamel,
1990) also provide the rationale for the concept of knowledge
management.
Strategic fit
The concept of strategic fit states that a firm ought to match its
capabilities and resources to the opportunities available in the
external environment in order to maximize competitive advantage.
Hofer and Schendel (1986) aptly conclude:
“A critical aspect of top management’s work today involves matching
organizational competencies (internal resources and skills) with the opportunities
and risks created by environmental change in ways that will be both effective and
efficient over the time such resources will be deployed”
So, what is this seemingly elusive concept of strategy all about?
Strategy is about the expression of the intentions of the
organization. This may be a broad vision statement, a mission
statement, or it could be a statement of goals and objectives it
wishes to attain over the long run. However, a firm needs the
strategic capability to effectively develop and implement strategy
and develop and implement strategic plans through the process of
strategic management.
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Strategic Management
The concept of strategy and its main elements are operationalized
by strategic management. In theory, strategic management is a
sequence of activities – strategy definition (formulation), strategy
implementation (execution), and strategy evaluation (review).
Strategic management is visionary as well as empirical in that
managers ought to decide upon where the firm should be going and
how it is going to get there. It is important to recognize that
strategy focuses upon the firm’s vision, mission, and strategies, but
attention also needs to be given to the actual resources. More
importantly, strategy is the means to create value. In other words,
the most sophisticated and well-articulated strategy is ultimately
futile unless the strategy can build and sustain value for the firm
and its many stakeholders.
Levels of Strategic Planning
Managers generally engage in three levels of strategic planning –
corporate (companywide), business, and functional levels (Dessler,
2004).
First, a firm’s top-level, corporate-level, or executive-level strategy
identifies the business or portfolio of businesses that constitute the
company. It also determines the ways these businesses are
interrelated. Within this primary strategy there are a variety of
secondary strategies, including diversification, vertical integration,
consolidation, and geographic expansion. Practical examples of
these strategies include Virgin, UK (diversification), General Motors,
USA (vertical integration), Von Roll, Switzerland (consolidation),
and AMP, Australia (geographic expansion).
Second, each business unit (also called strategic business unit or
SBU) requires a business-level (competitive) strategy. This strategy
identifies how to build and strengthen the business’s long-term
standing in the marketplace. Within this level of strategy there are
also a variety of sub-strategies, namely cost leadership,
differentiation, and focus. Practical examples of these strategies
include Dell, USA (cost leadership), Volvo, Sweden (differentiation),
and Ferrari, Italy (focus).
Third, each individual business consists of functional departments.
Functional strategies represent the courses of action that each
department will pursue in order to help the business (or division)
achieve its competitive goals.
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Strategic Human Resource Management
Nowadays, there is a high level of recognition that employees are
central to achieving competitive advantage (Kearns, 2003). This
understanding has led firms to focus more on strategic human
resource management (SHRM). SHRM is defined as:
“The linking of HRM with strategic goals and objectives in order to improve
business performance and develop organizational cultures that foster innovation
and flexibility” (Truss & Gratton, 1994: 663)
“The pattern of planned human resource deployments and activities intended to
enable an organization to achieve its goals” (Wright & McMahan, 1992: 292)
The term HR strategy refers to the specific HR courses of action the
firm embraces and pursues to achieve its goals and objectives. For
instance, Switzerland’s Novartis AG aims to achieve superior levels
of product innovation, product quality, and profitability by means of
a highly skilled, dedicated, and committed workforce. The
overarching objective of its overall HR strategy is to build a firstclass workforce. Therefore, all specific HR strategies and activities
are derived from the overall HR objective, which, in turn, is linked
to overall organizational objectives.
HR as a Strategic Partner
Views on the role, importance, and depth of integration of the HR
function into the overall business strategy vary (Dessler, 2004). For
instance, there is little doubt that HR’s primary role ought to be to
help execute the firm’s overall strategy. In such a situation, the
executive management devises a corporate strategy. In response,
HR’s role would then be to create the HR plans and programs
required to successfully implement that corporate strategy. In this
sense, the HR system must be tailored to the demands of the
business strategy (Truss & Graton, 1994). Thus, the underlying idea
then would be that there is a matching HR strategy for any
organizational strategy (Dessler, 2004).
An even more strategic view of HR is that it should rise to the status
of an equal partner in the firm’s strategic planning process. As such,
HR’s role would not just be to tailor its activities to the demands of
the corporate strategy or to be pre-occupied with operational, dayto-day function activities. The role of contemporary HR should be to
forge the firm’s workforce into a competitive advantage for the
entire organization. However, the question arises as how this can be
achieved in more pragmatic terms? The answer, at least partly, lies
in HR’s role of formulating and executing strategy:
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Formulating Strategy
Formulating a firm’s strategic plan requires the rigorous execution
of a SWOT analysis in that the internal strengths and weaknesses
need to be balanced with the external opportunities and strengths.
A resulting outcome would, ideally, capitalize on the firm’s strengths
and opportunities and neutralize its weaknesses and threats. HR is
in a unique position to provide competitive intelligence about its
competitors (external data) and about its internal human strengths
and weaknesses (internal data) to the strategic planning process.
The former may include data about its competitor’s incentive plans,
opinion survey data from employees, and information about labor
laws and mandatory health insurance, whereas the latter may
comprise information about the firm’s existing turnover levels,
retention efforts, and human resource development (HRD)
initiatives.
Executing Strategy
HR’s role in the strategic planning process needs to transcend the
formulation (definition) stage and to include the execution stage.
HR must ensure that it provides the necessary support towards the
firm’s endeavor to successfully implement and execute corporatelevel strategies. For instance, when Switzerland’s Sandoz AG and
Ciba-Geigy AG merged in 1996, it was HR’s main task to merge two
very different corporate cultures and to provide leadership in
dealing with initial shock and uncertainty displayed by employees
following the announcement of the merger. The HR function is
increasingly heavily involved in major corporate change
management programs, such as restructurings, downsizings, and
reengineering efforts. Following such announcements, HR is
routinely charged with devising social plans and programs,
providing outplacement services, instituting pay-for-performance
plans, reducing benefit-related costs, and re-deploying and
retraining employees.
Strategy and the HR Department
Without a doubt, if a HR department focuses mainly upon the old
personnel management-type activities of administration and
maintenance, then there is a strong chance that the HR department
will become an endangered species (Dessler, 2004). Many
outsourcing firms that specialize on HR functions have shown to be
able to perform HR-related activities more efficiently. Today’s HR
function, irrespective of its actual name and position within the firm,
needs to demonstrate that it is a fully-fledged business partner. As
such, it is required to be able to add value to the bottom line of the
organization. Thus, the following activities will need to be the foci of
strategic, proactive HRM:
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●Strategic Planning
●Change Management
●Corporate Culture Transition
●Development of Human Capital
According to prolific scholars Hamel and Prahalad (1989), this
viewpoint is based upon the assertion that competitive advantage is
obtained if a firm can attract and develop human resources that
enable it to learn faster and apply its learning more effectively than
its competitive rivals. In academic circles, this has come to be
known as the resource-based HR strategy (Hamel & Prahalad,
1989). As mentioned earlier, HR must develop the “distinctive
capabilities” in staffing and development that competitors cannot
imitate.
Strategy and HR: The ‘Best Practice’ Approach
A vast variety of approaches to the development of concrete HR
strategies have emerged. The best known set of ‘best practices’ is
Pfeffer’s (1994) list of seven HR practices of successful firms. The
list is prescriptive, yet anecdotal evidence does suggest that these
practices have received global attention and been actively
implemented in a variety of industries:
1. Employment security
Employees should not be made redundant or laid off for temporary
economic downturns or senior management’s strategic mistakes
over which employees have no direct control. Firms are unlikely to
invest in resources if the organization is unable to recoup its
investment over the long run.
2. Selective hiring
The firm needs to be clear about the critical skills and attributes it
needs to succeed in the future. As such, the organization looks for
people with the right KSAO’s (knowledge, skills, abilities, and
others), attitudes, values, and cultural fit.
3. Self-managed teams
The adoption of self-managed teams allows the firm the removal of
layers of hierarchy and permits employees to pool their ideas. This
enables individuals to become more productive and to provide more
creative solutions to work problems.
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4. Compensation contingent upon performance
Compensation should be contingent upon performance. This may
include the measurement of organizational, team, or individual
performance.
5. Training
Training provides employees with the necessary knowledge and
capability to perform the requisite tasks. As a result, this should
lead to a highly skilled, dedicated, and motivated workforce.
6. Reduction of status differentials
Status differentials in organizations often send individuals the
message that they are not valued or valuable.
7. Sharing information
The dissemination of information, including the sharing of
information regarding the firm’s financial performance and business
strategies, conveys the impression that employees can be trusted.
Also, employees need timely, accurate, and relevant information in
order to enhance organizational, team, and individual performance.
This ‘best practice’, or universalist, view has earned some criticism
from a number of commentators. For instance, Legge (1995) points
out that what succeeds in one firm may not necessarily work out in
another organization since it may not fit its overall business
strategy, corporate culture, management style, technology, or
working practices (Armstrong, 2000). Thus, Becker, Huselid, Pickus,
and Spratt (1997) comment:
“Organizational high-performance work systems are highly idiosyncratic and must
be tailored carefully to each firm’s individual situation to achieve optimum
results”.
Moveover, even when best practices can be adopted by other
organizations, the results may not be desirable, as competitive
advantage – as we noted earlier – arises from differentiation. This
differentiation, however, is not limited to product and service
offerings, but it is also critical in strategy execution. Borrowing an
HR “best practice” from another company does little to differentiate
strategic execution and develop a competitive advantage.
Enabling HR as a Strategic Partner
A rigorous study into the contemporary role and status of the HR
function as strategic partners involving some of the world’s most
influential Multinational Corporations (MNCs) was conducted under
the leadership of recognized HR scholars in North America. This
first-of-its-kind, multi-year, multi-organization, and high-level
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benchmarking study sought to identify and examine ‘best practice’
in HR strategy. The study also sought to project and identify the
emerging HR function of the future. Eleven key findings categorized
into five main sections emerged. These were determined to be the
key HR capabilities of the present age. The study also confirmed
that for the HR function to have ‘a seat at the table’ (i.e., become a
critical strategic partner within the organization) it will need to
demonstrate that it is capable of adding measurable value to the
bottom-line of the companies (APQC, 2000):
1. Strategy development and execution
● HR needs to move away from being a ‘policy police’ and ‘paper
pusher’ to being a fully integrated contributor of strategy
development and execution.
● HR needs to develop effective two-way communication with line
management to develop strong partnerships. This will enable HR to
develop its agenda from the business goals and communicate this
agenda back to the workforce.
● HR needs to develop strong competencies, including business
acumen and systems thinking, in order to effectively partner with
the business units.
● HR needs to structure its department to improve the chance for
successful partnerships within the firm. Such a (re)structure itself
will not guarantee success, but it will constitute the first step toward
enhanced recognition within the organization.
● HR needs to move into the roles of strategy developer, strategy
executor, and change agent. This is likely to require a major
paradigm shift for both HR employees and line managers.
2. Change agency
● HR needs to provide the necessary tools and processes to support
change. Practically speaking, this may include adjustments to the
functions of selection, performance management, and compensation
management to align with the new vision of the organization. To be
successful, change needs to be owned and embraced by the entire
organization. HR needs to play a pivotal role in providing expertise
on building line ownership of change.
3. Administrative expertise
● HR needs to execute its administrative, transactional work
quickly, efficiently, and accurately. This will free up valuable
resources. The savings need to be directed toward strategic
activities. This may include the implementation of world-class
human resource information systems, and the outsourcing of some
or all administrative functions to third-parties (e.g., ADP).
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4. Employee advocacy
● HR needs to make the HR function self-sufficient by placing the
onus on line managers and making it their responsibility to manage
human resources. HR needs to focus upon its people and build
value. It is critical that HR learns to leverage the strategic resources
that impact the business. For instance, staffing, career
development, coaching, and mentoring build an environment of
continuous learning and improvement which reward strong
contributors and eliminate unproductive employees.
5. Measurement
● HR needs to measure how it can add value to the organization.
● HR needs to build comprehensive evaluation and measurement
systems to prove its worth to the organization.
● HR needs to build a solid infrastructure to demonstrate its value
and to be disciplined about measurement as an on-going process.
The study concluded that more and more organizations recognize
the true value of the HR function as a key driver of ‘intangibles’,
including but not confined to change management, in-house
leadership development, and organizational culture. To demonstrate
value, HR needs to evolve and measure the value it provides to
organizational growth and performance. As such, successful
organizations of the future need to strategically leverage their HR
and focus on the business drivers and bottom-line issues.
Concluding Remarks
This paper explored the relationship between strategy and Human
Resources Management (HRM). The paper determined the basic
concepts of strategy and strategic HRM and explored practices in a
firm’s quest of becoming a recognized, legitimate Strategic Partner.
Both empirical and anecdotal evidence suggest strongly that there
is still a lack of understanding of the role and true value of HRM on
the part of many executives, managers, and professionals all across
the globe. In spite of that, there are several insights that have
emerged. According to Kearns (2003), the key lessons for HR
strategy are:
● The business and the HR strategies must be totally integrated;
● The two have to run side-by-side, ideally for many years;
● Top management must not only understand the holistic, systemic
nature of the HR strategy, but to give their complete commitment
to it;
● The HR strategy should be founded on simple, durable principles.
This ensures that the strategy will last in the face of most
foreseeable circumstances,
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● Simple principles can be explained to any employee at any level.
Once they understand the principles, they are likely to follow them
with their daily actions. This can be regarded as directly
contributing to business strategy;
● This way, the ‘grand’ strategy becomes a strategy for individuals
in the organization.
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References
APQC (2000) Enabling Human Resources as a Strategic Partner,
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Armstrong, M. (2000) Strategic Human Resource Management: A
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Becker, B.E., Huselid, M.A., Pickus, P.S., & Spratt, M.F. (1997) HR
as a source of shareholder value: research and recommendations,
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Boxall, P., & Purcell, J. (2003) Strategy and Human Resource
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