HUMAN RESOURCE MANAGEMENT & ORGANIZATIONAL BEHAVIOUR MASTER OF COMMERCE [January - March 2013]

Evolution and Theories in Aligning Strategic Human Resource Management with the Corporate Strategy
By: Joyce Ann Cruz Mayo [001CM712] Lecturer: Dr. Monica Walet

Presented to The Faculty of the Department of Business Submitted: February 21, 2013

Word Count: 2488

(Excluding Cover Page, Executive Summary, Table of Contents, Tables, & Reference List)

TABLE OF CONTENTS

Page Executive Summary Table of Contents List of Tables i ii iii

1. Introduction 2. The Evolving Definition of Human Resource Management 3. Theories / Approaches in Aligning Corporate Strategy with SHRM 3.1 Matching Approach 3.2 Control-Based Approach 3.3 Resource Based Approach 3.4 Typological Perspective 4. Human Resource Management Strategies 4.1 Commitment Strategy 4.2 Compliance Strategy 4.3 Collaborative Strategy 4.4 Productive Strategy 5. Issues in Aligning HR Strategies with Business Strategies 6. Companies which Aligned SHRM with the Corporate Strategy 7. Conclusion 8. Recommendation 9. Reference List

1 1 2 3 3 3 3 3 4 4 4 4 4 7 8 9 10

LIST OF TABLES
Page Table 1 Comparison Between Traditional HRM and SHRM Table 2 Singapore Airlines and Samsung Electronics SHRM Activities 2 7

Executive Summary

The increasingly changing environment of the business sector led the evolution of human resource management into strategic human resource management. Nowadays, companies are gradually looking into human resource as an asset within the organization that can provide sustainable competitive advantage. More than the human talent, it is believed that properly utilization of talents, efficient managing of resources, identification of capabilities and integrating these factors all together can create a synergy which would help achieve the organizational goals of the company. This paper presents a brief discussion on the evolution of human resource and the different approaches in human resource management, it also include issues most organizations fail to recognise in aligning their human resource activities with its corporate goals. Through this firms will look into their HR strategy as a vital instrument for integrating competencies within the company and for pairing the capabilities of the employees with the corporate strategy that can create an edge over the competitors.

1. Introduction

Organizations struggle to respond to the threats of globalization and technology by means of upgrading their capabilities and altering their business practices and strategies. These changes are implemented to create an establishment that is more flexible and adaptable to the demands of the market atmospheres; the environment, the economy, competitors and the consumer (Ray, 2012). Human resource management is a vital facet of an organization which has been the focus of debate with regards to how integration or fit of business strategy will match its operational activities and result to a more profitable and efficient organization (Seyyedjavadin & Zadeh, 2009).The traditional perception of commerce in human resource management (HRM) does not require involvement or does not influence the organizations strategic business path (Vosburgh, 2005; Lawler, 2011). Most organizations view the Human Resource Department (HRD) as an administrative operating unit and disregard the opportunity to align it with the organizations strategic plans. Conversely, in todays environment, human resource profession has evolved and continues to change from traditional human resource to strategic human resource management (SHRM); HR today performs numerous non-functional roles in the organization as it no longer operate just as an administrative unit, instead, it has now a seat at the strategic planning table (Benedict, 2008).

2. The Evolving Definition of Human Resource Management

Early definition of HRM as summarized by Dessler (1999) stated that it is the rules and activities involved in implementing human resources aspects of managing which includes recruiting, screening, training and appraising talents. On the same book, it was described as a model of personnel management concerning mobilization and development of personnel as part of the organizations resources for greater productivity. These conventional definitions of HR is applied and confined within the human resource context without placing much consideration on the external factors affecting or impacting a firm (Vosburgh, 2005). However, due to the rapid global, political, economic, cultural and legal changes in various industries, the definition of HRM and how organizations perceived its functions also changed (Benedict, 2008). According to Mathis and

Jackson (2006), we can define HRM as the system designed to ensure efficient and effective utilization of human talents in an organization to meet its goal. Supporting this definition, Hellriegel, Slocum, & Woodman (2009) termed SHRM as the process of analyzing and managing an organizations human assets to guarantee satisfaction of the organizations strategic objectives. The table below summarizes how HRM moved towards SHRM as illustrated by Vosrburg (2005). Comparison between Traditional HR and Strategic HR

Table 1 Comparison between Traditional HR and SHRM

3. Theories / Approaches in Aligning Corporate Strategy with SHRM

Theories such as matching approach, control-based approach, resource based approach and typological based approach are models which depicts link between HR capabilities, human resource strategy and business strategy (Bamber and Philips, 1991). 3.1 The matching approach states that the internal strategy of the organization must be fit with the competitive strategy; it suggests that HR should vertically integrate HR and business strategy and horizontally integrate employee and the HR policy (Tyson, 1997). The flexibility and structure of the firms depends on the growth of the organization and how employees are managed (Atkinson, 1984).

3.2 According to the control-based approach, HR activities and management configuration are instruments that may be used to control work productivity and level of profitability, it focuses on controlling and monitoring the workforces behaviour which serves as a basis in identifying various HR strategies applicable for the organization (Seyyedjavadin & Zadeh, 2009). 3.3 Resource approach as stated by Barney & Wright (1998), recognizes human capital resources as one of the vital strategic attributes that a firm may possess, particularly the key competencies of each and every employee. Sustainable competitive advantage is achieved through thorough analysis of capabilities and skills of the organization which competitors may find difficult to imitate (Barney, 1991). This approach utilises and develops key competencies of the organization; by efficiently integrating the companys asset with the competencies of the workforce, the employees effectively becomes the competitive advantage through its contribution in maintaining and developing the core capabilities of the company (Barney, Wright, 1998; Pfeffer, 1994). 3.4 The typological perspective was explained by Dyer and Holder (1998) through their example of 3 HR strategies, inducement, investment and involvement as choices for which Senior Managers can select in determining the best way to manage human resources. This approach according to Bamberger & Meshoulam (2002) is interesting to academic because theoretical models give scholars the capability to equate and differentiate various groups of HR strategy and activities and extremely improve and investigate its theories.

4. Human Resource Management Strategies

Different HR strategy is required for various kinds of employees (Seyyedjavadin & Zadeh, 2009). In the study of Lepak and Snell (2002), it was established that different types of employees requires different types of employment relationship and it takes different types of strategies to manage employees. Individually, these pool of people is not unique and can be imitated by competitors, however, HR strategies can act as an organizations core competency provided that their activities are aligned and integrated in the management system of the company (Barney & Wright, 1998). Below are the human resource strategies proposed by Leapak and Snell (1999):

4.1 Commitment Strategy According to Rousseau (1995) workforce that focuses on long term relations and internal development has high strategic value and high level of uniqueness, this enables the employees to build knowledge that would be more valuable to the organization that its competitors, resulting to experts providing valuable contributions in the organization. 4.2 Compliance Strategy This strategy outsource administrative and peripheral functions by using temporary staff, and the like, to enable the workforce to direct their development activities on skills that may contribute to the organizations competitive advantage (Tusi, 1995). 4.3 Collaborative Strategy Employees who have low strategic value yet have high level of uniqueness or firm specificity are great source of differentiation (Seyyedjavadin & Zadeh, 2009). The goal of this strategy is to hone the employees value while sustaining their uniqueness; this is best exercised through collaboration with other organizations or with other talents within the origination. When collaboration is exercised, utilization of jointly unique skills results to specialized outcome which can benefit both the employees and the company. It generates synergy without incurring additional cost for the company. 4.4 Productive Strategy Human capital acquisition is the focus of this strategy, employees with high strategic value yet low uniqueness level are considered as generic employees and these individuals are utilised for deploying skills for immediate contribution, this include creating standardized jobs to facilitate rapid replacement of employee when one leaves the company (Seyyedjavadin & Zadeh, 2009).

5. Issues in Aligning HR Strategies with Business Strategies

The radical transformations taking place in the organization and manpower has steered an evolution of traditional HRM to SHRM (Cruz, 2006). Throughout the progression of the HR profession, pressure between roles of being the business leader and the employee advocate developed, HR must serve the needs of the business while simultaneously serving the needs of the employees (Seyyedjavadin & Zadeh, 2009).

The question is, what does the upper management expect from HR, this problem does not have enough evidence to be answered factually, however, based on the journal of HR Planning (2006) entitled HR Support for Corporate Boards, it was concluded that most Boards and CEOs have limited knowledge to what HR is about, as a result they tend to focus on areas and assign tasks in which they are more comfortable and familiar (e.g. succession planning and compensation), from their perspective this simply implies HR meets our (people) needs. However, HR is not just about meeting the needs of the people, it drives change management, and this organizational resource has human capital that aligns the line management in developing and integrating business strategies for competitive advantage (Seyyedjavadin & Zadeh, 2009). However, discussing the theories and approaches in aligning SHRM to the corporate strategy will be more meaningful once the key issues faced by some organizations in integrating its HR practices with the organizational goals/strategies are identified (Ulrich, 1997). The following are some concerns faced by HR practitioners and the organization

Companies Excessively Focus on the Administrative Nature of HR These administrative tasks are the organizational activities traditionally associated with HR, such as, staffing, recruitment, performance appraisal and remuneration planning (Huselid, Jackson & Schueler, 1997; Mathis & Jackson, 2006). Though it is the building block that keeps things in order within the function of HR, once the basic administrative functions are set, HR should expand into the strategic ground and create links between departments in the company. Several successful companies outsource these administrative functions to allow HR to focus more on value-added parts related to the organization and perform more transformational roles in the organization (e.g. P&G, PepsiCo ) (Vosburgh, 2005).

Incompetent HR Professionals Any good HR professional wants to improve and be better, this begins with a desire to improve, followed by a clear understanding of what is needed to be improved (Lawler, 2011). In a study conducted by University of Michigan, School of Business, it was identified that HR practitioners must master competencies that deal both with people and business, rather than just focusing on people and its capabilities. Effective interpersonal relationships

and skills, great understanding of issues and deliverables, creating solutions that works, etc. are some examples that modern HR practitioners should consider focusing on (Seyyedjavadin & Zadeh, 2009). HR Lacks Monetary Accountability Galford (1998) emphasized that beyond the administrative functions of HR; there is no strategic monetary accountability. Aside from the role of being an integrator, it is fundamental that HR department can demonstrate its organizational value by measuring the return of investment from the cost centre (Fitzenz & Frangos, 2002). What the HR brings to the bottom line should be visible; once initiatives of the department are measurable through profits it can now then be considered as a strategic contribution to the organization, business is all about whats inside the financial sheets (Norton, 2001).

Failure to Completely Align Departmental Goals with HR Activities To create a whole greater than the sum of its parts, HR should be immersed with the overall organizational strategy, it needs to create interaction between the company and its human capital as well as be interdependent with the rest of the organization (Norton, 2001; Ray, 2011). This can be successfully done through talent management and placing the right employees on the right seat or encourage transfer of learning through job rotations, HR should explore how talent can be ignited within the organization (Gratton, 2007).

By failing to acknowledge key issues in integrating HR strategies with the corporate strategy, HR practitioners would encounter difficulty in identifying the right theory/approach and would find it challenging to implement HR strategies that would fit their organization, hence, there would be a much higher need for companies to make use of more resources in trying to meet goals, thus, incurring more cost (Vosburgh, 2005).

6. Companies which Integrated SHRM Activities with the Corporate Strategy - Samsung Electronics and Singapore Airlines
Companies which aligned its organizational and corporate strategy and successfully integrated it with its operational activities can place them in a better position compared to its competitors within the industry (Bamberger & Philips, 1991). Below are examples of companies which present how its HR activities are aligned and integrated to its corporate goals:

Company

Corporate Strategy

Singapore Airlines

Dual Strategy: Differentiation and Cost Leadership Strategy

Samsung Electronics

Low Cost Differentiation (Innovation)

Table 2 SIA and Samsung SHRM Activities

Utilised the HR Strategies through the following HR Activities Developing staff holistically Hiring the right people, culture fit to save cost in training, developing and hiring new employees Utilizes related diversification to reap cost synergies and improve quality and enable transfer of learning Job rotation to lessens training cost and encourage faster transfer of learning which improves response time and efficiency Individualized development approach, employee can choose their own training courses for their own improvement High investment in people to run the Research and Development department Investment in employees global business skills Employee development through higher education training (Socio and Techno MBA) Higher average salary than its competitors Use of performance based promotion Actively recruits foreign talents Well diversified pool of talent results to better ideas and innovation Excellent Knowledge and Talent Management Established In-House colleges for its employees Incentive Program: Merit System rather than Seniority System Extensive hiring procedure to ensure culture and work fit

SIA has consistently outperformed its competitors through its dual strategy differentiation through innovation and service excellence and cost leadership in its peer group (Heracleous & Wirtz, 2009), and HR played a very important role in achieving the business strategy, SIA recognized the importance of human capital, that it is the pool of people who would think,

implement and make its organizational goals a reality a reason why most of its corporate goals are spearheaded by the HR Management Team. Similar to SIA, Samsung Electronics recognized recruitment, talent acquisition, talent management as their means of creating industry experts to fulfil their goals of becoming innovators in the field of electronics (Hur, 2012). All of its departments have an HR expert which handles hiring,

compensation, training and the likes.

7. Conclusions

From the above reviewed literature reviews, we can conclude that uniqueness of human capital and the strategic value it can contribute in the company together with the use of organizational data and resources are important determinants in implementing strategic human resource. Strategy alone is not sufficient to gain competitive advantage, matching of employee capabilities, resources and the management of HR should be in perfect fit with the top management of the organization as a whole to achieve competitive advantage and transforming SHRM as the core competency. As the field of commerce becomes more complex, the role of human resource management becomes more crucial in understanding, aligning and integrating HR activities within the organization. Failure to identify and understand the critical crossroad where the opportunity for business strategists and HR practitioners should meet to identify the needs of the organization will prevent successful transformation of the company. In this case, to transform the HR to SHR, it must be directed towards becoming an income generating department of the organization, this can be achieved by providing a gateway for HR to have an in-depth understanding of the organizational goals and by creating synergies that would help HR align each and every operating unit of the organization. A perfect fit between capabilities and resources in an organization, a strong link

between human talent and management strategies, alignment of corporate objectives and HR activities will lead the organization to a competitive advantage as workforce as its main tool.

8. Recommendations

The following activities/practices are recommended to be able to contribute to the overall objective of the company and efficiently align corporate strategic goals with the SHR activities; Organizations should create recruitment development programmes that would support growth of the organization by pooling in world-class talent and leaders. HR and leaders should be able to clearly identify capabilities and level of uniqueness of employees to be able to create effective programmes that will continuously improve capabilities and competencies of the workforce, creating experts which will help achieve over-all success of the organization. Human resource as a department should be involved in determining key organization and industry issues and be adept in analysing current HR and business trends to be able to create an HR programme which would be best suited for the companys goals. Organizations should bring about commitment to lifelong learning and ethical practice with HR as its champion in nurturing a culture aligned with the organizational strategy. This initiative will inculcate sense of responsibility to all employees included in the value chain. Encourage information sharing and transfer of learning across all facets of the organization if applicable, this will not only give employees a better understanding of how the total operations of the company work, it will also save cost and time in training and retooling employees for future succession plans, resignations, etc.

By effectively integrating these activities in the organization, HR will now have a much deeper understanding and bigger role in achieving business goals. The organization as a whole will be more capable in handling projects and be aware of each and every function within the organization and respond to industry changes much easily. Cascading information and change management would also be easy as from the hiring process down to the continuous development, the organization is assured that theres a culture and job fit

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