Strategic Human Resource Management
Before we try to explain the meaning of strategic HRM, let us first define the terms ‘strategy’ and ‘strategic management’. The term ‘strategy’ is widely used in and presupposes importance. In the words of the Oxford Concise Dictionary, strategy means ‘generalship’. Thus, strategy is associated with the long-term decisions taken at the top of the enterprise. The original literary meaning of strategy is ‘the art and science of directing military forces’.
The term strategy is frequently being used in the present-day corporate world. It envisages thinking ahead to survive and grow in a highly competitive environment’. Strategy is concerned with determining which option will provide maximum benefits. According to Jauch and Glueck.
“Strategy is a unified, comprehensive and integrated plan that relates the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved through proper execution by the organisation.”
Basically any strategic process can be broken down into two phases:
- Strategy formulation
- Strategy implementation
Strategic formulation is concerned with making decisions with regard to defining the organisation’s vision and mission, establishing long- and short-term objectives to achieve the organisation’s vision and selecting the strategy to be used in achieving the organisation’s objectives.
Strategic implementation is concerned with aligning the organisation structure, systems and processes with the chosen strategy. It involves making decisions with regard to matching strategy and organisational structure and providing organisational leadership pertinent to the strategy and monitoring the effectiveness of the strategy in achieving the organisation’s objectives.
Strategic management is the process of formulating, implementing and evaluating business strategies to achieve organisational objectives. Cunningham’ has defined strategic management as a manner by which organisations plan to deal with the various aspects of management like problem perception, divergent thinking, substantial resources, decisions making, innovations, taking risks and facing uncertainty.
According to Bourgeois “Strategic management is a means by which management in an organisation establishes purpose and pursues that purpose through the co-alignment of organisational resources with environmental opportunities and constraints”. Now that the terms strategy and strategic management are already defined, we are ready to define the term ‘Strategic Human Resource Management’.
Strategic human resource management is to ensure that human resource management is fully integrated into strategic planning, that HRM policies cohere both across policy areas and across hierarchies and that HRM policies are accepted and used by line managers as part of their every day work, opines Guest.
According to Donald F. Harvey “Strategic management is that set of managerial decisions and actions that determine the long-term performance of a corporation. It includes environmental scanning, strategy formulation, strategy implementation and evaluation and control. The study of strategic management, therefore, emphasizes monitoring and evaluating environmental opportunities and threats in the light of a corporation’s strengths and weaknesses”.
The success of an organisation depends on the people therein. This means how they are acquired, developed, motivated and retained in the organisation play an important role in the organisational success. Then this presupposes an integral approach toward human resource functions and overall business functions of an organisation. Thus, strategic HRM means a strategic look at HR functions in line with the business functions of an organisation.
Strategic HRM, therefore, is concerned with the following:-
- Analyse the opportunities and threats existing in the external environment.
- Formulate strategies that will match the organisation’s (internal) strengths and weaknesses with environmental (external) threats and opportunities. In other words, make a SWOT analysis of organisation.
- Implement the strategies so formulated.
- Evaluate and control activities to ensure that organisation’s objectives are duly achieved.
Benefits of strategic management
As opined by Ulrick and Lake, the strategic HR framework aims to leverage and / or align HR practices to build critical capabilities that enable an organisation to achieve its goals. Strategic management offers both financial and non-financial benefits to an organisation which practices it.
Fred R. David’ has listed the following benefits that strategic management brings for an organisation:
- Allows identification, prioritisation and exploitation of opportunities.
- Provides an objective view of management problems.
- Represents a framework for improved co-ordination and control of activities.
- Minimises the effects of adverse conditions and changes.
- Allows major decisions to better support established objectives.
- Allows more effective allocation of time and resources to identified opportunities.
- Allows fewer resources and lesser time to be devoted to correcting erroneous or adhoc decisions.
- Creates a framework for internal communication among personnel.
- Helps to integrate the behaviours of individuals into a total effort.
- Provides a basis for the clarification of individual responsibilities.
- Gives encouragement to forward thinking.
- Provides a co-operative, integrated and enthusiastic approach to tackling problems and opportunities.
- Encourages a favourable attitude towards change.
- Gives a degree of discipline and formality to the management of a business.
Role of HRM in strategic management
We have already mentioned that strategic business plan is formulated to achieve competitive advantage. From this specific strategy for each functional area viz., marketing, finance, production operations and human resources need to be drawn in alignment with strategic business plan to carry out the organisational plan.
In other words, the formulation of organisational strategy is integrative with the formulation of functional strategies. Here, human resource strategy assumes more importance because it provides human resources for other functional areas also.
Lengnick Hall and Lengnick- Hall in this respect argue in ‘Strategic Human Resource Management’ that reciprocal interdependence between an organisation’s business strategy and human resource strategy underlines the proposed approaches to the strategic management of human resources.
This suggests that we must recognize that human resources integrally affect the overall strategy of an organisation. With this in mind, we are now discussing the integrative role played by human resources in the strategic management of an organisation.
Let us examine the role of HR in these two phases separately.
Role in Strategy Formulation
The environmental scanning is followed by strategy formulation. Environmental scanning helps an organisation identify its opportunities and threats prevalent in the external environment. Here, HRM proves of great help in scanning the existing (external) environment, and thus, identifies the specific opportunities and threats of it for the organisation.
Besides, HRM is also of great help to make the organisation competitive and make the best use of intelligence available. This may include the incentive plans being used by the competitors, customer- I complaints, labour laws, etc.
HR also participates in strategy formulation process by supplying information regarding the company’s internal strengths and weaknesses. Instances are available to mention that the unique HR capabilities of an organisation serve as a driving force in strategic options and strategy formulation. A well known accounting and consulting firm, Arthur Anderson represents one such example.
The Illinois training facility develops unique HR capabilities for the firm and that enables the firm to react quickly to the changing demands of the firm. Similarly, IBM’s decision to buy Lotus was probably prompted in part by IBM’s conclusion that its own resources were inadequate to enable the firm to reposition itself as an industry leader in networking systems, or at least to do so quickly enough.
Role in strategy implementation
As stated earlier, HRM provides competent human resources to other functional areas also. In this way, HRM plays a crucial role in the successful execution or implementation of company’s strategic business plan. Many such stories abound in our country.
Maruti Udyog and Hindustan Motors are two. We know that Maruti Udyog and Hindustan Motors are manufacturing cars, essentially using identical technology. The secret behind the meteoric rise of Maruti is its human resource/workforce.
HRM supports strategy implementation in some other ways as well. For example, HR is today heavily involved in the execution of strategy in the form of downsizing and restructuring strategies, through outplacing employees instituting performance linked pay plans, reducing health-care costs and retraining employees. Even, in an increasingly competitive global market place, instituting HR practices that build employee commitment can help improve an organisation’s responsiveness.
Strategic HRM in ESSAR steel limited
Human resource plays an expanded role under the strategic human resource approach. No longer is human resource strategy a simply personnel management strategy with operative employees driven by the overall corporate strategy.
As Michael Porter argues in Competitive Advantage, human resource management can help a firm achieve a competitive advantage. By involving the HRD consideration when an overall strategy is formulated, HRD can help achieve a strategic advantage.
This is true for Essar Steel Ltd. which has integrated HRD consideration in strategic formulations. The Essar group is one of India’s leading business conglomerates, with asset base of over US $4 billion (Rs. 17,000 crores). The group is committed to the development of core structure and infrastructure business in India and abroad. It is actively involved in five principal areas of business viz., Steel, Shipping, Oil and Gas, Power, and Communications.
Essar Steel is the second largest company in India in the private sector producing 2.2 MMTPA hot rolled flat products.
They have the following manufacturing facilities:
- Vizag Pellet Complex
- Hazira Steel Complex
- Indonesia Cold Rolled complex
- Strategic Investment in IIVA, Italy.
In fact, executives are increasingly recognizing the human resource development as one of the key considerations for ensuring an overall success of the company’s strategy. For example, more than 50 per cent training programmes are designed and implemented primarily taking a strategic perspective.
The vision-mission statement is the evolution of people in the organisation from the various levels, of participation. Instead of conducting various programmes in conventional ways just to claim that the organisation is concerned for people development, Essar took a different approach. Of late, they realize that HRD would be a powerful tool in achieving the corporate strategy and business objectives.
They hire the consulted from one of the premier institutions of the country and gave him responsibility to align corporate strategy with the HRD strategy of the organisation. The work started with an action research to understand the problems in the business which hinders the performance.
Based on the findings, they could identify that the low performance was due to the low morale of the people. Insecurity, poor communication, lack of professionalism, adhocism, etc., were the basic problems. The company formulated HRD policy which was drawn from the business strategy.
The organisation implemented the following HR strategies
1. Right Sizing Human Resources
Manpower audit based on competence mapping in turn making the organisation right sized.
2. Developing a Learning Culture through Continuous Learning
People were exposed to latest technology and management technique through workshops, discussions and technical session in each department.
3. Web based customer relationship management
The organisation linked its manufacturing unit with each vital customer through net.
4. Introduction of open house
The new techniques like ‘Open House’ system for employees to ventilate their problems in a forum wherein present were superiors including the directors were introduced.
5. Organisation of executive leadership camp to develop corporate pride among the employees
The young executives in an organisation were taken into a hill station wherein they were exposed to yoga, meditation and latest management techniques of team working etc., for ten days.
6. Introduction of Willy Korf Innovation Award Scheme
This scheme was to encourage the employees to generate new ideas in improving the workplace productivity. In this process, employees were lending a contributory hand towards management.
7. Regular training with a target of seven Mondays per employee
It was made compulsory for each employee to undergo training at least for 7 days in a year on different topics identified through training needs analysis.
8. Training programmes on areas of concern
The major areas of concern were identified through—interaction with technical heads of department and the training is imparted.
9. Special Programme
Four-point programme to enhance shareholders’ value through capacity enhancement, contribution enhancement, reduction in financial cost, enhancing the value of intangibles were adopted as strategic steps toward achieving business performance.
After implementing the above strategies within a period of two years, the organisation ended with a half year of current fiscal year (September 30, 2000) with a higher sales volume and record level of exports. The total sales grew in volume by 28% at 8.73 lakh tonnes (6.80 lakh tonnes in the corresponding period last year).
Exports registered a quantum jump of 113 % at 4.43 lakh tonnes (2.08 lakh tones in the corresponding period last year). The production of HR coils has grown over 21 % at 8.73 lakh tonnes during the current half vis-a-vis 7.20 lakh tonnes in the corresponding period last year. This shows the enhancement of productivity. Moreover, it has been assessed that the down time has been reduced drastically with high employee satisfaction.
Today they are amongst the low cost producers of hot rolled coiled by virtue of being integrated right from the iron or steels, resulting in one of the highest operating margins in India, with a dominant market share in specially high value-added products.