STRATEGIC HUMAN RESOURCE MANAGEMENT

( MIB 108)

By : Prof. V.P.KAKKAR

MODULE I

SESSION: 1

INTRODUCTION & COURSE REVIEW

SESSION - 2

DEFINITION,NEED & IMPORTANCE

HRM DEFINED

A set of policies, practices and programmes designed to maximize both personal and organizational goals. It is the process of binding people and organization together so that objectives of each are met.

It is the planning, organizing, staffing, directing and controlling of

Human Resources , focusing at procurement, deployment,

development, appraisal, compensation, integration and maintenance of human resources to the end that individual, organizational and societal objectives are met.

STRATEGIC VIEWOF

HUMAN RESOURCES

• Employees are human assets that increase in value to the organization and the marketplace when investments of appropriate policies and programs are applied.

• Effective organizations recognize that their employees do have value, much as same as the organization’s physical and capital assets have value.

• Employees are a valuable source of sustainable competitive advantage.

Strategy determines the direction in which the organization is going in relation to its environment. It is the process of:

• defining intentions (strategic intent)

• allocating or matching resources to opportunities and needs (resource-based strategy)

• achieving strategic fit between corporate and functional strategies

• achieving competitive advantage

• developing the strategic capability of the organization which will include the ability not only to formulate strategic goals but also to develop and implement strategic plans through the process of strategic management – strategy is about implementation, which includes the management of change, as well as planning.

THE CONCEPT OF STRATEGY

Strategic HRM is an approach to making decisions on the intentions and plans of the organization concerning its recruitment, training, development, performance management, reward and employee relations strategies, policies and practices and the employment relationship generally.

The defining characteristic of strategic HRM is that it is integrated – HR strategies are integrated vertically with the business strategy and horizontally with one another. The HR strategies developed by a strategic HRM approach are essential components of the organization’s business strategy.

STRATEGIC HRM DEFINED

NEED/IMPORTANCE OF SHRM

• When adjective STRATEGIC is fixed to HRM, it puts an emphasis on the ways in which HRM contributes to the organization effectiveness in realizing organization’s strategic intents.

• It provides direction to the organization so that both, the business needs of the organization, individual and collective needs of its workforce are met. This is achieved by developing and implementing HR practices that are strategically aligned with business strategies.

• SHRM is practiced in only those organizations that have a clearly articulated

corporate or business strategies.

• An integrated approach in the design and implementation of HR systems.

• Matching HRM policies and activities with the business strategy of organization

• Viewing people as strategic resource for the achievement of competitive advantage

HIERARCHY OF STRATEGY

CORPORATE STRATEGY

BUSINESS STRATEGY

FUNCTIONALSTRATEGY

STRATEGY AT DIFFERENT LEVELS

CORPORATE STRATEGY

PURPOSE OR MISSION

SHAREHOLDER VALUE ?

STAKEHOLDER INTEREST?

ASPIRATIONAL ?

MEANS :

. GOOD PARENTING

. SELECT PORTFOLIO

. GUARD REPUTATION

COMPETITIVE STRATEGY

ATTAIN SUSTAINABLE COMPETITIVE ADVANTAGE BY:

. LEVERAGING RESOURSES

. DEVELOPING CAPABILITIES

AND

. COMPETING ON COST,OR

DIFFERENTIATING OR

OCCUPYING A NICHE

OPERATIONAL

FUNCTIONAL LEVELSTRATEGY

HR,FINANCE,PRODUCTN

MARKETING,QUALITY

Etc.

Functional Level Managers

are responsible for:

developing annual objectives

& short term implementation

Plans.

SESSION - 3

TRADIONAL HR Vs STRATEGIC HR

EVOLUTION OF SHRM

PERSONNEL MGMT

HRM SHRM

. MECHANISTIC

. BUREAUCRATIC

. HIGH CENTRALISATION

. HIGH FORMALISATION

. LOW FLEXIBILITY

. PART OF ORGANIC ORG

. CROSS HIERARICAL & CROSS FUNCTIONAL TEAMS. DECENTRALISATION. LOW FORMALISATION. FLEXIBLE. . DEVELOPMENT ORIENTED

. CONVERGENCE BETWEEN

HRM & BUSINESS STRATEGY . PROACTIVE/LONGTERM HRM PERSPECTIVE . COMPETITIVE ADVANTAGE THROUGH HUMAN RESOURCES. INVESTMENT PERSPECTIVE

TRADITIONAL HR Vs STRATEGIC HR

TRADIONAL HR STRATEGIC HR

RESPONSIBILITY HR STAFF LINE MANAGERS

FOCUS EMPLOYMENT RELATIONSHIP PARTNERSHIP WITH INTERNAL & COMPLIANCE WITH LAW & EXTERNAL CUSTOMERS

ROLE OF HR REACTIVE & TRANSACTIONAL PROACTIVE & TRANSFORMATIONAL

INITIATIVES SLOW & FRAGMENTED FAST,FLEXIBLE & INTEGRATED

TIME HORIZON SHORT TERM SHORT, MEDIUM & LONG TERM

CONTROL BUREAUCRATIC ORGANIC ( RULES,POLICIES, PROCEDURES) ( FLEXIBILITY,FEW RESTRICTIONS)

JOB DESIGN FOCUS ON SCIENTIFIC MGMT BROAD JOB DESIGN,GROUPS DIVISION OF LABOUR & TEAMS, CROSS FUNCTIONAL TRG

KEY INVESTMENTS PRODUCTS, TECHNOLOGY PEOPLE (KNOWLEDGE, SKILLS, ABILITIESACCOUNTABILITY COST CENTRE INVESTMENT CENTRE

BARRIERS TO STRATEGIC HR• SHORT TEM MENTALITY/ FOCUS ON CURRENT PERFORMANCE Reason: No Long term view of investments. More focus on performance evaluation and compensation based on sort term.• INABILITY OF HR TO THINK STRATEGICALLY Reason: insufficient management training and segmented understanding of entire business• LACK OF APPRECIATION OF WHAT HR CAN CONTRIBUTE FROM STRATEGIC

PERSPECTIVE Reason : Seeing HR function as providing unnecessary bureaucracy• FUNCTIONAL MANAGERS SEEING THEMSELVES AS HR MANAGERS Reason : Concerned more with technical aspects of their areas than huma aspects.• DIFFICULTY IN QUANTIFYING MANY HR OUTCOMES REASON: Tendency towards programs that are quantifiable rather than developmental programs.• PERCEPTION OF HR ASSETS AS HIGH RISK INVESTMENTS THAN CAPITAL ASSETS. REASON: HR assets not owned by organizations. More investment in technology & information• DISINCENTIVES FOR CHANGE REASON: Strategic approach may call for drastic changes in system. Natural resistance is there

to change initiatives. So Risk is involved as these changes might fail MOST OF ABOVE BARRIERS ARE ROOTED IN CULTURE OF AN ORGANISATION ( Organizations history, values and management practices act as act as barriers to change

initiatives. Overcoming these barriers is the real challenge of STRATEGIC HRM )

SESSION - 4

INTEGRATING HR STRATEGY

WITH

BUSINESS STRATEGY

SEQUENTIAL STRATEGIC HRM MODEL

EXTERNALENVIRONMENT

SCAN

VISIONMISSION

BUSINESSSTRATEGY

HRSTRATEGIC

PLANS

HRIMPLEMENTA

-TIONPLANS

INTERNALENVIRONMENT

SCAN

INVESTMENT PERSPECTIVE OF HR(How best to invest in its people )

• RESOURCE BASED VIEW ( VRIO FRAMEWORK ) value , rareness , limitability & organization

• ENHANCING HUMAN CAPITAL collective skills, knowledge & capabilities

• TRADITIONAL COST VIEW : HR related budget ( salaries, training etc.. )

• STATEGIC VIEW : Employees as valuable investments In knowledge economy : Knowledge is important (not goods, services or technology ) for all economic activities.

• INVESTMENT IN HUMAN RESOURCES IMPORTANT for getting competitive advantage to keep pace with changing technologies & processes

• COST OF TRG & OTHER INVESTMENTS to be constantly reviewed against benefits.

• RISKS INVOLVED : Enhanced employability of employees that makes them more desirables to competitors.

SESSION - 5

COMPETING APPROACHES

&

MODELS

COMPETING APPROACHES AND MODELS

SHRM

FITPERSPECTIVE

FUNCTIONALPERSPECTIVE

ECONOMICPERSPECTIVE

TYPOLOGICALPERSPECTIVE

Human resources to be

Integrated withStrategic plg

Each functionalarea optimize performance wrtBusiness Strategy

To use Human Resourcesas distinguishableSource of competitiveadvantage

Use of 3 distinctHR Strategies. Inducement. Investment. Involvement

INDUCEMENT STRATEGY: To support highly competitive Business environment Focus on cost & high performance

INVESTMENT STRATEGY : Focus on Quality , differentiation and service

PARTICIPATION / INVOLVEMENT STRATEGY: Focus on providing autonomy , challenge & opportunities for participation with suitable reward system

RELATIONSHIP BETWEEN BUSINESSAND HR STRATEGIES

• THREE TYPES OF BUSINESS STRATEGIES ARE ADOPTED BY ORGANISATIONS: COST LEADERSHIP , DIFFERENTIATION & FOCUS

• HR STRATEGIES ARE OUTCOME OF GENERAL SHRM APPROACH• FOR WINNING A SUSTAINABLE GLOBAL COMPETITIVE ADVANTAGE, A

PERFECT STRATEGIC FIT IS REQUIRED TO BE CREATED BETWEEN BUSINESS STRATEGIES AND HR STRATEGIES

Following 5 types of strategic fits are generally adopted:BEST FIT APPROACH( STRATEGIC FIT APPROACH): Also called external fit or

vertical integration with business strategies. HR strategies should match stages of development of firm ie need for different types of people as well as diverse approaches towards investment in HUMAN CAPITAL.

FIT AS CONTIGENCY( BEST FIT APPROACH) : HR approaches to ensure that internal practices of organization respond to external factors : market, skill availability est.'s per contingency of situation

FIT AS AN IDEAL SET OF PRACTICES( BEST PRACTICE APPROACH) Identifying any organization as benchmark which has reputation for excellence

and copying its practices.FIT AS BUNDLES (BUNDLING APPROACH) : Development and implementation of

several HR practices together so that they are interrelated and internally consistent. Each HR practice reinforces and complements the other. Also termed as internal fit oe Horizontal integration.

APPROACHES TO STRATEGIC HRM

Strategic fit – vertical fit or integration is necessary to provide congruence between business and human resource strategy so that the latter supports the accomplishment of the former and, indeed, helps to define it. Horizontal integration with other aspects of the HR strategy is required so that its different elements fit together. The aim is to achieve a coherent approach to managing people in which the various practices are mutually supportive.

Best practise – the unfounded belief that there is a set of best HRM practices and that adopting them will lead to superior organizational performance.

Best fit – the belief that there can be no universal prescriptions for HRM policies and practices. It is all contingent on the organization’s context and culture and its business strategy – best fit is better than best practise.

‘Bundling’ – the belief that improved organizational performance will be achieved by developing inter-related HR practices which, when they are linked together, will function more effectively by complementing and supporting one another than if they existed as separate entities.

Resource-based strategic HRM (ECONOMIC PERSPECTIVE)– sustained competitive advantage stems from the acquisition and effective use of bundles of distinctive resources that competitors cannot imitate. (Barney, 1991). This is achieved by developing HR strategies and policies which increase the resource capability of the organization by ensuring that (1) it has higher quality people than its competitors (2) the unique intellectual capital possessed by the business is developed and nurtured (3) organizational learning is encouraged and (4) organization-specific values and a culture exist which ‘bind the organization together (and) gives it focus’ (Purcell et al, 2003).

MACKENZIE’S 7S MODEL

STRATEGY

SKILLS

STRUCTURE

SHAREDVISION

HUMAN SOURCESRE

SYSTEMS

STYLE

COMPETING APPROACHES

INTEGRATED SYSTEMS MODEL ( RAO & PARREK )

• Has development of motivated. Capable, dynamic & committed people at its core• HRD systems are designed to work as an integrated system in line

with corporate plans

( For Synergistic benefits of an integrated systems )

• HRD SYSTEMS :

CAREER SYSTEMS :

APPRAISAL SYSTEMS: Performance and potential appraisals

TRG. SYSTEM S: Separate For all category of employees

WORK SYSTEMS: Task analysis, QWL, Stress management, productivity & Quality etc.

CULTURAL SYSTEMS : Most neglected , Includes development of octapace culture,Reward systems etc.

SELF RENEWAL SYSTEMS; Research. Survey feedback etc.

SESSION - 6

STRATEGIC PLANNING IN SBUs, MNCs

&

TRANSNATIONAL COMPANIES

SINGLE COUNTRY, EXPORT & INTERNATIONAL STRATEGY

Y

THE CENTRE

SUBSIDIARYS3

SUBSIDIARYS1

SUBSIDIARYS2 SUBSIDIARY

S4

FIRM A OPERATESIN COUNTRY X

FIRM AOPERATESIN COUNTRY X

EXPORT TO COUNTRY YSINGLE COUNTRY STRATEGY

INTERNATIONAL STRATEGY

EXPORT STRATEGY

GLOBAL STRATEGY

THE CENTRESUBSIDIARY

S6

SUBSIDIARYS5

SUBSIDIARYS1

SUBSIDIARYS2

SUBSIDIARYS3

SUBSIDIARYS4

International Imperative• Why organizations expand internationally

– To capture enhanced market opportunities that foreign countries may present

– To achieve economies of scale in production and administration by expanding scope and volume of operations to international markets

– Keeping up with industry leaders may require organization to enter foreign markets

– Acquiring ownership of foreign-based organization or subsidiary

How International & Domestic HRM Differ

• International HRM requires– Managing broader range of functional areas– Becoming more involved in employees’ personal

lives– Setting up several different HRM systems for

different geographic locations– Dealing with more complex external constituencies

– Participating in international assignments that have heightened exposure to personal risk

International Expansion

• Strategies for expanding internationally– Exporting locally produced goods to host

country– Subcontracting or licensing production of

certain goods or services to foreign partner– Entering into joint venture with foreign

partner– Setting up operations (making a direct

investment) in form of foreign branch or subsidiary

Strategic HR Issues in Global Assignments

• Approaches to sending employees abroad– Administrative approach

• Assisting employee destined for international assignment with paperwork and minor logistics

– Tactical approach

• Managing “risk or failure” factor of overseas assignment by providing paperwork assistance and modest amount of training

– Strategic approach • Extensive support and coordination of international

assignment, and strategized repatriation program at the end of the assignment

Strategic HR Issues in Global Assignments

Strategic management of global assignments1. Establish specific purpose for assignment

2. Select appropriate employee for assignment

3. Organizational and individual purposes for assignment must be identified and matched

4. Assess adaptability to host culture of both employee and any family members who will be accompanying employee

5. Provide appropriate training for employee and family members

6. Simultaneous training should be conducted for headquarters staff

Four Approaches to IHRM

Make strategic decision as to level of standardization desired across locations– Ethnocentric approach

• Exporting organization’s home country practices and policies to foreign locations

– Polycentric approach • Allowing each location to develop own practices and policies

– Regiocentric approach • Developing standardized practices and policies by geographic region

– Geocentric approach • Developing one set of global practices and policies applied at all

locations

STRATEGIC PLANNING IN SBU’s

• Strategic HRM can play an important role at SBU’s level.

• E.g. SBU’s marketing group may identify an opportunity during its planning process. Marketing planners then develop alternate strategies for exploiting the opportunities.

• Representatives from other functional areas make inputs on resource requirements, strengths and weaknesses

• HR depts. would be expected to provide an analysis of staffing implications of each and Inputs from all are submitted to corporate top management for approval and funding.

• Suitable HR strategies ( Policies & Practices ) in line with business strategies are developed and implemented

STRATEGIC PLANNING IN MNCs

INTERNATONAL STRATEGY: for companies that operate in countries chosen for

their individual profit potential. All activities related to design, production and marketing

are then performed in each of these countries. These are called value chain activities.

MULTI DOMESTIC STRATEGIES customize the product and its marketing to the unique

preferences of each country.

Multinational or Multi domestic companies provide power advantage in dealing with unionized workers but do not produce economies of scale of Global companies

GLOBAL STRATEGIES: Produce standardized products with different activities such bas design and production being located indifferent countries, depending on labor, cost, skills or other strategic advantages.

With Global strategies, economies of scales are obtained by maintaining only few different product models as a result lower cost and higher quality are obtained. Greater coordination is required . It is important to locate each of the value chain activities where there is world class labor in terms of cost or skills.

TRANSNATIONAL STRATEGIES: Companies compete in global market place through the use of networks and strategic alliances

IHRM Vs DOMESTIC HRM

IHRM DOMESTIC HRM• Addresses a broad range of HRM activities Addresses to Narrow range of HRM

activities

• HR issues relate to employee belonging Relate to employees belonging to

to more than one nationality single nationality

• Greater involvement of HR managers Limited involvement

in the personal life of employee.

• Greater exposure to risks, in International Limited risk

assignments ( Such as wrong selection

of manager to be posted abroad .

• Has to manage several external factors Limited external factors to deal with.

SESSION - 7

GLOBALIZATION OF BUSINESS

&

HR CHALLENGES

GLOBALISATION OF BUSINESS& HR CHALLENGES

• Major env. Change in last 15 yrs – GLOBALISATION• World becoming global village & business becoming Global in character• Increased business opportunities in marketing and production.NEW CHALLENGES FOR HR MANAGERS:• Domestic firms competing with foreign companies. There is High level of cost

consciousness and competitive pressures• Multinational companies require employees who can adopt to different cultures,

customs, social practices, values, economic and political systems, management approaches and who can work with other employees with different

backgrounds.• To ensure that employees with requisite knowledge ,skills, abilities and cultural

adaptability are available to be successful in global assignments.• Focusing increasingly on employee productivity• Developing diverse training programmes.• Developing HR initiatives directed to workforce diversity.• Identifying and training expatriate managers to develop them into Global Managers for overseas assignments.• Developing equitable pay plans for individuals working in different countries.• Managing a Global workforce, focus on cost, differentiation & quality to enhance competitiveness and ensuring legal compliance while conducting business abroad.

GLOBALISATION

• Concerned with degree of standardization of products and practices plus high level of co-ordination and integration of activities in the company’s

value chain.• Offers extensive opportunities for worldwide development and getting

integrated to global economy.• For developing countries, it offers prospects of integration with rest of developed economy.• In economic terms , It’s the process of integration of world into one huge

market.• It is a process not an event. It has no beginning or end.• It is fast becoming imperative for modern business due to: 1) crumbling trade barriers 2) global flow of capital & technology 3)Information explosion 4) Intensity of global market competition 5) Changing life styles and demand for innovative products etc…• It offers free flow of information, goods, capital & people across political and

economic boundaries and is a process by which enterprises become interdependent and interlinked globally.

CHALLENGES OF LEADING AN ORGANISATION ( STRATEGIC LEADERSHIP )

• Influence the behavior of subordinates so that they work willingly & enthusiastically towards attainment of organizational goals.• Situational leadership as per contingency of situation.• Tasks involved include : Anticipating, Envisioning, Empowering, Direction. Growth & development, in addition to planning, organizing, staffing.

directing, coordinating & controlling skills• Determining strategic direction : Core ideology & future shape• Effectively managing organization resource portfolio ( Financial capital, organization

capital, Social capital & Human capital )• Sustaining an effective organization culture ( OCTAPACE CULTURE )• Charisma, vision , Drive, Desire to lead, Honesty & Integrity, Self – confidence,

intelligence, Job related knowledge , Energetic, assertive & sociable• To lead from front and be a role -model.• Sustaining a definite direction, growth, development & competitive advantage for

realizing its vision, goals & objectives in a global competitive environment.• Encouraging participation, recognition and maintaining high morale of employees at all times.• Suitable reward & punishment system for Ethical/Unethical behavior.

Managing Global Workforce: Challenges and Strategies

• Challenges:– Deployment in getting right skills to right place in

organization, regardless of geographic location– Knowledge and innovation dissemination and

transfer, where all business units concurrently receive and provide information

– Talent identification and development of those employees with abilities and skills to function effectively in global organization

Managing Global Workforce: Challenges and Strategies

• Strategies for managing global workforce– Develop aspatial careers for employees to provide rich

contextual knowledge of environments and cultures. Provide specific awareness building assignments that develop cross-sensitivity in high potential employees in short time

– Utilize expert SWAT teams deployed on short-term basis for operational problems technical projects

– Adopt virtual solutions by using electronic communication technologies to connect local employees to distant problems

Diagnosing Challenges

• Deployment challenge– Contact time required– Extent to which skills can be applied out of cultural

context

• Knowledge and innovation dissemination challenge– Choosing among four strategies depends on technical

complexity of information to be shared, and extent to which it must be culturally embedded

• Talent identification and development challenge– Organizations should select well, then develop

SESSION - 8

SYNDICATE DISCUSSIONS ASSIGNMENT - 2

Q1. Why is a competitive advantage based on heavy investment in human resources more sustainable than investment in other type of assets ?

Q2. Do pressures on cost containment work against effective management of people?

Q3. Discuss strategic role of HRM in today’s competitive environment ?