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Strategic Human Resource

Management

Learning Outcomes

• By the end of this module you will be able to:

• Explain the purpose of strategic planning in an

organisation

• Demonstrate the ability to explain the

importance of people in the achievement of

strategic change

• Understand the key areas of human behaviour

in sustained organisational performance

A DEFINITION OF STRATEGY

Strategy is the direction and scope of an

organisation over the long term which

achieves advantage for the organisation

through its configuration of resources within

a changing environment to meet the needs

of markets and to fulfil stakeholder expectations.

Johnson & Scholes (1999)

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Key Words

• Direction & Scope

• Long Term

• Advantage

• Configuration of Resources

• Changing Environment

• Stakeholder Expectations

LEVELS OF STRATEGY (1)

Corporate Level strategic decisions are

concerned with:

• overall purpose and scope

• adding value to shareholder investment

• portfolio issues

• resource allocation between Strategic

Business Units (SBUs)

• structure and control of SBUs

• corporate financial strategy

LEVELS OF STRATEGY (2)

Business Unit Strategy is concerned

with:

• competitive strategy

• developing market opportunities

• developing new products/services

• resource allocation within the SBU

• structure and control of the SBU

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LEVELS OF STRATEGY (3)

Operational Strategies are concerned

with:

• the integration of resources, processes,

people and skills to implement strategy

STRATEGIC MANAGEMENT IN

DIFFERENT CONTEXTS In small businesses, the importance of:

• the expectations of individuals (e.g.

owners and founders)

• competitive positioning

In the multi-national corporation, the

importance of:

• product and geographic scope

• portfolio decisions

• corporate structure and control

What is strategic human resource

management?

• Strategic human resource management may be

regarded as an approach to the management of

human resources that provides a strategic

framework to support long-term business goals

and outcomes. The approach is concerned with

longer-term people issues and macro-concerns

about structure, quality, culture, values,

commitment and matching resources to future

need.– Institute of Personnel & Development 2012

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Exhibit 2.2 Patterns of strategy development

Continuity Incremental Flux Transformational

Exhibit 2.12 The risk of strategic drift

Time

Am

ou

nt o

f ch

an

ge

Phase 1 Phase 2 Phase 3/4

Incremental change Flux Transformationalchange or demise

Strategic

change

Environmental

change

1

5

2

3

4

5

External Analysis

• PEST

Internal Analysis

• Resource analysis

– Physical resources

– Financial resources

– Human resources

– Intangible resources

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SWOT

• Internal and external analysis leads to a

complex assessment of the organisations

position

Understanding the organisation’s

competitive position

• Some tools:

• Portfolio Analysis

• Porter’s 5 Forces

• Lifecycle

• Value Chain

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8

Porter’s Five Forces

• Michael Porter argued that an

organisation’s competitive position was

determined by five key factors

Porters 5 Forces

• Threat of new entrants

• Bargaining Power of buyers

• Threat of substitute products and services

• Bargaining Power of suppliers

• Rivalry among existing Firms

Potential

entrants

Threat of

entrants

BuyersSuppliers

Bargaining

power

Bargaining

power

Substitutes

Threat of

substitutes

COMPETITIVE

RIVALRY

Source: Adapted from M.E. Porter, Competitive Strategy, Free Press, 1980, p.4. Copyright by the Free Press, a division of Macmillian Publishing Co., Inc. Reproduced with permission

Exhibit 3.6 Five forces analysis

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FIVE FORCES ANALYSIS

Competitive Rivalry is high when:• entry is likely

• substitutes threaten

• buyers or suppliers exercise control

• competitors are in balance

• there is slow market growth

• global customers increase competition

• there are high fixed costs in an industry

• markets are undifferentiated

• there are high exit barriers

FIVE FORCES ANALYSIS: KEY

QUESTIONS AND IMPLICATIONS

• What are the key forces at work in the

competitive environment?

• Are there underlying forces driving competitive

forces?

• Will competitive forces change?

• What are the strengths and weaknesses of

competitors in relation to the competitive forces?

• Can competitive strategy influence competitive

forces (e.g. by building barriers to entry or

reducing competitive rivalry)?

• Michael Porter speaks about 5 Forces

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Firm infrastructure

Human resource management

Technology development

Procurement

Support

activities

Primary activities

Inbound

logistics

Operations Outbound

logistics

Marketing

and sales

Service

Exhibit 4.4 The value chainSource: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1985. Used with permission of The Free Press, a division of Macmillan, Inc. Copyright 1985 Michael E. Porter

Supplier

value chains

Customer

value chains

Channel

value chains

Organisation’s

value chain

Exhibit 4.5 The value systemSource: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1985. Used with permission of The Free Press, a division of Macmillan, Inc. Copyright 1985 Michael E. Porter

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Same as competitors’

or easy to imitate

Better than competitors’

anddifficult to imitate*

Necessary

resources

Core competences

Unique resources

Threshold

competences

* Provides the basis to outperform competitors or

demonstrably provide better value for money

RESOURCES

COMPETENCES

Exhibit 4.2 Resources, competences and competitive advantage

IDENTIFYING CORE

COMPETENCES (1)Competences may exist for:

• Reducing cost

– continual cost reduction

– economies of scale or scope

– control and co-ordination

– factor costs

• Identifying

– marketing skills and experience

– marketing culture

IDENTIFYING CORE

COMPETENCES (2)• Adding value

– customer culture

– value assurance

– value enhancement

– innovation

They may be core competences if they

support / enhance competitive advantage

and are difficult to imitate.Source: After Faulkner and Bowman: The Essence of Competitive Strategy: Prentice Hall, 1995

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SUSTAINABILITY OF

COMPETITIVE ADVANTAGEDepends on:

• Robustness of the competences

• Extent to which they can be imitated

• Extent to which they are embedded in

routines, tacit knowledge and culture

COMPETENCES AND CORE

COMPETENCES• Competences exist in activities

• Resources are deployed to create competences

• Core competences underpin competitive

advantage

– only some competences are core

– core varies with strategy

– core varies with time

– core can be exploited in several ways

• Mismatches resolved by

– changing core competences

– changing strategy

Identifying competences

Value chain analysis

Organisational

competences

Bases of competences

Cost

efficiencyValue

added

Managing

linkagesRobustness

Exhibit 4.3 Analysing competences and core competences

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Porter’s Generic Strategies

Porter then states there are three

generic strategies

1. Overall Cost Leadership

2. Differentiation

3. Focus

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Exhibit 6.4a The strategy clock: Bowman’s competitive strategy options

2

4

53

1

8

7

6

Differentiation

Focused

differentiationHybrid

Low

Price

‘No frills’

Strategies

destined for

ultimate failure

High

Low

Low High

PERCEIVED

ADDED

VALUE

PRICE

Position

1 ‘No frills’

2 Low price

3 Hybrid

4 Differentiation

a) Without price premium

b) With price premium

5 Focused differentiation

6 Increased price/standard value

7 Increased price/low value

8 Low value/standard price

Needs / risks

Likely to be segment specific

Risk of price war and low margins/need

to be cost leader

Low cost base and reinvestment in low

price and differentiation

Perceived added value by user, yielding

market share benefits

Perceived added value sufficient to bear

price premium

Perceived added value to a particular

segment, warranting price premium

Higher margins if competitors do not

follow/risk of losing market share

Only feasible in monopoly situation

Loss of market share

Bowman uses the dimension ‘Perceived Use Value’

Dif

fere

nti

ati

on

Lik

ely

fail

ure

Exhibit 6.4b The strategy clock: Bowman’s competitive strategy options

• Alaska Case

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Exhibit 11.1 A framework for managing strategic change

Types of strategic change

Diagnosing strategic

change needs

Managing strategic change

processes

Roles in the change process

Symbolic

processes

Communicating

change

Change tactics

Political

processes

Styles of

managing change

Structure and

control

Changing

routines

Exhibit 11.3 ‘Unfreezing’ and the management of change

Unfreezing

mechanisms

Experimentation

Organisational

anticipation

Organisational flux

Information building

Refreezing (the signalling

or confirmation of change)Sustaining change

• Questions and

challenges

• ‘Felt need’ for

change

• Competing

views of causes

of problems and

remedies

• Information

collection

• Political ‘testing’

of support

• New ideas

tested out

• Early signals made

sense of within

paradigm

• Political pressures not

to ‘rock the boat’

• Attempts to reconcile

competing views within

current paradigm

• Information made sense

of within paradigm

• Resistance to new

ideas

ORGANISATIONAL

‘SYMPTOMS’

PRESSURES FOR

CONFORMITY

STAGES

or

MANAGING EVERYDAY ASPECTS

OF STRATEGIC CHANGE

FORMAL SYSTEMS

Senior executives

are often over reliant on

structure and control

to effect change

MANAGING Means MANAGING

STRATEGY CHANGE

Managing everyday

aspects of

organisational life

is central to

effecting change

EVERYDAY

REALITIES

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Reading

• http://www.palgrave.com/business/bratton

andgold/docs/bgcha02.pdf

Strategic Role of HR Management

• Organisational human resources have grown as

a strategic emphasis because effective use of

people in the organisation can provide a

competitive advantage, both domestically and

abroad. The strategic role of HR management

emphasises that the people in an organisation

are valuable resources representing significant

organisational investments. For HR to play a

strategic role it must focus on the longer-term

implications of HR issues.

• Strategic human resource management may be regarded as an approach to the management of human resources that provides a strategic framework to support long-term business goals and outcomes.

• The approach is concerned with longer-term people issues and macro-concerns about structure, quality, culture, values, commitment and matching resources to future need.

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• The issue of strategic HRM initially came to prominence during around the early 1990s, at which time academics developed definitions of strategic HRM as:– The undertaking of all those activities affecting the

behaviour of individuals in their efforts to formulate and implement the strategic needs of business.• SCHULER, R.S. (1992) Strategic human resource management: linking people with the needs of the business. Organizational Dynamics. Vol 21, No

1. pp18-32.

– The pattern of planned human resource deployments and activities intended to enable the organisation to achieve its goals.• WRIGHT, P.M. and MCMAHAN, G.C. (1992) Theoretical perspectives for SHRM. Journal of Management. March. pp215-247.

• Strategic HRM can encompass a number

of individual HR strategies. For example,

there may be strategies:

• to deliver fair and equitable reward

• to improve employee performance

• to streamline organisational structure.

• However, in themselves these strategies are not

strategic HRM. Rather, strategic HRM is the

overall framework that determines the shape

and delivery of the individual strategies.

• Boxall and Purcell assert that strategic HRM is

concerned with explaining how HRM influences

organisational performance. They also argue

that strategy is not the same as strategic

planning because:• BOXALL, P. and PURCELL, J. (2003) Strategy and human resource management.

Basingstoke: Palgrave Macmillan

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• Strategic planning is the formal process that takes place, usually in larger organisations, defining how things will be done.

• Strategy, by contrast, exists in all organisations - even though it may not be written down and articulated - and defines the organisation’s behaviour and how it attempts to cope with its environment.

• A good business strategy, one that is likely

to succeed, is informed by people factors.

One of the driving factors behind the

evaluation and reporting of human capital

data (see below) is the need for better

information to feed into the process of

formulating business strategy.

• In the majority of organisations, people are now recognised as the biggest asset. Their knowledge, skills and abilities must be deployed to the maximum effect if the organisation is to create value.

• The intangible value of an organisation relating to the people it employs is gaining recognition among accountants and investors, and it is generally now accepted that this has implications for long-term sustained performance.

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Links with workforce planning

• Effective workforce planning is an essential element in the management of people to meet the future skills needs of any organisation to support its long-term business goals.

• There has recently been a renewed interest in this issue, largely driven by the realisation that in a fast-changing economy some degree of planning is vital to ensure the organisation is developing sufficient capacity to adapt to new trends and take advantage of emerging opportunities.

Strategic HRM and Human Capital

Management(HCM)

• Human capital may be defined as people

at work and their collective knowledge,

skills, abilities and capacity to develop and

innovate.

• Both strategic HRM and HCM, then, rest

on the assumption that people are treated

as assets rather than costs, and both also

focus on the importance of adopting an

integrated and strategic approach to

managing people - which is the concern of

all the stakeholders in an organisation, not

just the people management function.

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Strategic Role of HR Management

• Organisational human resources have grown as a strategic emphasis because effective use of people in the organisation can provide a competitive advantage, both domestically and abroad.

• The strategic role of HR management emphasizes that the people in an organisation are valuable resources representing significant organisational investments.

• For HR to play a strategic role it must focus on the longer-term implications of HR issues.

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MANAGING STRATEGIC CHANGE

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Alignment

• Perceptions of consistency, fit, links or

integration between the values,

behaviours or objectives of different

stakeholders, both internal and external

and with the organisation purpose.

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Shared purpose

• An organisation’s purpose is its identity,

the reason why it exists and the golden

thread to which its strategy should be

aligned. Shared purpose takes the

connection with the organisational purpose

one step further to be shared by all

employees and often beyond, to include

external stakeholders.

Leadership

• Senior leaders articulate a future-oriented

vision in an appropriate style that informs

decision-making and empowers

employees to achieve organisational

effectiveness. The ability to lead, however,

is not confined to senior leaders and can

be demonstrated at all levels.

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Locus of engagement

• People can be engaged at different levels

and with various aspects of the

organisation or the work and their

engagement can be transactional or

emotional in nature.

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Assessment and evaluation

• The processes that occur at different

organisational levels to gather qualitative

and quantitative information, to assess the

impact of actions and inform decision-

making.

Balancing short- and long-term

horizons

• Active awareness, management and communication of both known and unknown organisational issues and pressures affecting the short term (of less than a one-year timeframe) while maintaining an active focus on longer-term priorities (with longer than a one-year timeframe)

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Agility

• The ability to stay open to new directions

and be continually proactive, helping to

assess the limits or risks of existing

approaches and ensuring that leaders and

followers have an agileand change-ready

mindset to enable them, and ultimately the

organisation, to keep moving, changing,

adapting.

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Capability-building

• Equipping the people in the organisation

with the skills and knowledge they need to

meet both present and future challenges.

Also identifying existing necessary and

potential capabilities, ensuring they are

accessible across the organisation.

Capability-building applies not only to

individuals, but also to teams and

organisations.