Strategic Human Resource Management: Exploring the Key Drivers

STRATEGIC HUMAN RESOURCE MANAGEMENT: EXPLORING THE KEY

DRIVERS
Chandan Kumar Sahoo
National Institute of Technology, Rourkela, India
Sitaram Das
North Orissa University, India
Bijaya Kumar Sundaray

Regional College of Management (Autonomous), India

ABSTRACT
Strategic human resource management (SHRM) involves productive use of
people in achieving organisations strategic business objectives, and fulfilment
of individual employee needs. The framework for aligning HR and business
strategies is provided by the competitive strategy approach. Proper alignment
of HR strategies with business strategy will enable a firm to develop a win-win
situation both for employees and employers and helps for achievement of
targeted goals. The basic purpose of this study is to explore the various issues
and initiatives of the people side of management experienced by the
organisations and proper linking of issues such as human resource planning,
recruitment and selection, performance management, human resource
development, motivational and compensation structure, work-life balance,
and human resource information systems with organisational strategic
business objectives towards business excellence.
INTRODUCTION
Human resource management (HRM) seeks to strategically integrate interests of
an organisation and its employees; it is much more than a set of activities
relating to the coordination and optimum utilisation of an organisations human
resources (Byars & Rue, 2000, p.3). Basically focus of HRM is on managing people
with developing a cordial employeremployee relationship. Strategic human
resource management (SHRM) involves the productive use of people in achieving
the organisations strategic business objectives, employee satisfaction, and
fulfillment of individual employee needs. The changes in the business
environment with increasing globalisation, changing demographics of the
workforce, increased focus on profitability through growth, technological
changes, intellectual capital and the never-ending changes that organisations are
undergoing have led to increased importance of managing human resources
(Devanna & Fombrun, 1984). In the Indian context, the HR department is highly
administrative and lacks strategic integration, fails to provide the competitive
advantage needed for survival, thus losing its relevance. Organisations are more
proactively looking at human resources as a unique asset that can provide
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sustained competitive advantage.

SHRM involves a set of internally consistent policies and practices designed and
implemented to ensure that a firms human capital contributes to the
achievement of its business objectives and such practices are macro-oriented,
proactive and long-term focus in nature. It views human resources as assets or
investment not expenses; implementation of SHRM practices bears links to
organisational performance and focusing on alignment of human resource
strategy with firm strategy as a means of gaining competitive advantage and
sustainable growth. Bramble (1996) suggests that human resource management
is influenced by the factors such as changes in technology, laws, social values,
and economic conditions which exist outside the organisation, as well as internal
factors such as an organisations objectives, strategy, culture, and structure. An
analysis of strengths and weaknesses of human resource function can identify
positive and negative characteristics of it which will help or hinder the
achievement of strategic objectives. Fisher, Schoenfeldt and Show (1999) have
opined that organisations adopting HR strategies and practices consistent with
the demands of their internal and external environments will perform better.
The prime concern of SHRM is to ensure that HRM is fully integrated with
strategy and strategic needs of the firm; HR policies cover both policy areas and
organisational hierarchies; and that HR practices are adjusted, accepted and
used by all line managers and employees as part of their everyday work.
The basic purpose of this study is to explore the various issues and initiatives of
strategic human resource management experienced by the Indian organisations
and proper linking of such issues with organisational strategic business
objectives. The present study highlights specific strategic HRM initiatives aligned
with corporate strategy in order to leverage competitive advantage. This paper
contributes to the ongoing discussion of SHRM and workplace relations, strategy
alignment and successful drivers of people management in the competitive
business environment.
STRATEGIC HRM AND WORKPLACE RELATIONS
Wright, McMahan and McWilliams (1994) have opined that SHRM has played a
major role towards the success of an enterprise because it is in a key position to
affect customers, business results and ultimately shareholders value. Leading
companies, for example, General Electric, Coca Cola, and Microsoft recognise
that human capital is their most important resource, and proper and adequate
measures should be taken to maximise it. Pfeffer (1998), after an exhaustive
review of literature, identified several dimensions of effective people
management that produced substantially enhanced economic performance
through employment security, rigorous selection, self-managed teams and
decentralised decision making, extensive training, reduced status distinctions,
extensive sharing of financial and performance information throughout the
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Strategic Human Resource Management: Exploring the Key Drivers

organisation. The HR function is recognised for contributing to the bottom line,

not for being carried out by nice people with good human relations skills.
Confusing people skills with people management is a common mistake made by
many HR practitioners. HR executives will never be accepted as strategic
business partners until they fully understand the organisations business and
alignment of HR strategies, policies and practices properly linked with business
strategies for maximum output, qualitative product, customer satisfaction,
surplus generation, etc. (Gubman, 1995). So the central point of all processes,
programs, strategies, and the like is the firms involvement in human resources.
Therefore, an investigation of strategic HRM issues can enhance our
understanding towards goal attainment.
Kazmi and Ahmad (2001) classified various definitions of strategic human
resource management based on strategy-focused, decision-focused, contentfocused and implementation-focused approaches. Fitz-Enz (1998, p. 81) is of the
opinion that SHRM is no longer an option but an imperative. It is important that
human resource strategy accurately reflect an organisations master business
strategy to ensure an appropriate fit. Thompson and Strikland (1987, p. 4)
defined strategic management as the process whereby management establish an
organisations long-term direction, set specific performance objectives, develop
strategies to achieve these objectives in the light of all relevant internal and
external circumstances, and undertake to execute the chosen action plan.
According to Stone (2002, p. 4), strategic human resource management focuses
on the human resource activities with organisations strategic business
objectives. In the competitive environment proper emphasis must be given on
various issues of SHRM for achievement of long-term business success. HR
objectives, strategies, and policies should be evaluated in terms of their
contributions to achieving the organisations strategic objectives and satisfying
employee needs. Delaney and Huselid (1996) have shown positive relations
between HR practices and perceptions of organisational performance and
operational performance when matched with quality and manufacturing
strategies. Hannon and Milkovich (1996) are of the opinion that human resource
reputation for being employee-centered has a positive effect on labour turnover,
sales, profitability and a companys share price. Schuler (1998) highlights human
resources who limit the weaknesses or enhance the strengths of an organisation
which fosters improved organisational competitiveness, growth, adaptability and
profitability. Therefore, commitment, competence, cost-effectiveness,
congruence, adaptability performance, job satisfaction, employee motivation,
and trust should be considered during evaluation of HR strategies and policies.
The objective of employee relations (ER) system is to maintain an harmonious
relationship between the employer and employees so that there remains no
threat to overall effectiveness of the organisation. The improvement of
workplace relations is dependent upon several factors like shared vision and
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values, information sharing and two-way transparent communication systems,

building fairness and trust, ego management and multiple options with dual
focus to create win-win situations (Venkat Ratnam, 2000). Proactive employee
relations measures provide a conducive workplace relations climate which
reflects perception of individuals as responsible strategic business partners;
these measures include proper grievance redressal and conflict management
mechanisms within the organisation, encouragement for bipartite consultations
and joint decision making, collaborative and compromising attitudes between
management and unions, and smooth functioning of suggestion schemes, for
example. Another important thing is that such programs enhance a degree of
trust and confidence among the parties in the industrial relations system. In such
environments, attitudes of the employees are reflected in the form of
organisational commitment, job satisfaction, loyalty to union, willingness to work
for union and responsibility towards the union (Fields & Thacker, 1992). These
lead to reduction of grievances and work stoppages. The lack of participation is a
major cause of employee dissatisfaction and leads to high levels of absenteeism
and turnover, but presence of above ER indicators contribute to a lower rate of
employee turnover and absenteeism (Figure 1).
ER Indicators
Confidence & Trust
Conflict resolution
Grievance redressal
Collaborative
attitude
Joint
decision
making
Suggestion schemes
Information sharing

Attitude of Union
members
Organisational
commitment
Job satisfaction
Loyalty to union
Responsible
Willingness to work
for union

Outcomes
Higher productivity
Low work stoppages
Low absenteeism
Low
employee
turnover
Low accident rate

Figure 1: Outcomes of Workplace Relations

Source: Authors own.
VRIO FRAMEWORK
The growing recognition for human resources contributes to sustaining a
competitive advantage for organisations. Barney and Wright (1998) have focused
on four factors that are important to organisational strategic accomplishments
towards sustainability. Using a VRIO framework (Value, Rareness, Imitability, and
Organisation) as the foundation for HR management which reflects people are
truly seen as assets, not as expenses. It also means that the culture of Indian
organisations must be considered when developing organisational and HR
strategies.
Value: Human resources that can create value are those that can respond to
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Strategic Human Resource Management: Exploring the Key Drivers

external threats and opportunities. Having this ability means that employees
can make decisions and be innovative when faced with environmental
changes.
Rareness: The most important aspect is that the human resources in an
organisation be provided training to enhance their capabilities, so that they
are continually seen as the best by customers and industry colleagues. This
rareness also helps in attracting and retaining employees with scarce and
unique knowledge, skills, and abilities. Reducing employee turnover is
certainly important in preserving the rareness of human resources.
Imitability: Human resources have a special strategic value when they cannot
be easily imitated by others. Organisations have to create images with
customers and competitors that they are different and better at customer
service. Any competitors trying to copy the HR management culture created
in such organisations would have to significantly change many organisational
and HR aspects.
Organisation: Human resources must be organised in order for an entity to
take advantage in the competitive business environment. This signifies that
the human resources must be able to work in collaborative and coordinated
way, and have HR policies and programs which are to be managed in such
ways that support people working in the organisation.
APPROACHES OF STRATEGIC HRM
Many factors effect HRM and HR professionals must identity and consider the
impact of a particular influence whether from the organisations external or
internal environment. Strategic HRM adopts an overall resource-based
philosophy and within this framework there are three possible approaches,
namely, high-performance management, high-involvement management, and
high-commitment management, which make a significant contribution towards
target achievement as depicted in Figure 2.

High-performance Management
A high-performance management approach involves development of a
number of interrelated processes which together make an impact on
performance of the firm through its people in such areas as productivity,
quality and levels of customer service, growth, profit, and ultimately
delivery of increased shareholders value. This is achieved by enhancing the
skills and engaging the enthusiasm of employees. The main drivers are
decentralised decision-making, development of people capacities, team
effort, trust and enthusiasm, employee commitment, and fair treatment.

High-involvement Management
This approach involves treating employees as partners in the enterprise
whose interests are respected and who have a voice on matters that
concern them. It is concerned with communication and involvement. The

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aim is to create a climate in which a continuous dialogue between managers

and the members of their teams take place to define expectations and share
information on the organisations mission, values, and objectives. This
establishes mutual understanding of what is to be achieved and a
framework for managing and developing people to ensure that it will be
achieved. The following high-involvement work practices have been
identified in most Indian business units are work teams, problem-solving
groups, job rotation, suggestion schemes, quality circles, etc.

High-commitment Management
High-commitment management aimed at reflecting commitment so that
behaviour is primarily self-regulated rather than controlled by sanctions and
pressures external to the individual, and relations within the organisation
are based on high levels of trust and confidence. The fundamental business
need is to formulate appropriate strategy in order to develop and maintain
a high performance culture. The characteristics of such a culture are a clear
line of sight, leadership from the top, promoting positive attitudes,
autonomy, proper reward, career ladders, redesigning of jobs and reduction
of hierarchies, challenging job, permanent employment, and fair
compensation.

ROLE OF STRATEGIC HRM

As HRM becomes more business oriented and strategically focused, the following
may be expected as new roles to be played by the HR department.
Strategic Partner
It refers to the HR managers being an essential part of the management team
running an organisation and contributing to achievement of the organisations
objectives by translating business strategy into action. In addition, HR
professionals must develop business acumen, a customer orientation and an
awareness of the competition to be able to link business strategy to human
resource policies and practices. Ulrich (1997, p. 79) rightly mentioned HR
professionals as strategic partners when they have the ability to translate
business strategy into action.
Administrative Expert
This reflects efficiency of HR managers and effective management of human
resource activities so that they create value for the organisation. Yeung (1998,
p.4) indicates that competency levels of human resource managers in high
performing firms are significantly higher than those of low performing firms. To
become administrative experts, human resource professionals must be able to
reengineer HR activities through the use of technology, rethinking and
redesigning work processes and continuous improvement of all organisational
processes.
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Performance
Management
Decentralised
decision-making
Development of
people capacities
Team effort
Trust enthusiasm
Employee
commitment
Fair treatment

Strategic HRM

Involvement
Management
Work teams
Problem-solving
groups
Job rotation
Suggestion
schemes
Quality circles

Commitment
Management
A clear line of sight
Leadership from
the top
Promoting positive
attitudes
Autonomy
Proper reward
Career ladders
Redesigning of jobs
Reduction of
hierarchies
Challenging job
Permanent
employment
Fair compensation

Figure 2: Basic Approaches of SHRM

Source: Authors own.
Employee Champion
It signifies the HR manager to be the employees voice in management decisions.
So HR professionals must be able to relate and meet needs of employees. Hence
such professionals successfully perform their jobs so as to help employees, for
example, learn how to set priorities, eliminate non-value added work, clarify
goals, simplify complex process, become involved in decision making, increased
commitment, share in economic gains, etc.
Company Champion
This requires the human resource manager to be the company voice in
management decisions as becoming the part of business team. Ellig (1996, p. 19)
has pointed out the dual responsibility of employee champion and company
champion can create tensions and HR managers must learn how to balance the
demands of both.
Change Agent
A change agent is a person who acts as a catalyst for change. Yeung, Brockbank
and Ulrich (1994) clarified that the change agent role can be achieved by leading
change in human resource function and by developing problem-solving,
communication, and influence skills. Therefore, the human resource manager
must know how to manage change.
STRATEGY ALIGNMENT
Strategic HRM is essentially an integrated process that aims to achieve strategic
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fit. A strategic HRM approach produces HR strategies that are integrated

vertically with the business strategy and are ideally an integral part of that
strategy, contributing to business planning process as it happens. Walker (1992)
defines strategic HRM as a means of aligning the management of human
resources with the strategic intent of the business. Vertical 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. It is also about horizontal integration, which aims to
ensure that different elements of HR strategy fit together and are mutually
supportive. A basic requirement in developing HR strategy is that it should be
aligned to the business strategy and should fit the organisational culture. HR
strategies need to be congruent with existing culture of the organisation, or
designed to produce cultural change in specified directions. HR strategies are
concerned with making business strategies work but business strategy must take
into account key HR opportunities and constraints. A framework for aligning HR
and business strategies is provided by a competitive strategy approach that
relates the different HR strategies to the firms competitive strategies as clearly
depicted in Figure 3.
Industry
Structure

Labour
Market

Economic
Condition

Talent
Management

Govt.
Control

Continuous
Improvement

HR
Strategy

Competitive
Strategy

Competitive
Strategy

Reward

Market
Scope

Resourcing

Employee
Relations

Learning &
Development

Figure 3: HR Strategy Alignment

Source: Authors own.
HR strategies have to take account of particular needs of both the organisation
and its people. The best fit approach emphasises the importance of ensuring that
HR strategies are appropriate to the circumstances of the organisation, including
its culture, operational processes and external environment. Coherence exists
when a mutually reinforcing set of HR policies and practices have been
developed that jointly contribute to the attainment of organisational goals by
gaining competitive advantage. Horizontal integration is an important aspect of
strategic HRM and strategic HRM is holistic; it is concerned with the organisation
as a total entity and addresses what needs to be done across the organisation as
a whole in order to enable it to achieve its corporate strategic objectives (Table
1).
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Table 1: Competitive Advantage and HR Strategies

Competitive
Advantage
Innovation

Quality

Cost-leadership

Employing
Competent
people

HR Strategy
Resourcing
Recruitment and
retention of
talented human
resource with
innovative skills
and proper
attitude.
Inducting right
kind of people
who are likely to
deliver quality
and high levels of
customer service.

HR Restructuring
(develops
employment
structures; recruit
people who are
likely to add
value; and
managing
downsizing).
Scientific
recruitment and
selection
procedures based
on a rigorous
analysis of the
special
capabilities
required by the
organisation.

Development
Enhancing
innovative skills
and enrichment
of individual
competencies.

Reward
Financial
incentives,
rewards and
recognition for
proper value
additions.

Emphasis on
knowledge
management,
support total
quality and
customer care
efforts with
proactive training
initiatives.
Just-in time
training (based on
immediate
business needs
and can generate
measurable
improvements in
costeffectiveness).
Individual
performance
improvement (by
developing
organisational
learning
processes
towards personal
development).

Link rewards to
quality
performance
and high
standards of
customer
service.

Review all
reward
practices to
ensure that
they provide
value for money
and do not lead
to unnecessary
expenditure.
Both financial
and nonfinancial
rewards to be
related to
competence
and skills;
ensure that pay
levels are
competitive.

Source: Armstrong (2006), p. 136.

DRIVERS OF PEOPLE MANAGEMENT
People management or HRM objectives must reflect the strategic objectives and
values of the organisation. Schuler, Galante and Jackson (1987) have pointed out
that organisations can improve their environment for success by making choices
about human resource planning, staffing appraisal, fair and adequate
compensation, training and development, and labour relations that are
consistent with and support the corporate strategy. Therefore, human resources
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objectives, policies and plans must be integrated with organisations strategic

business objectives. The key drivers of SHRM are discussed below:
1.

Human Resource Planning

As part of the strategic planning process, human resource planning (HRP)
considers both internal and external environmental influence on an
organisation, its objectives, culture, structure and human resource
management. Therefore, HR managers need to forecast organisations
future human resource requirements and determine where they will come
from. HRP requires proactive role of the HR manager to ensure top
management is supportive; designing of the HRP process; the organisation
does not start with an overly complex system; proper communication
between HR personnel and line managers; the human resource plan is
integrated with the organisations strategic business plan; and balance
between qualitative and quantitative approaches to HRP.

2.

Recruitment and Selection

The pressures of competition, cost saving, downsizing, and global skill
shortage have made recruitment a top priority. Strategic recruitment
avoids the risks and costly waste of time by locating and attracting the
right potential candidates to the right job openings within an organisation
and an effective recruitment system to satisfy the needs of candidates as
well as the needs of the organisation (Schneider & Schmitt, 1992). The
hiring and retention of key human resources is a critical issue for
organisations. Further poor selection decisions result in increased training
time, labour turnover, absenteeism, accidents, industrial unrest, job
dissatisfaction and poor performance and a systematic selection process is
essential to ensure that the person and the job match.

3.

Performance Management
It provides a dynamic link to employee recruitment, selection, training and
development, career planning, compensation and benefits, safety and
health, and industrial relations for strategy execution. Performance
appraisal signals to managers and employees what is really important; it
provides ways to measure what is important; it fixes accountability for
behaviour and results; and it helps to improve performance (Schneider,
Shaw & Beatty, 1991, p. 279). HR professionals have a critical and
challenging role in educating the existing employees on significance and
use of performance appraisal in employee development, performance
improvement and achievement of the organisations strategic business
objectives (Goates, 1994). Therefore, appraising and managing
performance strategically is a critical management responsibility and a
vital part of the organisations strategic management process.

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4.

Human Resource Development

Human resource development has an important role in generating
improved organisational performance and individual growth, but it must
be aligned with corporate objectives if an organisation is to gain any real
benefit from expenditure. The strategic HRD approach aims to meet an
organisations specific business objectives and the ultimate purpose of
human resources development is to help the organisation and individuals
to compete more effectively, now and in the future. Hall (1995, p.15)
posits that to add value, HRD activities must derive from an explicit
strategy that is consciously linked to the business strategy. The employee
development policy could express the organisations commitment to the
continuous development of the skills and abilities of employees in order to
maximise their contribution and to give them the opportunity to enhance
their skills, realise their potential, advance their careers and increase their
level of confidence and satisfaction.

5.

Motivational Strategies
Employee motivation is one of the most challenging aspects of HRM.
According to Spitzer (1996), increasing cost pressures, downsizing and the
advent of the lean organisation have focused management attention on
strategic importance of employee motivation. But there is no particular
mechanism for what motivates employees at work. In general, strategic
business objectives seeking competitive advantages through higher
productivity and improved customer service can be achieved only if
employees are strongly motivated to perform. HR policies and practices
have both a direct and indirect impact on employee motivation. On the
other hand, poorly designed jobs, subjective performance appraisals and
discriminatory hiring and promotion can harm employee motivation and
satisfaction.

6.

Fair Compensation
Compensation can help to reinforce the organisations culture and key
values and to facilitate achievement of its strategic business objectives.
Organisations which are seeking to gain a competitive advantage through
a high innovation strategy utilise remuneration practices that encourage,
facilitate and reward employees towards desired behavioural and
performance outcomes. Strategic compensation system is a formidable
communicator and can be a powerful instrument for change and a major
determinant of the culture of an organisation; reward system by itself will
not change a culture, but it can help to reinforce a desired culture.
Milkovich and Broderick (1991, p. 25) have given emphasis on
compensation policies and practices to reinforce employee behaviours
that help to achieve the organisational objectives and reinforce its desired
culture.

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7.

Work-life balance
Work-life balance policies define how the organisation intends to allow
employees greater flexibility in their working patterns so that they can
balance what they do at work with the responsibilities and interests they
have outside work. The policy will indicate how flexible work practices can
be developed and implemented. It will emphasise that the numbers of
hours worked must not be treated as a criterion for assessing
performance. It will set out guidelines on specific arrangements that can
be made, such as flexible hours, compressed working week, term-time
working contracts, working at home, special leave for parents, career
breaks, and child care.

8.

Human Resource Information System

Human resource managers are under increasing pressure to become
strategic business partners to help the organisation better respond to
challenges of downsizing, restructuring and global competition by
providing value-added contributions towards business success. Smith
(1999) pointed out HR managers and line managers in the process of
decision-making use computers to generate accurate, timely and related
information to achieve organisations strategic business objectives.
Sherman (1992, p. 30) opined that organisational culture and human
resource philosophies and practices will influence the choice, design and
use of its human resource information system. However, it must be
emphasised that if the human resource information system is not related
to the organisational strategy and human resource objectives, there will
be little or no return.

In case of forward looking organisations, the HR executives are to be more

proactive towards defining real drivers of people management which will bring
better employment relationships and a sense of ownership towards continued
organisational success. The human resource function is not different and should
not be treated differently (Cascio, 1990, p. 8). Its outcomes must be measured in
economic terms. Sherman and Bohlander (1992) said the HR climate in an
organisation has an impact on employee motivation, performance, job
satisfaction and morale. The quality of this climate can be measured by
examining employee turnover, absenteeism, health and safety records, and
employee attitude surveys. According to Abbott, Cieri and Iverson (1998) high
employee turnover involves increased costs in recruitment, selection,
orientation, and training. In addition, labour turnover may lead to disruption of
production, problems in quality control, poor communication, and an inability to
develop teamwork and morale. The reality is that until human resource
management can show a substantial and quantifiable positive effort on the
bottom line, it will not be given a place at the apex level.

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CONCLUSION
The present climate of economic turbulence, acute competition and pressure for
increased productivity has led to a need for human resource managers to adopt
a strategic approach, to be part of the top management team, to be involved in
corporate planning, to develop business know-how, to become bottom-line
oriented and to develop a vision for human resource management. SHRM
activities such as job analysis, recruitment and selection, and training and
development must be part of a coordinated effort to improve the productive
contribution of people in meeting an organisations strategic business objectives.
An effective human resource planning system is essential for an organisation to
be pro-active, because such information allows managers to make strategic
decisions that ensure optimum performance. In addition, the importance of
analysing human resource management needs must be stressed because each
organisation will want to use its data in different ways. Further, job enrichment
builds motivating factors such as achievement, recognition, responsibility, and
opportunities for personal growth. Accelerating rates of change and global
competition have meant that training and development have become important
organisational and national issues. Training and development are now
recognised as critical to competitive success. In addition, compensation policies
and practices should reinforce employee behaviours that help to achieve the
desired business objectives and reinforce its desired culture. Proper alignment of
HR strategies with business strategy will enable a firm to develop a win-win
situation both for employees and employers and helps towards the achievement
of the targeted goal.

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