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BASIC CONCEPTS OF STRATEGIC HRM

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Strategic Innovation Practices In Modern Dynamic Business Environment ISBN: 978-3-96492-414-8

BASIC CONCEPTS OF STRATEGIC HRM

*
Pankaj Thakur
*
Assistant Professor, Faculty in The Department of Management, Government College
Sarkaghat District Mandi Himachal Pradesh, India

ABSTRACT

In a competitive business environment every organization wants to reap benefits to progress further, that is the
common objective. To accomplish the organisational objectives, the organization works by integrating human
resource practices, human resource systems and procedures that it adopts a strategic human resource
perspective. In this chapter, the three concepts of strategic HRM have been theoretically explained along with
the 5P Model of Strategic HRM. These have been briefly explained by the researchers and how these concepts
are in alignment with the strategic needs of the organisations.
KEYWORDS: Strategic HRM, HRM, Basic Concepts of SHRM, Management and 5P Model
INTRODUCTION AND DEFINING STRATEGIC HRM
The origin of Strategic HRM dates back to the military system- to the Greek word „Strategos‟ which means
generalship, to organise lead and direct the army to the most advantageous position. In the business world, it
denotes the actions of top management that lead the organization towards its goals and objectives. Strategic
HRM is a proactive function of HRM that manages employees through standard human resource management
functions like attracting, developing, rewarding and retaining them. These functions are in alignment with the
goals and objectives of different departments and the organization itself. Strategic HRM provides a framework
that links people management and development practices to long-term business goals and outcomes. The
strategic HRM or „People‟s Strategy‟ is a coherent planned framework that manages and develops human
resources in such a way that it supports the long-term goals of an organisation in a strategic way. No single
HRM strategy can prove beneficial in all cases. Organisations need to define their unique strategy by looking
into their specific context, values, culture and objectives. Strategic HRM is concerned with the implementation
of strategy and the strategic behaviour of HR professionals who work with their line management colleagues
daily to ensure that the organization's business goals are accomplished and its values are implemented
(Armstrong, M. 1998). At the end of the 1970s, researchers began to focus on the strategic dimension of human
resource management, as a result of two major shifts in the literature: first, a shift from the old personnel
administration approach to a more modern concept of human resources, and second, a reorientation of generic
strategic models to internal aspects of the organisation. Strategic HRM arouse around 1990 when academicians
developed a few definitions of strategic HRM such as:
Strategic HRM is a “macro organisational approach to view the role and function of HRM in the larger
organization” (Butler et al., 1991).
Strategic HRM is a process that integrates human resource activities across different policy areas and hierarchies
as per the strategic needs of the organization and it ensures the effective utilisation of human resources
(Schuler, R.S.,1992).
Strategic HRM is defined as “the pattern of planned human resource deployments and activities intended to
enable an organisation to achieve its goals” (Wright & McMahan, 1992).
The Chartered Institute of Personnel and Development (CIPD) the UK-based professional body for HR
practitioners, defines Strategic HRM as :

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Strategic human resource management (strategic HRM, or SHRM) 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 needs. (CIPD Factsheet).
PRINCIPLES OF STRATEGIC HRM
Strategic HRM provides a perspective on how essential challenges or success factors related to people may be
addressed, and strategic decisions that have a large and long-term impact on the organization's behaviour and
success can be made. It isn't just about "replicating current conditions or historical practices" (Smith, 1982).
Strategic HRM is enabled to the extent that the following seven principles laid out by Ondrack and Nininger
(1984) are followed as a means of building-integrated HR strategies
1. There is an overarching goal, and the human resource aspects of that goal are clear.
2. Within the organisation, there is a mechanism for formulating a well-understood strategy, and human
resource components are explicitly included.
3. Ongoing effective links exist to guarantee that human resource considerations are included in the
corporate decision-making process.
4. The chief executive's job poses a challenge in terms of merging human resource issues with business
needs.
5. Responsibility and accountability for human resource management are established at all levels of the
company.
6. Human resource management initiatives are relevant to the needs of the company.
7. It entails identifying and interacting with the social, political, technological, and economic
environments in which the organisation operates and will operate.
CONCEPTS OF STRATEGIC HRM
Three concepts support strategic HRM: the resource-based view, strategic fit, and strategic flexibility.
THE RESOURCE-BASED VIEW
The resource-based view was developed by Penrose (1959) and it was further expanded by Wernerfelt (1984).
It provides a durable base for strategy (Grant, 1991) and 'contributes to the field of strategic human resource
management by providing a unifying framework. There is a difference between competitive advantage and the
traditional strategy paradigm of the resource-based view in the sense that the competitive advantage view has an
emphasis on the link between strategy and internal resources of the firm. The resource-based view of
competitive advantage focuses on the firm while traditional strategic analysis focuses on the industrial
environment. The resources of the firms are central in consideration when it comes to formulating the strategy
and they are primary constants which ensure the firm‟s success and profitability (Grant, 1991).
Barney (1991,1995) holds that competitive advantage arises when firms in an industry are heterogeneous in
terms of strategic resources under their control and these resources are not perfectly mobile across the firms and
their heterogeneity remains for a long-time. The sustained competitive advantage of the firms depends upon the
unique capabilities and resources they maintain with them in the competitive business environment. These
resources are knowledge, wisdom, risk-taking capacity and judgement of the human resources associated with
the organisation. To obtain sustained competitive advantage for a firm the resources must have the following
four attributes:1. Valuable 2. rare 3. not imitable 4. having no substitute. The managers must look for these
resources inside their organization and then exploit these resources through their organization.
Wright & McMahan (1992) also argued that the competitive advantages arise through human resources
because human resources are different in their availability across the firms in an industry and they maintain
heterogeneity. Second, these resources are immobile because other firms are not in the capacity to recruit them.
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Strategic HRM with a resource-based perspective results in human resource advantage. The main aim of
Strategic HRM is to develop strategic capability. There must be a strategic fit between resources and
opportunities so that these resources can add value to the firm by thinking and acting strategically on the key
strategic issues and these actions are in alignment with the business goals of the organisation. Human resources
can serve as a competitive advantage, this idea is not new. Schuler and McMillan (1984) gave a target/thrust
matrix that explains how HRM gains a competitive advantage. Targets of HR practices represent upstream and
downstream activities that include the firm itself, its buyers, suppliers and services. The potential strategies are
to invest in product differentiation or to emphasize cost/efficiency.
The relevance of the resource-based perspective of the firm is that it emphasises the value of a human capital
management approach to Human resource management and gives the rationale for human resources
development through resourcing, talent management, and learning and development initiatives as a strategy to
raise competitive advantage.
THE STRATEGIC FIT VIEW
Wright & McMahan (1992) explained that strategic fit is two dimensions that differentiate Strategic HRM.
The first is vertical fit that connects human resource methods with the organization's strategic procedures.
Second, horizontal fit stresses horizontal alignment or synchronization of the various human resource
management techniques. Criterion-specific versus criterion-free and internal versus external fit are two of the
five forms of fit that Guest (1997) proposed from the two dimensions. Fit as a strategic interaction, fit as a
contingency, fit as an ideal set of practices, fit as gestalt, and fit as bundles are among the five different types of
fit. It has been shown in Table 1.
Criterion Specific Criterion Free

Internal Fit to an ideal set of practices Gestalt Fit

Bundling Fit
External Fit as a strategic interaction Contingency Fit

Table 1. Forms of HRM Fit Source: Guest, D. E. (1997)

Fit as strategic interaction reflects the conventional strategic approach and aims to connect HR practices to the
external situation. The fact that one can choose how to react to and engage with the environment is a key
component. Once a decision has been taken, HR strategy and practice must reflect that decision.
Contingency fit echoes the conventional contingency approach, which contends that firms reporting greater
performance will have HR practices and policies that are more sensitive to outside variables. These outside
variables could be the characteristics of the market, alterations in the law, or characteristics of a particular
industry. This strategy tends to presume that one form of response will always be the best, but it makes no
mention of the specific type of response or any class of responses, even though there is no reason why this
couldn't be done.
Fit to an ideal set of practices implies that in every organisation there exists a set of best HR practices and these
practices help the organisation to achieve its goals.
Gestalt Fit implies that the success of strategic HRM lies in finding a combination of practices that is the best fit
for the organisation. This approach assumes that the sum of practices is always better than the individual parts.
This may be due to the synergistic sum of all practices or may be due to a specific combination. This
combination is non-replicable and provides organisations with an HR-based strategic competitive advantage.

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Strategic Innovation Practices In Modern Dynamic Business Environment ISBN: 978-3-96492-414-8

Fit as bundles suggest the existence of different patterns or configurations of practices- referred to as bundles of
practices- and the key to determining which are most effective. In general, there could be a variety of alternative
combinations or configurations of practices that may lead to good performance; for example, some businesses
may stress job stability as a foundational component, while others choose training and development or
organisational commitment.
Wood (1999) assessed the effect of multi-contextual elements on HRM system introductions and identified four
separate types of fit on strategic HRM.
Strategic Fit: The link between the HR system and the strategy. HR practices can help organisations and people
focus on achieving organisational goals since strategy implementation is based on the alignment of the HR
system and the strategy.
Internal Fit: Internal fit is the link between several HR practices. This perspective holds that the HR system
should be an internally cohesive system of HR practices.
Organisational Fit: The linkage between the HR system and other important systems in the organisation is
referred to as organisational fit. Relevant systems may include, for example, technological systems, production
systems, and control systems.
Environmental Fit: The interaction between the HR system and the external environment is referred to as
environmental fit. According to this rationale, the HR system should respond to changes in the external
environment as well as the institutional regulations and aspirations that affect the firm.
These four categories of fit constitute the belief that a relatively broad set of contextual factors may influence
the effectiveness of HRM, and they may therefore provide a significant contribution to the HRM fit approach
because integrating different factors in the concept of fit facilitates a more full description of fit in organisations.
THE STRATEGIC FLEXIBILITY VIEW
Strategic flexibility is the ability of a firm to respond to and adapt to the changes in the competitive
environment. The firm quickly reconfigures the resources as per the environmental demands because the
environment can affect the flexibility of the organisation. According to Weick (1979), flexibility necessitates
recognizing changes in the external environment and maintaining a sufficient pool of unique activities to adapt
to these changes. In the strategic HRM literature, Milliman et al. (1991) identified two perspectives on the link
between fit and flexibility. According to the 'orthogonal' viewpoint, fit and flexibility are at different extremes of
the same continuum. The 'complementary' viewpoint contends that fit and flexibility are independent of one
another and that both are required for organisations to function well.
To investigate flexibility in SHRM, it is crucial to remember that the major model is based on Sanchez's (1995)
definition of flexibility. He postulated two kinds of flexibility. The range of various uses to which a resource can
be applied, the expense and difficulty of converting to alternative use, and the time required to do so are all
described as resource flexibility. The ability of a corporation to resynthesize strategy, reconfigure resources, and
redeploy those resources is referred to as coordination flexibility. In a stable environment, HRM practices are
predictable and human resources develop a narrow range of skills while in a dynamic and unpredictable
environment people develop a wider range of skills and engage them in different behaviours. These skills enable
the employees to apply them in different roles and situations (Wright and Snell, 1998). They have suggested
that the concept of fit and flexibility are complementary and can exist at the same time. The only difference is
that fit exists at a point in time while flexibility exists over a period of time.
In the literature on HR flexibility, Ketkar and Sett (2009) introduced the concept of "flexibility inducing" HR
practices. They started with Bhattacharya's measures of skill, behaviour, and HR practice flexibility, but they
also devised a 22-item measure of practices that induce flexibility (for example, 'We use selection procedures
that assist us to detect employee flexibility and adaptation'). They discovered that flexibility-inducing HR
practices were connected to competence, behaviour, and HR practice flexibility in cross-sectional research of
Indian firms. They also discovered that their metrics of flexibility were linked to personnel, operational, and

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financial performance. However, because all variables were collected from the same respondent, drawing any
conclusions about causal links is problematic. Strategic HRM's primary role is to establish fit among a subset of
strategically significant factors while also attempting to establish generic organisational competencies that can
be applied to both discovering and implementing a variety of various strategic initiatives.
THE 5P MODEL OF STRATEGIC HRM
The 5P model of Strategic HRM has been given by Randall S. Schuler, a Research Professor at the Stem School
of Business, New York University, in 1992. This model combines diverse HR functions with business strategy.
The 5Ps in this model include five HR activities. These activities are Human Resources Philosophy, Human
Resources Policy, Human Resources Programs, Human Resources Practices and Human Resources Processes.

Source: Schuler (1992)

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Strategic Innovation Practices In Modern Dynamic Business Environment ISBN: 978-3-96492-414-8

During times of uncertainty, organisations define (or redefine) their strategic business needs. As a result, these
requirements reflect management's overarching strategy for survival, growth, adaptation, and profitability. The
internal and external characteristics of the environment have an impact while defining these strategic business
needs. Before chalking out any plan, the HR manager should have an understanding of these strategic business
needs. There must be a linkage between human resource activities and business needs and it should be the
organisation‟s effort to maintain this link while formulating and implementing the specific strategy. To elicit
particular actions, business needs are typically transformed into more practical statements known as strategic
business objectives. These may be also called vision statements for the business.
HUMAN RESOURCES PHILOSOPHY: This states how human resources are valued, treated and managed
in an organization. This signifies that what are the roles human resources play in the overall success of the
business. This statement is often fairly broad, allowing for interpretation at higher levels of activity within an
enterprise. The HR philosophy of a company can be seen in its statement of business values. Some organisations
use the term culture to describe HR philosophy or HR values.
TCS (Tata Consultancy Services) is an IT solution proving company with its headquarters in Mumbai, India.
The philosophy at TCS: “Building futures through innovation and collective knowledge”. This belief conveys an
optimistic outlook and shows their limitless potential to generate innovations through sustainable development.
HUMAN RESOURCES POLICY: Human resource policies speak about guidelines for taking action on
people-related issues as well as developing HR programs and practices based on the strategic needs of the
business. HR policies here do not speak about the HR policy manual or rule book that prescribes specific actions
in specific situations. People-centred business issues involve human resources and affect the immediate and
long-run success of the business. As per the strategic business need, they may involve recruiting skilled workers,
maintaining them and developing some of them as top international managers so that businesses can meet the
challenges of the global environmental changes.
HR POLICIES AT TCS:
1. Talent Strategy
2. Diverse Global Workforce
3. Any Device Digital Learning System
4. High Retention Rate
HUMAN RESOURCES PROGRAMS: HR programs are shaped by HR policies. These programs are HR-
coordinated initiatives meant to develop, promote and sustain strategic organisational transformation efforts
required by strategic business needs. These efforts start at the top and then flow to the bottom or may begin at
any hierarchical level at one or more places. These initiatives, however, share some common characteristics.
First, they are stimulated by the firm's strategic intents and directions. Second, they contain human resource
management challenges, i.e., they reflect substantial people-related business issues that necessitate a major
organisational transformation effort to address. They also acknowledge the need of setting strategic objectives
against which programme effectiveness may be measured.
HR PROGRAMS AT TCS:
HR consulting: Assists in the simplification of processes, the alignment of business needs, the establishment of
benchmarks, the creation of business cases, the assessment and adoption of digital solutions, the enhancement of
employee experience, the reduction of costs, and the improvement of service delivery.
HR Service Delivery: It includes improving the organisational architecture, deploying an employee experience
layer, setting onboarding and transition workflows, utilising chatbots, and providing continuing service delivery
support.

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Strategic Innovation Practices In Modern Dynamic Business Environment ISBN: 978-3-96492-414-8

HCM technology Transformation: Includes empathy-based design, system review, integration, and testing to
guarantee your talent strategy is achieved successfully.
People Analytics: It entails data consolidation, the construction of a data hub/lake, decision-making metrics,
executive dashboards, and predictive and prescriptive insights.
HUMAN RESOURCES PRACTICES: The fourth P of this model is practices done by human resources. It
involves the roles that individuals play in an organization These roles have been classified into three categories:
leadership, managerial and operational roles.
LEADERSHIP ROLES: These roles involve setting business direction, aligning people, motivating and
inspiring people and bringing transformation as per the strategic needs of the organisation. These roles are about
setting basic values, and ethical values, creating a sense of integrity and striving for continuous improvement in
an organisation as a leader.
MANAGERIAL ROLES: These roles include the traditional roles like planning, organising, directing,
controlling and coordinating.
OPERATIONAL ROLES: These roles are needed in day-to-day operations such as delivering services and
making products. In a service setting, roles may include greeting customers, helping them and getting feedback
about the service. While in the case of the manufacturing organization, the roles may include reading blueprints
accurately and performing operations consistent with benchmarks.
PRACTICES AT TCS: THE HR PRACTICES AT TCS INCLUDE
1. Job Security
2. Selective Hiring
3. Self-Managed or Self-Functional Teams
4. High Salary Contingent on Company Performance
5. Extensive Training through Initial Learning Program, Continuous Learning Program, Leadership
Development Program and Foreign Language Initiative
6. Reduced Status Differentials
7. Information Sharing
HUMAN RESOURCE PROCESSES: This P deals with the identifying, formulating and implementation
process of all other HR activities. HR processes are important Strategic HRM activities.
CONCLUSION: Strategic HRM nowadays has become a more important concept in organisations because
human resources are now treated as the most valuable assets in organisations to have a strategic advantage. An
organisation seeks lots of benefits in the form of a competitive advantage from it. However, there are always a
few challenges in the business that organisations are not aware of them. These challenges can be met by
organisations by creating a value culture in organisations, retaining talents, continuous learning and developing
human resources to bring innovation and transformation. Human resources departments have begun to play a
strategic role in enterprises, and all HR operations are linked with the organisations' goals, vision, and strategies.
The new HRM perspective for the twenty-first century needs HRM to be strategic partners of the organisation,
coordinating all operations and supporting strategies by attracting and keeping talented people
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