Human Resource Strategy

Citation

Kelly, J. (2001), "Human Resource Strategy", Employee Relations, Vol. 23 No. 1, pp. 94-104. https://doi.org/10.1108/er.2001.23.1.94.4

This book examines the question can SHRM augment the strategic capability of the firm by strengthening the link between human resources and firm performance. The book can be divided into three main themes. First is a general discussion of various theories/models of business strategy and whether human resource (HR) systems (including the HR function) are involved in strategy formation. Second it examines the linkages between different types of business and different HR strategies. Third it investigates the extent to which HR strategy implementation contributes to the performance of the firm. Chapters 1 to 3 deal with macro considerations discussing general theory and research findings and Chapters 4 to 6 with the micro sub systems of HR planning, performance and reward, and employee relations. The final chapter assesses the impact of HR strategy on firm performance.

At the macro level all theories of business and HR strategies are thoroughly covered ranging from the formal rationalistic perspective including the resource based view to incremental and emergent strategies. The now classical business strategies of Porter (cost leadership and product differentiation) and Miles and Snow’s (defender, prospector and analyser) set the parameters of the human resource management (HRM) strategy discussion to follow. The basic proposition being that these theories recognise that various business strategies require different HRM strategies and the HR system (including function) is not involved in strategy formation but in down stream implementation of strategy.

The book contains good, if condensed discussion, of the part organisational politics and institutional arrangements play in strategy formation. Emergent and incremental theory defines strategy as a stream of continuous decisions arising out of rapid and complex environmental change (both internal and external) and encompasses the political interests of stakeholders who shape the direction of strategy. Hence formal rationalistic business strategies made by managers is bounded by political considerations of stakeholders including externally imposed government regulations.

Resource based theory contains elements essential to the book’s thesis. The authors emphasise how this is defined as a set of employee behaviours, attitudes and relationships that are rare, valuable, imperfectly imitable and serve as a source of competitive advantage. This model regards human resources as an asset to be developed and not a cost to be hired as required and fired when demand declines. This emphasises a longer‐term relationship between employer and employee and not the short‐term control strategies of the rationalistic models.

Central to the book is the authors’ attempt to combine the perspectives of formal rationalistic and emerging incremental strategies. They argue that strategy is configured around strategic resistance points recognising that management have a degree of control, although bounded by political considerations and external constraints. Strategic resistance points are the targets or benchmarks that organisational decision makers use to evaluate their options, make strategic decisions and signal to key stakeholders their strategic priorities. It is down to the HR system/function to make use of its political skills to input to and establish criteria (including HR elements) by which success will be judged.

Continuing with this integrative theme of business and HR strategies the authors develop a matrix of management control and HR policies focussed on internal and external labour markets. Management controls are divided into process controls where stable markets and mass production type technologies allow work to be rigidly sequenced, and output controls where markets are more uncertain and technologies less predetermined requiring employees to exercise autonomy, creativity, tolerance of ambiguity including moderate risk taking. Direct process control is appropriate for Porter’s cost leadership strategy and indirect output control, with its focus on results, most appropriate for Porter’s product differentiation strategy. External labour market policies also equate with cost control (numerical and financial flexibility) and are appropriate to low skill jobs, high turnover, little job security and market determined compensation. Internal labour markets feature strong employee commitment, employment security, function flexibility, employee development and career planning. Here the employer exchanges a degree of employment security and internally structured compensation for employee loyalty and trust.

Both variations in management control and labour market strategies provide a matrix consisting of four HR strategy models:

1. 1.

   (1) Commitment (output control and internal market).

2. 2.

   (2) Free agent (output control and external market).

3. 3.

   (3) Paternalistic (process control and internal market).

4. 4.

   (4) Secondary (process control and external market).

The most common types are cell 1 found amongst high tech companies such as IBM and cell 4 found amongst low grade employees in hotel and catering. These models including their ends, means and underlying logic are then applied to the sub HR systems of HR planning, performance and compensation and employee relations contained in Chapters 4, 5 and 6.

In the third theme, HR strategy and firm performance, the authors point to the inconsistency of the evidence. Indeed most of the evidence supports an internal fit view (i.e. consistency and coherence) between bundles/clusters of HR policies by those firms adopting the commitment model who out‐perform others irrespective of the production system. This suggests a universal HR approach model associated with high firm performance and not an external fit model. The authors argue that universalist HR strategies make sense at the corporate level, but these have to be made to fit business strategies within subsidiary business units.

This is a comprehensive survey of the US theory and empirical material on business and HR strategies with a useful attempt to integrate some of its diversity. It is a clearly structured and well‐presented book. However, the book does not give sufficient account of the HR function. Although the authors explicitly decide to focus attention on the HR system and not function (p. 5) they find it difficult not to make frequent reference to the latter. The emphasis in the book on integrating formal rational and emergent and incremental strategies based on internal organisational politics with HR as a stakeholder, make their inclusion imperative. The work of Brewster and Larsen (2000) contributes to this debate. Second, the book’s distinction between strategy formation and implementation becomes blurred by the emphasis on incremental and emerging strategies subject to the constraint of internal organisational politics. This blurring of the two is never fully recognised by the authors. Third, the book might have been more open to an international dimension of HR strategy giving some consideration as to how the development of multinational companies have affected the linkage between business and HR strategies. Indeed, the book is addressed to an audience that is totally North American and would be of limited use to teaching programmes in the UK.