There is an ever-present risk that the concept of strategic HRM can become somewhat nebulous – nice to have but hard to realize. The danger of creating a rhetoric/reality gap is acute. Broad and often bland statements of strategic intent can be readily produced. What is much more difficult is to turn them into realistic plans, which are then implemented effectively. Strategic HRM is more about getting things done than thinking about them. It leads to the formulation of HR strategies, which first define what an organization intends to do in order to attain defined goals in overall human resource management policy and in particular areas of HR process and practice, and second set out how they will be implemented.
Difficult though it may be, a strategic approach is desirable in order to give a sense of direction and purpose and as a basis for the development of relevant and coherent HR policies and practices.
Guidance on formulating and implementing HR strategies is given in this chapter under the following headings:
- fundamental process considerations;
- characteristics of the process;
- characteristics of the process;
- developing HR strategies;
- setting out HR strategies;
- conducting a strategic review;
- implementing HR strategies.
- setting out HR strategies;
- conducting a strategic review;
- implementing HR strategies.
FUNDAMENTAL PROCESS CONSIDERATIONS
When considering approaches to the formulation of HR strategy it is necessary to underline the interactive (not unilinear) relationship between business strategy and HRM, as have Hendry and Pettigrew (1990). They emphasize the limits of excessively rationalistic models of strategic and HR planning. The point that HR strategies are not necessarily developed formally and systematically but may instead evolve and emerge has been made by Tyson (1997): ‘The process by which strategies come to be realized is not only through formal HR policies or written directions: strategy realization can also come from actions by managers and others. Since actions provoke reactions (acceptance, confrontation, negotiation etc) these reactions are also part of the strategy process.’
Perhaps the best way to look at the reality of HR strategy formulation is to remember Mintzberg, Quinn and James’s (1988) statement that strategy formulation is about ‘preferences, choices, and matches’ rather than an exercise ‘in applied logic’. It is also desirable to follow Mintzberg’s analysis and treat HR strategy as a perspective rather than a rigorous procedure for mapping the future. Moore (1992) has suggested that Mintzberg has looked inside the organization, indeed inside the heads of the collective strategists, and come to the conclusion that, relative to the organization, strategy is analogous to the personality of an individual. As Mintzberg sees them, all strategies exist in the minds of those people they make an impact upon. What is important is that people in the organization share the same perspective ‘through their intentions and/or by their actions’. This is what Mintzberg calls the collective mind, and reading that mind is essential if we are ‘to understand how intentions… become shared, and how action comes to be exercised on a collective yet consistent basis’.
No one else has made this point so well as Mintzberg, and what the research conducted by Armstrong and Long (1994) revealed is that strategic HRM is being practised in the organizations they visited in the Mintzbergian sense. In other words, intentions are shared amongst the top team and this leads to actions being exercised on a collective yet consistent basis. In each case the shared intentions emerged as a result of strong leadership from the chief executive with the other members of the top team acting jointly in pursuit of 48 l Strategic HRM in action well-defined goals. These goals indicated quite clearly the critical success factors of competence, commitment, performance, contribution and quality that drive the HR strategy.
CHARACTERISTICS OF THE PROCESS
Boxall (1993) has drawn up the following propositions about the formulation of HR strategy from the literature:
- The strategy formation process is complex, and excessively rationalistic models that advocate formalistic linkages between strategic planning and HR planning are not particularly helpful to our understanding of it.
- Business strategy may be an important influence on HR strategy but it is only one of several factors.
- Implicit (if not explicit) in the mix of factors that influence the shape of HR strategies is a set of historical compromises and trade-offs from stakeholders.
It is also necessary to stress that coherent and integrated HR strategies are only likely to be developed if the top team understands and acts upon the strategic imperatives associated with the employment, development and motivation of people. This will be achieved more effectively if there is an HR director who is playing an active and respected role as a business partner. A further consideration is that the effective implementation of HR strategies depends on the involvement, commitment and cooperation of line managers and staff generally. Finally, there is too often a wide gap between the rhetoric of strategic HRM and the reality of its impact, as Gratton et al (1999) emphasize. Good intentions can too easily be subverted by the harsh realities of organizational life. For example, strategic objectives such as increasing commitment by providing more security and offering training to increase employability may have to be abandoned or at least modified because of the short-term demands made on the business to increase shareholder value.
Schools of strategy development
Purcell (2001) has identified three main schools of strategy development: the design school, the process school and the configuration school.
The design school is deliberate and is ‘based on the assumption of economic rationality’. It uses quantitative rather than qualitative tools of analysis and Formulating and implementing HR strategies l 49 focuses on market opportunities and threats. What happens inside the company is ‘mere administration or operations’.
The process school adopts a variety of approaches and is concerned with how strategies are made and what influences strategy formulation: ‘It is much more a study of what actually happens with explanations coming from experience rather than deductive theory.’ As Purcell suggests, the implication of the design concept is that ‘everything is possible’, while that of the process school is that ‘little can be done except swim with the tide of events’. The rationalist approach adopted by Purcell’s design school broadly corresponds with the classical approach to strategy, and Poeter (1985) is a typical representative of it. Purcell’s process school is the postmodern version of strategy of which Mintzberg is the most notable exponent. But as Grant (1991), cited by Purcell (2001), has indicated, the rationalist approach may indeed be over-formalized and rely too much on quantitative data, but the Mintzberg approach, which downplays the role of systematic analysis and emphasizes the role of intuition and vision, fails to provide a clear basis for reasoned choices.
The configuration school draws attention to the beliefs that, first, strategies vary according to the life cycle of the organization, second, they will be contingent to the sector of the organization and, third, they will be about change and transformation. The focus is on implementation strategies, which is where Purcell thinks HR can play a major role.
Levels of strategic decision making
Ideally, the formulation of HR strategies is conceived as a process that is closely aligned to the formulation of business strategies. HR strategy can influence as well as be influenced by business strategy. In reality, however, HR strategies are more likely to flow from business strategies, which will be dominated by product/market and financial considerations. But there is still room for HR to make a useful, even essential, contribution at the stage when business strategies are conceived, for example by focusing on resource issues. This contribution may be more significant if strategy formulation is an emergent or evolutionary process – HR strategic issues will then be dealt with as they arise during the course of formulating and implementing the corporate strategy.
A distinction is made by Purcell (1989) and Purcell and Ahlstrand (1994) between:
- ‘upstream’ first-order decisions, which are concerned with the long-term direction of the enterprise or the scope of its activities;
- ‘downstream’ second-order decisions, which are concerned with internal operating procedures and how the firm is organized to achieve its goals;
-‘downstream’ third-order decisions, which are concerned with choices on human resource structures and approaches and are strategic in the sense that they establish the basic parameters of employee relations management in the firm.
It can indeed be argued that HR strategies, like other functional strategies such as product development, manufacturing and the introduction of new technology, will be developed within the context of the overall business strategy, but this need not imply that HR strategies come third in the pecking order. Observations made by Armstrong and Long (1994) during research into the strategy formulation processes of 10 large UK organizations suggested that there were only two levels of strategy formulation: 1) the corporate strategy relating to the vision and mission of the organization but often expressed in terms of marketing and financial objectives; and 2) the specific strategies within the corporate strategy concerning productmarket
development, acquisitions and divestments, human resources, finance, new technology, organization and such overall aspects of management as quality, flexibility, productivity, innovation and cost reduction.
development, acquisitions and divestments, human resources, finance, new technology, organization and such overall aspects of management as quality, flexibility, productivity, innovation and cost reduction.
Strategic options and choices
The process of developing HR strategies involves generating strategic HRM options and then making appropriate strategic choices. It has been noted by Cappelli (1999) that: ‘The choice of practices that an employer pursues is heavily contingent on a number of factors at the organizational level, including their own business and production strategies, support of HR policies, and cooperative labour relations.’ The process of developing HR strategies involves the adoption of a contingent approach in generating strategic HRM options and then making appropriate strategic choices. There is seldom if ever one right way forward.
Choices should relate to but also anticipate the critical needs of the business. They should be founded on detailed analysis and study, not just wishful thinking, and should incorporate the experienced and collective judgement of top management about the organizational requirements, while also taking into account the needs of line managers and employees generally. The emerging strategies should anticipate the problems of implementation that may arise if line managers are not committed to the strategy and/or lack the skills and time to play their part, and the strategies should be capable of being turned into actionable programmes.
DEVELOPING HR STRATEGIES
An overall approach
The following six-step approach is proposed by Gratton (2000):
1. Build the guiding coalition – involve people from all parts of the business.
2. Image the future – create a shared vision of areas of strategic importance.
3. Understand current capabilities and identify the gap – establish ‘where the organization is now and the gap between aspirations for the future and the reality of the present’.
4. Create a map of the system – ‘ensure that the parts can be built into a meaningful whole’.
5. Model the dynamics of the system – ensure that the dynamic nature of the future is taken into account.
6. Bridge into action – agree the broad themes for action and the specific issues related to those themes, develop guiding principles, involve line managers and create cross-functional teams to identify goals and performance indicators.
But many different routes may be followed when formulating HR strategies – there is no one right way. On the basis of their research in 30 well-known companies, Tyson and Witcher (1994) commented that: ‘The different approaches to strategy formation reflect different ways to manage change and different ways to bring the people part of the business into line with business goals.’
In developing HR strategies, process may be as important as content. Tyson and Witcher (1994) also noted from their research that: ‘The process of formulating HR strategy was often as important as the content of the strategy ultimately agreed. It was argued that, by working through strategic issues and highlighting points of tension, new ideas emerged and a consensus over goals was found.’
A methodology for formulating HR strategies
A methodology for formulating HR strategies was developed by Dyer andHolder (1988) as follows:
1. Assess feasibility – from an HR point of view, feasibility depends on whether the numbers and types of key people required to make the proposal succeed can be obtained on a timely basis and at a reasonable cost, and whether the behavioural expectations assumed by the strategy are realistic (eg retention rates and productivity levels).
2. Determine desirability – examine the implications of strategy in terms of sacrosanct HR policies (eg a strategy of rapid retrenchment would have to be called into question by a company with a full employment policy).
3. Determine goals – these indicate the main issues to be worked on and they derive primarily from the content of the business strategy. For example, a strategy to become a lower-cost producer would require the reduction of labour costs. This in turn translates into two types of HR goals: higher performance standards (contribution) and reduced headcounts (composition).
4. Decide means of achieving goals – the general rule is that the closer the external and internal fit, the better the strategy, consistent with the need to adapt flexibly to change. External fit refers to the degree of consistency between HR goals on the one hand and the exigencies of the underlying business strategy and relevant environmental conditions on the other. Internal fit measures the extent to which HR means follow from the HR goals and other relevant environmental conditions, as well as the degree of coherency or synergy among the various HR means.
Specific approaches to strategy development
Three specific approaches to the development of HR strategies were defined by Delery and Doty (1996) as the ‘universalistic’, the ‘contingency’ and the ‘configurational’. Richardson and Thompson (1999) redefined the first two approaches as best practice and best fit, and retained the word ‘configurational’, meaning the use of ‘bundles’, as the third approach. Guest (1997) refers to fit as an ideal set of practices, fit as contingency, and fit as ‘bundles’. These approaches are discussed below.
The best practice approach
This approach is based on the assumption that there is a set of best HRM practices and that adopting them will inevitably lead to superior organizational performance. Four definitions of best practice are given in Table 5.1.
The ‘best practice’ rubric has been attacked by a number of commentators. Cappelli and Crocker-Hefter (1996) comment that the notion of a single set of best practices has been overstated: ‘There are examples in virtually every industry of firms that have very distinctive management practices. Distinctive human resource practices shape the core competencies that determine how firms compete.’ Purcell (1999) has also criticized the best practice or universalist view by pointing out the inconsistency between a belief in best practice and the resource-based view that focuses on the intangible assets, including HR, that allow the firm to do better than its competitors. He asks how can ‘the universalism of best practice be squared with the view that only some resources and routines are important and valuable by being rare and imperfectly imitable?’ The danger, as Legge (1995) points out, is that of ‘mechanistically matching strategy with HRM policies and practices’.
In accordance with contingency theory, which emphasizes the importance of interactions between organizations and their environments so that what organizations do is dependent on the context in which they operate, it is difficult to accept that there is any such thing as universal best practice. What works well in one organization will not necessarily work well in another because it may not fit its strategy, culture, management style, technology or working practices. As Becker et al (1997) remark: ‘Organizational high-performance work systems are highly idiosyncratic and must be tailored carefully to each firm’s individual situation to achieve optimum results.’ But a knowledge of best practice as long as it is understood why it is best practice can inform decisions on what practices are most likely to fit the needs of the organization. And Becker and Gerhart (1996) argue that the idea of best practice might be more appropriate for identifying the principles underlying the choice of practices, as opposed to the practices themselves.
The best fit approach emphasizes the importance of ensuring that HR strategies are appropriate to the circumstances of the organization, including its culture, operational processes and external environment. HR strategies have to take account of the particular needs of both the organization and its people. For the reasons given above, it is accepted by most commentators that ‘best fit’ is more important than ‘best practice’. There can be no universal prescriptions for HRM policies and practices. It all depends. This is not to say that ‘good practice’, or ‘leading edge practice’, ie practice that does well in one successful environment, should be ignored. ‘Benchmarking’ (comparing what the organization does with what is done elsewhere) is a valuable way of identifying areas for innovation or development that are practised to good effect elsewhere by leading companies. But having learnt about what works and, ideally, what does not work in comparable organizations, it is up to the firm to decide what may be relevant in general terms and what lessons can be learnt that can be adapted to fit its particular strategic and operational requirements. The starting point should be an analysis of the business needs of the firm within its context (culture, structure, technology and processes). This may indicate clearly what has to be done. Thereafter, it may be useful to pick and mix various ‘best practice’ ingredients, and develop an approach that applies Formulating and implementing HR strategies l 55 those that are appropriate in a way that is aligned to the identified business needs.
But there are problems with the best fit approach, as stated by Purcell (1999) who wrote: ‘Meanwhile, the search for a contingency or matching model of HRM is also limited by the impossibility of modeling all the contingent variables, the difficulty of showing their interconnection, and the way in which changes in one variable have an impact on others.’ In Purcell’s view, organizations should be less concerned with best fit and best practice and much more sensitive to processes of organizational change so that they can ‘avoid being trapped in the logic of rational choice’.
The configurational approach (bundling)
As Richardson and Thompson (1999) comment: ‘A strategy’s success turns on combining “vertical” or external fit and “horizontal” or internal fit.’ They conclude that a firm with bundles of HR practices should have a higher level of performance, providing it also achieves high levels of fit with its competitive strategy. Emphasis is given to the importance of ‘bundling’ – the development and implementation of several HR practices together so that they are interrelated and therefore complement and reinforce each other. This is the process of horizontal integration, which is also referred to as the use of ‘complementarities’ (MacDuffie, 1995) or as the adoption of a ‘configurational mode’ (Delery and Doty, 1996). MacDuffie (1995) explained the concept of bundling as follows: ‘Implicit in the notion of a “bundle” is the idea that practices within bundles are interrelated and internally consistent, and that “more is better” with respect to the impact on performance, because of the overlapping and mutually reinforcing effect of multiple practices.’
Dyer and Reeves (1995) note that: ‘The logic in favour of bundling is straightforward… Since employee performance is a function of both ability and motivation, it makes sense to have practices aimed at enhancing both.’ Thus there are several ways in which employees can acquire needed skills (such as careful selection and training) and multiple incentives to enhance motivation (different forms of financial and non-financial rewards). Astudy by Dyer and Reeves (1995) of various models listing HR practices that create a link between HRM and business performance found that the activities appearing in most of the models were involvement, careful selection, extensive training and contingent compensation.
On the basis of his research in flexible production manufacturing plants in the United States, MacDuffie (1995) noted that flexible production gives employees a much more central role in the production system. They have to resolve problems as they appear on the line and this means that they 56 l Strategic HRM in action have to possess both a conceptual grasp of the production process and the analytical skills to identify the root cause of problems. But the multiple skills and conceptual knowledge developed by the workforce in flexible
production firms are of little use unless workers are motivated to contribute mental as well as physical effort. Such discretionary effort on problem solving will only be contributed if workers ‘believe that their individual interests are aligned with those of the company, and that the company will make a reciprocal investment in their well-being’. This means that flexible production techniques have to be supported by bundles of high-commitment human resource practices such as employment security, pay that is partly contingent on performance, and a reduction of status barriers between managers and workers. Company investment in building worker skills also contributes to this ‘psychological contract of reciprocal commitment’. The research indicated that plants using flexible production systems that bundle human resource practices into a system that is integrated with production/business strategy outperform plants using more traditional mass production systems in both productivity and
Following research in 43 automobile processing plants in the United States, Pil and MacDuffie (1996) established that, when a high-involvement work practice is introduced in the presence of complementary HR practices, not only does the new work practice produce an incremental improvement in performance but so do the complementary practices.
The aim of bundling is to achieve coherence, which is one of the four ‘meanings’ of strategic HRM defined by Hendry and Pettigrew (1986). Coherence exists when a mutually reinforcing set of HR policies and practices have been developed that jointly contribute to the attainment of the organization’s strategies for matching resources to organizational needs, improving performance and quality and, in commercial enterprises, achieving competitive advantage.
The process of bundling HR strategies is an important aspect of the concept of strategic HRM. In a sense, strategic HRM is holistic; it is concerned with the organization as a total entity and addresses what needs to be done across the organization as a whole in order to enable it to achieve its corporate strategic objectives. It is not interested in isolated programmes and techniques, or in the ad hoc development of HR practices.
In their discussion of the four policy areas of HRM (employee influence, human resource management flow, reward systems and work systems) Beer et al (1984) suggested that this framework can stimulate managers to plan how to accomplish the major HRM tasks ‘in a unified, coherent manner rather than in a disjointed approach based on some combination of past practice, accident and ad hoc response to outside pressures’.
David Guest (1989b) includes in his set of propositions about HRM the point that strategic integration is about, inter alia, the ability of the organization to ensure that the various aspects of HRM cohere. One way of looking at the concept is to say that some measure of coherence will be achieved if there is an overriding strategic imperative or driving force such as customer service, quality, performance or the need to develop skills and competences, and this initiates various processes and policies that are designed to link together and operate in concert to deliver certain defined results. For example, if the driving force were to improve performance, competence profiling techniques could be used to specify recruitment standards, identify learning and development needs, and indicate the standards of behaviour or performance required. The competence frameworks could be used as the basis for human resource planning and in development centres. They could also be incorporated into performance management processes in which the aims are primarily developmental and competencies are used as criteria for reviewing behaviour and assessing learning and development needs. Job evaluation could be based on levels of competence, and competence-based pay systems could be introduced. This ideal will be difficult to achieve as a ‘grand design’ that can be put into immediate effect, and may have to be developed progressively.
The problem with the bundling approach is that of deciding which is the best way to relate different practices together. There is no evidence that one bundle is generally better than another, although the use of performance management practices and competence frameworks are two ways that are typically adopted to provide for coherence across a range of HR activities. Pace the findings of MacDuffie, there is no conclusive proof that in the UK bundling has actually improved performance.
HR strategies need to be congruent with the existing culture of the organization or designed to produce cultural change in specified directions. This will be a necessary factor in the formulation stage but could be a vital factor when it comes to implementation. In effect, if what is proposed is in line with ‘the way we do things around here’, then it will be more readily accepted. However, in the more likely event that it changes ‘the way we do things around here’, then careful attention has to be given to the real problems that may occur in the process of trying to embed the new initiative in the organization.
Fit with the business strategy
The key business issues that may impact on HR strategies include:
- intentions concerning growth or retrenchment, acquisitions, mergers, divestments, diversification, product/market development;
- proposals on increasing competitive advantage through innovation leading to product/service differentiation, productivity gains, improved quality/customer service, cost reduction (downsizing);
- the felt need to develop a more positive, performance-orientated culture and other culture management imperatives associated with changes in the philosophies of the organization in such areas as gaining commitment, mutuality, communications, involvement, devolution and teamwork.
Business strategies in these areas may be influenced by HR factors, although not excessively so. HR strategies are concerned with making business strategies work. But the business strategy must take into account key HR opportunities and constraints.
It is therefore necessary to analyse the existing culture to provide information on how HR strategies will need to be shaped. The analysis may cover the following 12 points listed by Cooke and Lafferty (1989) in their organizational culture inventory:
1.humanistic-helpful – organizations managed in a participative and person-centred way;
2.affiliative – organizations that place a high priority on constructive relationships;
3.approval – organizations in which conflicts are avoided and interpersonal relationships are pleasant – at least superficially;
4.conventional – conservative, traditional and bureaucratically controlled
5.dependent – hierarchically controlled and non-participative organizations;
6.avoidance – organizations that fail to reward success but punish mistakes;
7.oppositional – organizations in which confrontation prevails and negativism is rewarded;
8.power – organizations structured on the basis of the authority inherent in members’ positions;
9.competitive – a culture in which winning is valued and members are rewarded for outperforming one another;
10.competence/perfectionist – organizations in which perfectionism, persistence and hard work are valued;
11.achievement – organizations that do things well and value members who set and accomplish challenging but realistic goals;
12.self-actualization – organizations that value creativity, quality over quantity, and both task accomplishment and individual growth.
Achieving vertical fit – integrating business and HR strategies Wright and Snell (1998) suggest that seeking fit requires knowledge of the skills and behaviour necessary to implement the strategy, knowledge of the HRM practices necessary to elicit those skills and behaviours, and the ability to implement the desired system of HRM practices quickly.
When considering how to integrate business and HR strategies it should be remembered that business and HR issues influence each other and in turn influence corporate and business unit strategies. It is also necessary to note that, in establishing these links, account must be taken of the fact that strategies for change have also to be integrated with changes in the external and internal environments. Fit may exist at a point in time but circumstances will change and fit no longer exists. An excessive pursuit of ‘fit’ with the status quo will inhibit the flexibility of approach that is essential in turbulent conditions. This is the ‘temporal’ factor in achieving fit identified by Gratton et al (1999). An additional factor that will make the achievement of good vertical fit difficult is that the business strategy may not be clearly defined – it could be in an emergent or evolutionary state. This would mean that there could be nothing with which to fit the HR strategy.
Making the link
But an attempt can be made to understand the direction in which the organization is going, even if this is not expressed in a formal strategic plan. All businesses have strategies in the form of intentions although these may be ill formed and subject to change. The ideal of achieving a link in rigorous terms may be difficult to attain. Cooke and Armstrong (1990) suggested that one approach might be to find a means of quantifying the additional resources required by HR overall and at the level of each element of HR strategy, and measuring and comparing the marginal return on investing in each element. But it is highly unlikely that this approach would be practicable.
The link must therefore be judgemental, but it could still be fairly rigorous. Conceptually, the approach would be to develop a matrix, as illus- 60 l Strategic HRM in action trated in Table 5.2, which for each of the key elements of business strategy identifies the associated key elements of HR strategy.
Even if the approach cannot be as rigorous as this, the principle of considering each key area of business strategy and, reciprocally, the HR implications provides a basis for integration.
An alternative framework for linking business and HR strategies is a competitive strategy approach, which identifies the different HR strategies that can relate to the firm’s competitive strategies, including those listed by Porter (1985). An illustration of how this might be expressed is given in Table 5.3.
Achieving horizontal integration
Horizontal integration or fit is achieved when the various HR strategies cohere and are mutually supporting. This can be attained by the process of ‘bundling’ as described earlier. Bundling is carried out by, first, identifying appropriate HR practices, second, assessing how the items in the bundle can be linked together so that they become mutually reinforcing and therefore coherent, which may mean identifying integrating practices such as the use of competence-based processes and performance management, and, finally, drawing up programmes for the development of these practices, paying particular attention to the links between them.
Two frequently used integrating processes are performance management and the use of competencies. The ways in which they can provide the ‘glue’ between different HR practices are illustrated in Figures 5.1 and 5.2.
Horizontal integration can also be achieved by the development of career family grading structures, which define the competencies required at each level, thus indicating career paths, and also serve as the framework for pay structures.
Linking HR practices
Bundling is not just a pick-and-mix process. The aim should be, first, to establish overriding areas of HR practice that need to be applied generally and, second, to examine particular practices to establish links or common ground between them so that they do provide mutual support.
The overarching areas of HR practice will be concerned with organization development, the management of change, creating a positive employment relationship, developing mutual commitment policies, communicating with employees and giving employees a voice (involvement and participation). These should be taken into account generally and their relevance should be considered when introducing any specific practices concerned with resourcing, human resource development and reward management. It is necessary to take deliberate steps in the latter areas to achieve coherence.
SETTING OUT THE STRATEGY
The following are the headings under which a strategy and the plans for implementing it could be set out:
– business needs in terms of the key elements of the business strategy;
– environmental factors and analysis (SWOT/PESTLE);
– cultural factors – possible helps or hindrances to implementation.
2. Content – details of the proposed HR strategy.
3. Rationale – the business case for the strategy against the background of business needs and environmental/cultural factors.
4. Implementation plan
– action programme;
– responsibility for each stage;
– resources required;
– proposed arrangements for communication, consultation, involvement and training;
– project management arrangements.
5. Costs and benefits analysis – an assessment of the resource implications of the plan (costs, people and facilities) and the benefits that will accrue, for the organization as a whole, for line managers and for individual employees (so far as possible these benefits should be quantified in terms of value added).
But there is no standard model; it all depends on the circumstances of the organization.
CONDUCTING A STRATEGIC REVIEW
Although HR strategies can emerge and evolve under the influence of events, there is much to be said for adopting a systematic approach to their formulation. This can take the form of a strategic review, which assesses strategy requirements in the light of an analysis of present and future business and people needs. Such a review provides answers to three basic questions:
1. Where are we now?
2. Where do we want to be in one, two or three years’ time?
3. How are we going to get there?
The stages of a strategic review are illustrated in Figure 5.3.
The following is an example of a strategic review as carried out in a large not-for-profit organization.
HR strategic review
A major strategic review of the business has taken place and a new Chief Executive and other members of the senior management team have been appointed within the last two years. In essence, the review led to a business strategy that:
- redefined the purpose of the organization;
- emphasized that the core purpose will continue to be given absolute priority;
- set out the need to secure the future of activities outside its core purpose; and importantly
- made proposals designed to shape and secure the financial future.
HR issues emerging from the strategic review
The key HR issues emerging from the strategic review are that:
- it will lead to the transformation of the organization;
- this involves major cultural changes, for example:
* some change in the focus to activities other than the core activity;
* a move away from a paternalistic, command-and-control organization;
* introducing processes that enable the organization to operate more flexibly;
* clarifying expectations but simultaneously gaining commitment to managing and carrying out activities on the basis of increased selfregulation and decision making at an operational level rather than pressures or instructions from above;
* more emphasis on managerial as distinct from technical skills for managers;
* greater concentration on the financial requirement to balance income and expenditure while continuing to develop and improve service delivery;
- a significant change in the regional organization and the roles of the management team and regional controllers/managers is taking place; this means that new skills will have to be used that some existing managers may not possess;
- from a human resource planning viewpoint, decisions will have to be made on the capabilities required in the future at managerial and other levels, and these may involve establishing policies for recruiting new managerial talent from outside the organization rather than relying on promotion from within; l difficult decisions may have to be made on retaining some existing managers in their posts who lack the required skills, and there may be a requirement to reduce staff numbers in the future;
- more positively, management development and career planning activities will need to be introduced that reflect the changing culture and structure of the organization and the different roles managers and others will be expected to play.
The provision of the core HR services such as recruitment and training is not an issue.
Steps to address the issues
Steps have already been taken to address these issues, for example:
- major communication initiatives introduced by the Chief Executive;
- a review of the pay system, which will no doubt bear in mind the unsatisfactory experience of the organization in applying performance management/pay procedures a few years ago;
- decisions on the shape of the regional organization;
- an analysis and diagnosis on cultural issues, ie what the present culture is and what it should become.
Against this background, it is necessary to build on the steps already taken by:
- adopting a systematic approach to the achievement of culture change, bearing in mind that this can be a long haul because it involves changing behaviour and attitudes at all levels and is difficult if not impossible to attain simply by managerial dictation;
- developing an HR strategy that, as a declaration of intent, will provide a framework for the development of HR processes and procedures that address the issues referred to above; this involves:
> strategic integration, matching HR policies and practices to the business strategy;
> a coherent approach to the development of these processes so that HR activities are interrelated and mutually reinforcing;
> a planned approach, but one that is not bureaucratic;
> an emphasis on the need to achieve flexibility, quality and cost-effectiveness in the delivery of HR services;
- focusing on the activities that will not only deal with the HR issues, but also help to achieve culture change, namely:The HR strategy will have to establish priorities. Because the thrust of the strategic review initially makes most impact on managers, the priority may well be given to people at this level but without neglecting the needs of the rest of the staff.The problem with strategic HRM as noted by Gratton et al (1999) is that, too often, there is a gap between what the strategy states will be achieved and what actually happens to it. As they put it:
One principal strand that has run through this entire book is the disjunction between rhetoric and reality in the area of human resource management, between HRM theory and HRM practice, between what the HR function says it is doing and how that practice is perceived by employees, and between what senior management believes to be the role of the HR function, and the role it actually plays.
The factors identified by Gratton et al that contribute to creating this gap included:
- the tendency of employees in diverse organizations only to accept initiatives they perceive to be relevant to their own areas;
- the tendency of long-serving employees to cling to the status quo;
- complex or ambiguous initiatives may not be understood by employees or will be perceived differently by them, especially in large, diverse organizations;
- it is more difficult to gain acceptance of non-routine initiatives;
- employees will be hostile to initiatives if they are believed to be in conflict with the organization’s identity, eg downsizing in a culture of ‘job-for-life’;
- the initiative is seen as a threat; inconsistencies between corporate strategies and values;
- the extent to which senior management is trusted;
- the perceived fairness of the initiative;
- the extent to which existing processes could help to embed the initiative;
- a bureaucratic culture that leads to inertia.
Barriers to the implementation of HR strategies
Each of the factors listed by Gratton et al can create barriers to the successful implementation of HR strategies. Other major barriers include failure to understand the strategic needs of the business, inadequate assessment of the environmental and cultural factors that affect the content of the strategies, and the development of ill-conceived and irrelevant initiatives, possibly because they are current fads or because there has been an illdigested analysis of best practice that does not fit the organization’s requirements. These problems are compounded when insufficient attention is paid
to practical implementation problems, the important role of line managers in implementing strategies and the need to have established supporting processes for the initiative (eg performance management to support performance pay).
Overcoming the barriers
To overcome these barriers it is necessary to: 1) conduct a rigorous preliminary analysis of needs and requirements; 2) formulate the strategy; 3) enlist support for the strategy; 4) assess barriers; 5) prepare action plans; 6) project-manage implementation; and 7) follow up and evaluate progress so that remedial action can be taken as necessary.
– resourcing: deciding what sort of people are required and ensuring that they are available;
– human resource development: identifying the skills required, auditing the skills available, taking steps to match skills to present and future business requirements and initiating processes for enhancing organizational and individual learning related to business needs;
– reward: using reward processes to ensure that people are valued according to their contribution and to convey messages about the behaviour, capabilities and results expected of them;
– employee relations: building on the steps already taken to communicate to employees and to involve them in decision-making processes on matters that concern them.
IMPLEMENTING HR STRATEGIES
Because strategies tend to be expressed as abstractions, they must be translated into programmes with clearly stated objectives and deliverables. But getting strategies into action is not easy. The term ‘strategic HRM’ has been devalued in some quarters, sometimes to mean no more than a few generalized ideas about HR policies and at other times to describe a short-term plan, for example to increase the retention rate of graduates. It must be emphasized that HR strategies are not just programmes, policies, or plans concerning HR issues that the HR department happens to feel are important. Piecemeal initiatives do not constitute strategy.