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This factsheet gives introductory guidance. It:
* defines strategic human resource management (HRM)
* examines the difference between strategic HRM and HR strategy
* looks at relationships between strategic HRM, and business strategy and human capital management
* considers the impact of strategic HRM on business performance
* includes the CIPD viewpoint.
What is strategic human resource management?
Strategic human resource management is a complex process which is constantly evolving and being studied and discussed by academics and commentators. Its definition and relationships with other aspects of business planning and strategy is not absolute and opinion varies between writers. The definitions below are from the CIPD book Strategic HRM: the key to improved business performance1 within which there is comprehensive coverage of the various definitions and approaches to HRM, strategy and strategic HRM.
Strategic HRM can be regarded as a general approach to the strategic management of human resources in accordance with the intentions of the organisation on the future direction it wants to take. It is concerned with longer-term people issues and macro-concerns about structure, quality, culture, values, commitment and matching resources to future need. It has been defined as:
* All those activities affecting the behaviour of individuals in their efforts to formulate and implement the strategic needs of business.2
* The pattern of planned human resource deployments and activities intended to enable the forms to achieve its goals.3
Strategic HRM can encompass a number of HR strategies. There may be strategies to deliver fair and equitable reward, to improve performance or to streamline structure. However, in themselves these strategies are not strategic HRM. Strategic HRM is the overall framework which determines the shape and delivery of the individual strategies.
Boxall and Purcell4 argue that strategic HRM is concerned with explaining how HRM influences organisational performance. They also point out that strategy is not the same as strategic plans. Strategic planning is the formal process that takes place, usually in larger organisations, defining how things will be done. However strategy exists in all organisations even though it may not be written down and articulated. It defines the organisation’s behaviour and how it tries to cope with its environment.
Strategic HRM is based on HRM principles incorporating the concept of strategy. So if HRM is a coherent approach to the management of people, strategic HRM now implies that that is done on a planned way that integrates organisational goals with policies and action sequences.
Strategic HRM and business strategy
A good business strategy, one which is likely to succeed, is informed by people factors. One of the driving factors behind the evaluation and reporting of human capital data is the need for better information to feed into the business strategy formulation process.
In the majority of organisations people are now the biggest asset. The knowledge, skills and abilities have to be deployed and used to the maximum effect if the organisation is to create value. The intangible value of an organisation which lies in the people it employs is gaining recognition by accountants and investors, and it is generally now accepted that this has implications for long term sustained performance.
It is therefore too simplistic to say that strategic human resource management stems from the business strategy. The two must be mutually informative. The way in which people are managed, motivated and deployed, and the availability of skills and knowledge will all shape the business strategy. It is now more common to find business strategies which are inextricably linked with and incorporated into strategic HRM, defining the management of all resources within the organisation.
Individual HR strategies may then be shaped by the business strategy. So if the business strategy is about improving customer service this may be translated into training plans or performance improvement plans.
Strategic HRM and human capital management
A number of writers have argued that strategic HRM and human capital management (HCM) are one and the same thing, and indeed the concept of strategic HRM matches that of the broader definition of HCM quite well as the following definition of the main features of strategic HRM by Dyer and Holder shows5:
* Organisational level - because strategies involve decisions about key goals, major policies and the allocation of resources they tend to be formulated at the top.
* Focus - strategies are business-driven and focus on organisational effectiveness; thus in this perspective people are viewed primarily as resources to be managed toward the achievement of strategic business goals.
* Framework - strategies by their very nature provide unifying frameworks which are at once broad, contingency-based and integrative. They incorporate a full complement of HR goals and activities designed specifically to fit extant environments and to be mutually reinforcing or synergistic.
This argument has been based on the fact that both HRM in its proper sense and HCM rest on the assumption that people are treated as assets rather than costs and both focus on the importance of adopting an integrated and strategic approach to managing people which is the concern of all the stakeholders in an organization not just the people management function. However, the concept of human capital management complements and strengthens the concept of strategic HRM rather than replaces it1. It does this by:
* drawing attention to the significance of ‘management through measurement’, the aim being to establish a clear line of sight between HR interventions and organizational success
* providing guidance on what to measure, how to measure and how to report on the outcomes of measurement
* underlining the importance of using the measurements to prove that superior people management is delivering superior results and to indicate the direction in which HR strategy needs to go
* reinforcing attention on the need to base HRM strategies and processes on the requirement to create value through people and thus further the achievement of organizational goals
* defining the link between between HRM and business strategy
* strengthening the HRM belief that people are assets rather than costs
* emphasising role of HR specialists as business partners.
Hence both HCM and HRM can be regarded as vital components in the process of people management and both form the basis for achieving human capital advantage through a resource-based strategy.
An alternative way of looking at the relationship between strategic HRM and human capital is in terms of the conversion of human capital into organisational value. Human capital evaluation is useful in that it provides information about the current and potential capabilities of human capital to inform the development of strategy. Business success will be achieve if the organisation is successful at managing this human capital to achieve this potential and embed it in products and services which have a market value.
Strategic HRM could therefore be viewed as the defining framework within which these evaluation, reporting and management process take place and ensure that they are iterative and mutually reinforcing. Human capital therefore informs and in turn is shaped by strategic HRM but it does not replace it.
Strategic HRM and business performance
Since the mid 1990s, CIPD and others have been generating evidence for the impact of people management practices on business performance. Much emphasis has been put on the importance of ‘fit’. In other words it is argued that HR strategies much fit both with each other and with other organisational strategies for maximum impact. The main areas of practice which all the researchers agreed have an impact on performance are around job design and skills development.
However, CIPD work found that practices alone do not create business performance. They can create ‘human capital’ or a set of individuals who are highly skilled, highly motivated and have the opportunity to participate in organisational life by being given jobs to do. However, this will only feed through into higher levels of business performance if these individuals have positive management relationships with their superiors in a supportive environment with strong values. All these factors will promote ‘discretionary behaviour’, the willingness of the individual to perform above the minimum or give extra effort. It is this discretionary behaviour that makes the difference to organisational performance.
The ‘people and performance model’ generated from CIPD-sponsored work at Bath University6 emphasised the importance of individual HR strategies which must fit with each other operating in a strategic framework which incorporates both people and business issues.
It is useful for all organisations to management their people within a planned and coherent framework which reflect the business strategy. They can ensure that the various aspects of people management are mutually reinforcing in developing the performance and behaviours necessary to achieve business success.
There is not single HRM strategy that will deliver success in all situations. Organisations need to define a strategy which is unique to their own situation in terms of context, goals, and the demands of organisational stakeholders. CIPD members will find our tool on HR strategy will be useful in carrying out such an activity.
* Go to our tool on HR strategy
1. ARMSTRONG, M and BARON, A. (2002) Strategic HRM: the key to improved business performance. Developing practice. London: Chartered Institute of Personnel and Development.
2. SCHULER, R.S. (1992) Strategic human resource management: linking people with the needs of the business. Organizational Dynamics. Vol 21, No 1. pp18-32.
3. WRIGHT, P.M. and MCMAHAN, G.C. (1992) Theoretical perspectives for SHRM. Journal of Management. March. pp215-247.
4. BOXALL, P. and PURCELL, J. (2003) Strategy and human resource management. Basingstoke: Palgrave Macmillan.
5. DYER, L. and HOLDER, G. Strategic human resource management and planning. In: DYER, L. (ed) (1998) Human resource management: evolving roles and responsibilities. Washington DC: Bureau of National Affairs.
6. PURCELL, J., KINNIE, N. and HUTCHINSON, S. (2003) Understanding the people and performance link: unlocking the black box. London: Chartered Institute of Personnel and Development. Available at http://www.cipd.co.uk/bookstore