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© Oxford University Press Southern Africa, 2008. All rights reserved. Chapter 4 The strategic role of human resource management © Oxford University Press Southern Africa, 2008. All rights reserved.

© Oxford University Press Southern Africa, 2008. All rights reserved. Learning outcomes After reading this chapter you should be able to: • explain the basic principles of strategic HRM • discuss critically the relationship between strategic management and strategic HRM • describe the design of a human resource strategy • describe the various models of strategic HRM

© Oxford University Press Southern Africa, 2008. All rights reserved. Chapter Content • Opening case: Happy Sky Company: aligning human resource functions with strategic objectives • Introduction • Major approaches and theories related to strategic HRM • Broad concepts underlying theories • Emergence of strategic HRM • Relationship between strategic management and strategic HRM • SHRM models

Linking HR practices with the strategic initiatives of the company OUP insert figure 4. 1, omit background of this slide if needed

© Oxford University Press Southern Africa, 2008. All rights reserved. Basic principles of SHRM • Tsui defined concept as follows: – focus on organisation-wide human resource concerns and addresses issues that are related to the firm's business, both short-term and long-term – particularly useful for designing specific human resource programmes, policies, systems or management practices at the organisational or business level – line executive is the most important constituent for the human resource function – supports the 'proactive' approach where HR professionals participate in the strategic planning process and can potentially influence the formulation of the company strategy

© Oxford University Press Southern Africa, 2008. All rights reserved. Basic principles of SHRM • Dyer & Holder provide more substance when remarking that: – SHRM consists of 3 major tasks, assure that the HR issues and implications of various alternatives or proposals are fully considered, establishing HR goals and action plans to support the business strategies and working with line managers as principal clients to ensure that established action plans are indeed implemented • two major issues/aspects need to be in place within the organisation before the SHRM process can function successfully: – the presence of a strategic management process – the restructuring of the HRM function itself

© Oxford University Press Southern Africa, 2008. All rights reserved. Basic principles of SHRM • if the organisation has no process by which to engage in strategic management at the corporate and business level, it will not be possible for the HR function to develop a strategic thrust, since the HR strategy flows from the corporate or business strategy • as the HR function will be evolving from a reactive administrative focus, it will have to be reorganised to address its strategic responsibilities • HR system must have its operational house in order before it can afford the luxury of concentrating on the formulation and implementation of an HR strategy

© Oxford University Press Southern Africa, 2008. All rights reserved. Basic principles of SHRM • strategic management = process that deals with: – organisational renewal and growth – development of strategies, structures and systems necessary to achieve renewal and growth – organisational systems needed to effectively manage the strategy formulation and implementation processes

© Oxford University Press Southern Africa, 2008. All rights reserved. Basic principles of SHRM • For the HR function to operate at the strategic level, it needs to reorganise the existing HR administrative function into three distinct levels: – Strategic – Operational – Functional

© Oxford University Press Southern Africa, 2008. All rights reserved. Basic principles of SHRM – Strategic (strategic partner role and involved in corporate and HR planning) • Features of the role (Cascio) • Senior human resource professionals meet regularly with their counterparts in line management to formulate and to review broad human resource strategies • Senior human resource professionals participate fully in all top-level business strategy sessions • Human resource professionals at all levels work closely with line managers on an ongoing basis to assure that all components of the business strategy are implemented adequately • The human resource management function itself is managed strategically

© Oxford University Press Southern Africa, 2008. All rights reserved. Basic principles of SHRM – Operational - the HR team develops action plans to meet present labour needs, and at the functional level it will carry out the many activities which ensure that employees are at the right place at the right time and cost – Example - the performance appraisal function • Strategic level = a decision will be made regarding what will be valued in the long term • Operational level = appraisal systems that relate current conditions and future potential will be set up • Functional level = the actual appraisal system will be implemented annually and day-to-day control systems will be put in place

© Oxford University Press Southern Africa, 2008. All rights reserved. Basic principles of SHRM – once the new HR structure has been finalised - proper communication links should be established with line management – relationship can be enhanced by having regular meetings with line managers, circulating relevant HR reports to them and establishing a computerised HR system that allows access by all stakeholders

© Oxford University Press Southern Africa, 2008. All rights reserved. Relationship between strategic management and SHRM – if the functioning of an organisation is to be successful, the relationship that must exist between strategic management and SHRM cannot be ignored – in many cases this relationship is non-existent, reasons for this include (Rothwell & Kazanas): • top managers do not perceive a need for a relationship • HR practitioners are perceived as 'personnel experts' not 'experts in business' • HR information is sometimes incompatible with other information used in strategy formulation • conflicts may exist between short-term and long-term HR needs

HRM cube

© Oxford University Press Southern Africa, 2008. All rights reserved. Relationship between strategic management and SHRM – Tichy • developed during the 1980’s • known as the ‘human resource management cube’ • advantages: • relatively powerful model of organisational effectiveness • important implications for the strategic management of the HR function • has been commonly used in the SHRM literature

© Oxford University Press Southern Africa, 2008. All rights reserved. Relationship between strategic management and SHRM – Tichy • companies are continually confronted by 3 basic problems that must be managed: þ technical, political problems and cultural problems • as a result of the external threats and opportunities and the internal strengths and weaknesses of companies, all companies continually face a production problem • technical resources must be managed in such a way that the required output is continuously delivered • to solve problems in this area, management is regularly involved in strategy and goal formulation and the design of organisational and management systems

© Oxford University Press Southern Africa, 2008. All rights reserved. Relationship between strategic management and SHRM – Tichy • political problem - companies continually have problems with the allocation of power and resources within the organisational structure – direction in which they are moving and who will share in the benefits – decisions in this regard will be reflected in the compensation paid, budget allocations made and the allocation of decision-making power to the different levels within the organisational structure

© Oxford University Press Southern Africa, 2008. All rights reserved. Relationship between strategic management and SHRM – Tichy • cultural problem - companies are held together by their 'culture‘ – culture = consists of values, beliefs and views shared by the employees within the company – organisation must thus continually decide which values, views and beliefs its employees must possess and also which sections within the company must possess which values

© Oxford University Press Southern Africa, 2008. All rights reserved. Relationship between strategic management and SHRM – Tichy • To solve these problems = design three systems – technical system (aspects required to solve the production problem) – political system (all the practices, activities and elements involved in the allocation problem ) – cultural system (the symbols, values and elements necessary to address the ideology problem within the organisation) • for these systems to be managed properly, certain aids are required: – the mission and strategy of the company – the structure of the organisation, including the administrative procedures – the HRM systems of the company

© Oxford University Press Southern Africa, 2008. All rights reserved. Relationship between strategic management and SHRM – strategic management task involves more than the choice of a portfolio of businesses and the design of strategies – entails the management of all the different issues – to do this successfully, it must include the SHRM – without the effective and efficient management of the HRM system, strategic management will not be successful – HRM practices, systems and policies must be in line with the strategic initiatives of the company – how can we design the individual HRM strategies to make this success possible?

Design of an HR strategy budget to address the issue of resource allocation programme portfolio to outline priorities & policies 4 compo -nents proposed organisation structure mission statement/set of prioritised goals for the function & major subfunctions

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • Labelle: – ‘a set of important decisions an organisation makes about the management of human resources that define an adaptation to both internal and external environments in the pursuit of its objectives’ • Hax: – ‘a human resource strategy is a critical component of the firm's corporate and business strategies comprising a set of well coordinated objectives and action programmes aimed at securing a long-term sustainable competitive advantage over the firm's competitors’

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • strategy can be seen as a plan of action which includes both means and ends • HR goals can include quality of performance (productivity goals), quantity of employees (HR quantity goals) and costs goals • means can include HR practices and HR policies • Schuler - practice menu from which a selection can be made to support a particular company strategy • use of these HR practices can be successful only if the management has in its mission statement made a commitment to its employees

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • Nininger: – The people in the organisation will be managed in such a manner as to generate a climate of opportunity and challenge for each employee within which the individual can most effectively contribute to the fulfilment of his or her goals and those of the organisation. This will be accomplished by: • having a clear understanding of all the qualities of each employee, such as skills, knowledge, potential, aspirations and limitations • setting standards of performance that challenge each employee and by ensuring that this performance is attained • rewarding excellent employee performance in both material and non-material terms

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • • planning properly for human resource needs providing employees throughout the organisation with opportunities for promotion and for developing their job knowledge, skills and satisfaction practising a form of management that allows decisionmaking authority to be as decentralised as is practical being alert and receptive to new and productive developments in the field of human resource management

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • • • HR strategy will express the intentions of an organisation about how it should manage its human resources intentions provide the basis for plans, developments and programmes for managing change typical questions to be asked by the HR professional when participating in the strategy process would be: – what sort of people do we need in the business to achieve our mission? – how can the required changes to our culture and value system be achieved? – what are the implications of those plans for the future structure, HR systems and resource requirements?

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • • a number of issues besides the company strategy can influence the formulation of an HR strategy influenced by both external and internal issues – externally: the economical, technological, social, political, legal, geographical, cultural and labour market environments – internally: employee demographics, employee skills, productivity, organisation structure, potential of employees, organisational culture and turnover

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • • • understand the strategic imperatives behind important decisions taken either within the HR department or the company strategic imperatives = “priority issues that must be addressed to meet long-term objectives” these imperatives are used to guide the behaviour of, for example, the HR department or company major undertakings within the company or HR department demands a properly evaluated strategic imperative when an HR department/company starts a new initiative or addresses a critical/urgent concern that will affect its long term future, management should understand the rationale, set goals, test them with independent, objective reliable tools/ systems and consider alternative options, and plan a roadmap for execution

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • Swamy indicates that strategic imperatives can be categorised into 2 broad categories: – aspiration-driven imperative (two components: growth imperative and efficiency-imperative. The aspiration imperative comes from within) – situation-driven imperative (comes from external forces) • how can an HR department/company for example better understand its strategic imperatives? – HR department/company must identify a priority that must be addressed and understand why it is a priority – different considerations to take into account • high-level framework for understanding strategic imperatives

High-level framework for understanding strategic imperatives

© Oxford University Press Southern Africa, 2008. All rights reserved. High-level framework for understanding strategic imperatives Step 1 the goals management is formulating for a particular setting needs to be examined aspiration driven imperative - necessary to interview key stakeholders to determine their aspirations, institutional biases and operational preferences situation-driven imperative - adequate documentation needs to be analysed Step 2 aspiration driven imperatives - testing management’s assumptions using objective fact-based analysis is important situation-driven imperatives – management must develop an exhaustive set of potential strategic options that could meet the same desired outcome

© Oxford University Press Southern Africa, 2008. All rights reserved. High-level framework for understanding strategic imperatives Step 3 aspiration-driven - identify for whom and by whom success will be measured • measurements must be identified that will satisfy its stakeholders and a number of performance scenario's should be modelled against these measurements situation-driven - performance scenario's must also be identified as they will allow the company to analyse the value of each option it has identified in step 2 • from this exercise they can then prioritise correctly

© Oxford University Press Southern Africa, 2008. All rights reserved. High-level framework for understanding strategic imperatives Step 4 represents the "strategy" component of strategic imperatives aspiration-driven - management needs to develop a goaldriven roadmap (an executable strategy for the imperative and ensure the path is reviewed and approved by key stakeholders) situation-driven - management needs to decide on the best strategic response and finalise a plan for moving forward

© Oxford University Press Southern Africa, 2008. All rights reserved. Design of an HR strategy • two types of HR strategies can be distinguished – organisational strategies (part of organisational/company strategy having major impact throughout the organisation) – functional strategies (seen as more narrowly focused and are involved only with the strategic management of HR divisions or departments) • inevitable that with the emergence of SHRM as a field of study and practice, 'how to' models have also emerged

© Oxford University Press Southern Africa, 2008. All rights reserved. Models of SHRM • • • organisational SHRM content models functional SHRM content models organisational SHRM process models functional SHRM process models general SHRM models of 'fit' versus 'flexibility‘