Strategic Human Resource Management




Michael Armstrong

London and Philadelphia






Publisher’s note

Every possible effort has been made to ensure that the information contained in this book is

accurate at the time of going to press, and the publishers and authors cannot accept responsibility

for any errors or omissions, however caused. No responsibility for loss or damage occasioned

to any person acting, or refraining from action, as a result of the material in this

publication can be accepted by the editor, the publisher or the author.

First published in Great Britain in 1992 as Human Resource Management: Strategy and Action

Second edition published as Strategic Human Resource Management: A Guide to Action 2000

Third edition 2006

Apart from any fair dealing for the purposes of research or private study, or criticism or

review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may

only be reproduced, stored or transmitted, in any form or by any means, with the prior

permission in writing of the publishers, or in the case of reprographic reproduction in accordance

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outside these terms should be sent to the publishers at the undermentioned addresses:

120 Pentonville Road 525 South 4th Street, #241

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United Kingdom USA


© Michael Armstrong, 1992, 2000, 2006

The right of Michael Armstrong to be identified as the author of this work has been asserted

by him in accordance with the Copyright, Designs and Patents Act 1988.

ISBN 0 7494 4511 4

British Library Cataloguing-in-Publication Data

ACIP record for this book is available from the British Library.

Library of Congress Cataloging-in-Publication Data

Armstrong, Michael, 1928–

Strategic human resource management : a guide to action / Michael

Armstrong.-- 3rd ed.

p. cm.

Includes bibliographical references and index.

ISBN 0-7494-4511-4

1. Personnel management. I. Title.

HF5549.A89784 2005

658.3 01--dc22


Typeset by Saxon Graphics Ltd, Derby

Printed and bound in the United States by Thomson-Shore, Inc.



Preface ix



1 Human resource management 3

Human resource management defined 3; Models of HRM 4;

Aims of HRM 6; Characteristics of HRM 8; Reservations about

HRM 13; HRM and personnel management 16

2 Strategy: concept and process 19

Strategy defined 19; The concept of strategy 20; The

fundamentals of strategy 22; The formulation of strategy 24

3 Strategic human resource management: concept and process 29

Strategic HRM defined 29; The meaning of strategic HRM 30;

Aims of strategic HRM 30; Approaches to strategic HRM 31;

Limitations to the concept of strategic HRM 35; Conclusion 35

4 HR strategies 37

HR strategies defined 37; Types of HR strategies 38; Criteria for

an effective HR strategy 42




5 Formulating and implementing HR strategies 47

Fundamental process considerations 48; Characteristics of the

process 49; Developing HR strategies 52; Setting out the

strategy 64; Conducting a strategic review 65; Implementing HR

strategies 69

6 Improving business performance through strategic HRM 71

How HR impacts on organizational performance 72; How HRM

strategies make an impact 75; How strategic HRM concepts

impact on practice 77

7 Roles in strategic HRM 79

The strategic role of top management 79; The strategic role of

front-line management 79; The strategic role of the HR director 81;

The strategic role of HR specialists 81


8 Strategies for improving organizational effectiveness 89

Strategies for improving organizational effectiveness 90;

Strategies for organizational development 91; Strategies for

organizational transformation 95; Strategies for culture

management 99; Strategies for knowledge management 106;

Commitment strategy 110; Strategies for developing a climate

of trust 112; Quality management strategies 114; Continuous

improvement strategies 115; Customer service strategy 115

9 Resourcing strategy 117

Resourcing strategy defined 117; The objective of resourcing

strategy 117; The strategic HRM approach to resourcing 118;

Integrating business and resourcing strategies 118; Bundling

resourcing strategies and activities 119; The components of

employee resourcing strategy 120; Human resource

planning 120; Resourcing plans 123; Retention strategy 126;

Flexibility strategy 130; Talent management strategy 130

10 Learning and development strategy 133

Strategic HRD 133; Strategies for creating a learning

culture 136; Organizational learning strategies 137;

vi l Contents

Learning organization strategy 138; Individual learning

strategies 139

11 Strategies for managing performance 141

Performance management 142; Performance management

defined 142; Purpose of performance management 143;

Performance management concerns 143; The scope of

performance management strategy 144; The process of

performance management 145; Conclusion 147

12 Reward strategy 149

Reward strategy defined 149; Why have a reward strategy? 149;

Characteristics of reward strategy 150; The structure of reward

strategy 150; The content of reward strategy 151; Guiding

principles 154; Developing reward strategy 155; Effective

reward strategies 157; Reward strategy and line management

capability 158

13 Employee relations strategy 159

Employee relations strategy defined 159; Concerns of employee

relations strategy 160; Strategic directions 160; The background

to employee relations strategies 161; The HRM approach to

employee relations 161; Policy options 163; Formulating

employee relations strategies 163; Partnership agreements 164;

Employee voice strategies 166

References 169

Further reading 179

Author index 185

Subject index 189

Contents l vii


This third edition of Strategic Human Resource Management has been substantially

revised to incorporate the latest research and thinking. A number of

chapters such as those concerned with strategic HRM in general in Parts 1

and 2 have been almost completely rewritten, as has Chapter 12 on reward

strategies. A new chapter on enhancing organizational effectiveness has

been included and revisions made to all the other chapters.

The book is set out under the following headings:

• Part 1: The framework of strategic human resource management. This

provides an introduction to HRM, the general concept of strategy and

the process of strategic HRM.

• Part 2: Strategic human resource management in action. This describes the

formulation and implementation of HRM strategies, the impact of

strategic human resource management, the strategic contribution of the

HR function, and roles in strategic HRM.

• Part 3: HR strategies. This covers each of the main areas in which HR

strategies are developed, namely: enhancing organizational effectiveness,

resourcing, learning and development, managing performance, reward

and employee relations.


Part 1

The framework of strategic

human resource




Human resource


In this chapter, the concept of human resource management (HRM) is

defined initially and the various models of HRM are described.

Consideration is then given to its aims and characteristics. The chapter

concludes with a review of reservations about HRM and the relationship

between HRM and personnel management.


Human resource management is defined as a strategic and coherent

approach to the management of an organization’s most valued assets – the

people working there who individually and collectively contribute to the

achievement of its objectives.

John Storey (1989) believes that HRM can be regarded as a ‘set of interrelated

policies with an ideological and philosophical underpinning’. He

suggests four aspects that constitute the meaningful version of HRM:

l a particular constellation of beliefs and assumptions;

l a strategic thrust informing decisions about people management;


l the central involvement of line managers;

l reliance upon a set of ‘levers’ to shape the employment relationship.


The matching model of HRM

One of the first explicit statements of the HRM concept was made by the

Michigan School (Fombrun et al, 1984). They held that HR systems and the

organization structure should be managed in a way that is congruent with

organizational strategy (hence the name ‘matching model’). They further

explained that there is a human resource cycle (an adaptation of which is

illustrated in Figure 1.1), which consists of four generic processes or functions

that are performed in all organizations. These are:

l selection – matching available human resources to jobs;

l appraisal (performance management);

l rewards – ‘the reward system is one of the most under-utilized and

mishandled managerial tools for driving organizational performance’; it

must reward short- as well as long-term achievements, bearing in mind that

‘business must perform in the present to succeed in the future’;

l development – developing high-quality employees.

4 l The framework of strategic HRM







Figure 1.1 The human resource cycle (adapted from Fombrun et al, 1984)

The Harvard framework

The other founding fathers of HRM were the Harvard school of Beer et al

(1984) who developed what Boxall (1992) calls the ‘Harvard framework’.

This framework is based on the belief that the problems of historical

personnel management can only be solved:

when general managers develop a viewpoint of how they wish to see

employees involved in and developed by the enterprise, and of what HRM

policies and practices may achieve those goals. Without either a central

philosophy or a strategic vision – which can be provided only by general

managers – HRM is likely to remain a set of independent activities, each

guided by its own practice tradition.

Beer and his colleagues believed that ‘today, many pressures are demanding

a broader, more comprehensive and more strategic perspective with regard

to the organization’s human resources’. These pressures have created a need

for: ‘A longer-term perspective in managing people and consideration of

people as potential assets rather than merely a variable cost’. They were the

first to underline the HRM tenet that it belongs to line managers. They also

stated that: ‘human resource management involves all management decisions

and action that affect the nature of the relationship between the organization

and its employees – its human resources’.

The Harvard school suggested that HRM had two characteristic

features: 1) line managers accept more responsibility for ensuring the

alignment of competitive strategy and personnel policies; 2) personnel has

the mission of setting policies that govern how personnel activities are

developed and implemented in ways that make them more mutually reinforcing.

The Harvard framework as modelled by Beer et al is shown in

Figure 1.2.

According to Boxall (1992) the advantages of this model are that it:

l incorporates recognition of a range of stakeholder interests;

l recognizes the importance of ‘trade-offs’, either explicitly or implicitly,

between the interests of owners and those of employees as well as

between various interest groups;

l widens the context of HRM to include ‘employee influence’, the organization

of work and the associated question of supervisory style;

l acknowledges a broad range of contextual influences on management’s

choice of strategy, suggesting a meshing of both product market and sociocultural


l emphasizes strategic choice – it is not driven by situational or environmental


Human resource management l 5

The Harvard model has exerted considerable influence over the theory and

practice of HRM, particularly in its emphasis on the fact that HRM is the

concern of management in general rather than the personnel function in



The overall purpose of human resource management is to ensure that the

organization is able to achieve success through people. As Ulrich and Lake

(1990) remark: ‘HRM systems can be the source of organizational capabilities

that allow firms to learn and capitalize on new opportunities.’

Specifically, HRM is concerned with achieving objectives in the areas

summarized below.

Organizational effectiveness

‘Distinctive human resource practices shape the core competencies that

determine how firms compete’ (Cappelli and Crocker-Hefter, 1996).

6 l The framework of strategic HRM



• shareholders

• management

• employees

• government

• unions

Situational factors:

work force


business strategy

and conditions



labour market


task technology

laws and social


HRM policy





resource flow



• work systems

HR outcomes:







• individual






Figure 1.2 The Harvard model of HRM (from Beer et al, 1984)

Extensive research (see Chapter 4) has shown that such practices can make a

significant impact on firm performance. HRM strategies aim to support

programmes for improving organizational effectiveness by developing

policies in such areas as knowledge management, talent management and

generally creating ‘a great place to work’. This is the ‘big idea’ as described

by Purcell et al (2003), which consists of a ‘clear vision and a set of integrated

values’. More specifically, HR strategies can be concerned with the development

of continuous improvement and customer relations policies.

Human capital

The human capital of an organization consists of the people who work

there and on whom the success of the business depends. Human capital

has been defined by Bontis et al (1999) as follows: ‘Human capital represents

the human factor in the organization; the combined intelligence,

skills and expertise that gives the organization its distinctive character.

The human elements of the organization are those that are capable of

learning, changing, innovating and providing the creative thrust which if

properly motivated can ensure the long-term survival of the organization.’

Human capital can be regarded as the prime asset of an organization, and

businesses need to invest in that asset to ensure their survival and growth.

HRM aims to ensure that the organization obtains and retains the skilled,

committed and well-motivated workforce it needs. This means taking steps

to assess and satisfy future people needs and to enhance and develop the

inherent capacities of people – their contributions, potential and employability

– by providing learning and continuous development opportunities.

It involves the operation of ‘rigorous recruitment and selection procedures,

performance-contingent incentive compensation systems, and management

development and training activities linked to the needs of the business’

(Becker et al, 1997). It also means engaging in talent management – the

process of acquiring and nurturing talent, wherever it is and wherever it is

needed, by using a number of interdependent HRM policies and practices in

the fields of resourcing, learning and development, performance

management and succession planning.

Knowledge management

Knowledge management is ‘any process or practice of creating, acquiring,

capturing, sharing and using knowledge, wherever it resides, to enhance

learning and performance in organizations’ (Scarborough et al 1999). HRM

aims to support the development of firm-specific knowledge and skills that

are the result of organizational learning processes.

Human resource management l 7

Reward management

HRM aims to enhance motivation, job engagement and commitment by

introducing policies and processes that ensure that people are valued and

rewarded for what they do and achieve, and for the levels of skill and

competence they reach.

Employee relations

The aim is to create a climate in which productive and harmonious relationships

can be maintained through partnerships between management and

employees and their trade unions.

Meet diverse needs

HRM aims to develop and implement policies that balance and adapt to the

needs of its stakeholders and provide for the management of a diverse

workforce, taking into account individual and group differences in

employment, personal needs, work style and aspirations, and the provision

of equal opportunities for all.

Rhetoric and reality

The research conducted by Gratton et al (1999) found that there was

generally a wide gap between the sort of rhetoric expressed above and

reality. Managements may start with good intentions to do some or all of

these things, but the realization of them – ‘theory in use’ – is often very

difficult. This arises because of contextual and process problems: other

business priorities, short-termism, lack of support from line managers, an

inadequate infrastructure of supporting processes, lack of resources,

resistance to change and lack of trust.


The characteristics of the HRM concept as they emerged from the writings

of the pioneers and later commentators are that it is:

l diverse;

l strategic, with an emphasis on integration;

l commitment-orientated;

l based on the belief that people should be treated as human capital;

8 l The framework of strategic HRM

l unitarist rather than pluralist, individual rather than collective, with

regard to employee relations;

l a management-driven activity – the delivery of HRM is a line

management responsibility;

l focused on business values.

The diversity of HRM

But these characteristic of HRM are by no means universal. There are many

models, and practices within different organizations are diverse, often only

corresponding to the conceptual version of HRM in a few respects.

Hendry and Pettigrew (1990) play down the prescriptive element of the

HRM model and extend the analytical elements. As pointed out by Boxall

(1992), such an approach rightly avoids labelling HRM as a single form and

advances more slowly by proceeding more analytically. It is argued by

Hendry and Pettigrew that ‘better descriptions of structures and strategymaking

in complex organizations, and of frameworks for understanding

them, are an essential underpinning for HRM’.

A distinction was made by Storey (1989) between the ‘hard’ and ‘soft’

versions of HRM. The hard version of HRM emphasizes that people are

important resources through which organizations achieve competitive

advantage. These resources have therefore to be acquired, developed and

deployed in ways that will benefit the organization. The focus is on the quantitative,

calculative and business-strategic aspects of managing human resources

in as ‘rational’ a way as for any other economic factor. As Guest (1999)

comments: ‘the drive to adopt HRM is… based on the business case of a need to

respond to an external threat from increasing competition. It is a philosophy

that appeals to managements who are striving to increase competitive

advantage and appreciate that to do this they must invest in human resources

as well as new technology.’ He also commented that HRM ‘reflects a longstanding

capitalist tradition in which the worker is regarded as a commodity’.

The emphasis is therefore on the interests of management, integration with

business strategy, obtaining added value from people by the processes of

human resource development and performance management and the need for

a strong corporate culture expressed in mission and value statements and reinforced

by communications, training and performance management processes.

The soft version of HRM traces its roots to the human-relations school. It

emphasizes communication, motivation and leadership. As described by

Storey (1989) it involves ‘treating employees as valued assets, a source of

competitive advantage through their commitment, adaptability and high

quality (of skills, performance and so on)’. It therefore views employees, in

the words of Guest (1999), as means rather than objects. The soft approach to

Human resource management l 9

HRM stresses the need to gain the commitment – the ‘hearts and minds’ – of

employees through involvement, communications and other methods of

developing a high-commitment, high-trust organization. Attention is also

drawn to the key role of organizational culture.

In 1998, Karen Legge defined the ‘hard’ model of HRM as a process

emphasizing ‘the close integration of human resource policies with business

strategy which regards employees as a resource to be managed in the same

rational way as any other resource being exploited for maximum return’. In

contrast, the soft version of HRM sees employees as ‘valued assets and as a

source of competitive advantage through their commitment, adaptability

and high level of skills and performance’.

It has, however, been observed by Truss (1999) that, ‘even if the rhetoric of

HRM is soft, the reality is often hard, with the interests of the organization

prevailing over those of the individual’. And research carried out by Gratton

et al (1999) found that, in the eight organizations they studied, a mixture of

hard and soft HRM approaches was identified. This suggested to the

researchers that the distinction between hard and soft HRM was not as

precise as some commentators have implied.

The strategic nature of HRM

Perhaps the most significant feature of HRM is the importance attached to

strategic integration, which flows from top management’s vision and leadership,

and which requires the full commitment of people to it.

David Guest (1987, 1989a, 1989b, 1991) believes that a key policy goal for

HRM is strategic integration, by which he means the ability of the organization

to integrate HRM issues into its strategic plans, to ensure that the

various aspects of HRM cohere, and to provide for line managers to incorporate

an HRM perspective into their decision making.

Karen Legge (1989) considers that one of the common themes of the

typical definitions of HRM is that human resource policies should be integrated

with strategic business planning. Keith Sisson (1990) suggests that a

feature increasingly associated with HRM is a stress on the integration of HR

policies both with one another and with business planning more generally.

John Storey (1989) suggests that: ‘the concept locates HRM policy formulation

firmly at the strategic level and insists that a characteristic of HRM is

its internally coherent approach’.

The commitment-orientated nature of HRM

The importance of commitment and mutuality was emphasized by Walton

(1985) as follows: ‘The new HRM model is composed of policies that

10 l The framework of strategic HRM

promote mutuality – mutual goals, mutual influence, mutual respect,

mutual rewards, mutual responsibility. The theory is that policies of mutuality

will elicit commitment which in turn will yield both better economic

performance and greater human development.’

David Guest (1987) wrote that one of the HRM policy goals was the

achievement of high commitment – ‘behavioural commitment to pursue

agreed goals, and attitudinal commitment reflected in a strong identification

with the enterprise’.

It was noted by Karen Legge (1995) that human resources ‘may be tapped

most effectively by mutually consistent policies that promote commitment

and which, as a consequence, foster a willingness in employees to act flexibly

in the interests of the “adaptive organization’s” pursuit of excellence’.

But this emphasis on commitment has been criticized from the earliest

days of HRM. Guest (1987) asked: ‘commitment to what?’, and Fowler

(1987) has stated:

At the heart of the concept is the complete identification of employees with

the aims and values of the business – employee involvement but on the

company’s terms. Power, in the HRM system, remains very firmly in the hands

of the employer. Is it really possible to claim full mutuality when at the end of

the day the employer can decide unilaterally to close the company or sell it to

someone else?

People as ‘human capital’

The notion that people should be regarded as assets rather than variable

costs, in other words treated as human capital, was originally advanced by

Beer et al (1984). HRM philosophy, as mentioned by Karen Legge (1995),

holds that ‘human resources are valuable and a source of competitive

advantage’. Armstrong and Baron (2002) stated that: ‘People and their

collective skills, abilities and experience, coupled with their ability to deploy

these in the interests of the employing organization, are now recognized as

making a significant contribution to organizational success and as constituting

a significant source of competitive advantage.’

Unitarist philosophy

The HRM approach to employee relations is unitarist not pluralist – it is

believed that employees share the same interests as employers. In the words

of Gennard and Judge (1997), organizations are assumed to be ‘harmonious

and integrated, all employees sharing the organizational goals and working

as members of one team’.

Human resource management l 11

Guest (1987, 1989a, 1989b, 1991) considers that HRM values are: unitarist

to the extent that they assume no underlying and inevitable differences of

interest between management and workers; and individualistic in that they

emphasize the individual–organization linkage in preference to operating

through group and representative systems.

HRM as a management-driven activity

HRM can be described as a central, senior-management-driven strategic

activity, which is developed, owned and delivered by management as a

whole to promote the interests of the organization that they serve. John

Purcell (1993) thinks that ‘the adoption of HRM is both a product of and a

cause of a significant concentration of power in the hands of management’,

while the widespread use ‘of the language of HRM, if not its practice, is a

combination of its intuitive appeal to managers and, more importantly, a

response to the turbulence of product and financial markets’. He asserts that

HRM is about the rediscovery of management prerogative. He considers that

HRM policies and practices, when applied within a firm as a break from the

past, are often associated with words such as ‘commitment’, ‘competence’,

‘empowerment’, ‘flexibility’, ‘culture’, ‘performance’, ‘assessment’, ‘reward’,

‘teamwork’, ‘involvement’, ‘cooperation’, ‘harmonization’, ‘quality’ and

‘learning’. But ‘the danger of descriptions of HRM as modern bestmanagement

practice is that they stereotype the past and idealize the future’.

Keith Sisson (1990) suggested that: ‘The locus of responsibility for

personnel management no longer resides with (or is “relegated to”)

specialist managers.’ More recently, Purcell et al (2003) underlined the

importance of line management commitment and capability as the means

by which HR policies are brought to life.

Focus on business values

The concept of HRM is largely based on a management- and businessorientated

philosophy. It is concerned with the total interests of the organization

– the interests of the members of the organization are recognized but

subordinated to those of the enterprise. Hence the importance attached to

strategic integration and strong cultures, which flow from top management’s

vision and leadership, and which require people who will be committed to

the strategy, who will be adaptable to change and who will fit the culture.

By implication, as Guest (1991) says: ‘HRM is too important to be left to

personnel managers.’

In 1995 Karen Legge noted that HRM policies are adapted to drive

business values and are modified in the light of changing business objec-

12 l The framework of strategic HRM

tives and conditions. She describes this process as ‘thinking pragmatism’

and suggests that evidence indicates more support for the hard versions of

HRM than the soft version.


For some time, HRM was a controversial topic, especially in academic

circles. The main reservations have been that HRM promises more than it

delivers and that its morality is suspect.

HRM promises more than it can deliver


Noon (1992) has commented that HRM has serious deficiencies as a theory:

‘It is built with concepts and propositions, but the associated variables and

hypotheses are not made explicit. It is too comprehensive… If HRM is

labelled a “theory” it raises expectations about its ability to describe and

predict.’ Guest (1991) believes that HRM is an ‘optimistic but ambiguous

concept’; it is all hype and hope.

Mabey et al (1998) follow this up by asserting that ‘the heralded outcomes

(of HRM) are almost without exception unrealistically high’. To put the

concept of HRM into practice involves strategic integration, developing a

coherent and consistent set of employment policies, and gaining

commitment. This requires high levels of determination and competence at

all levels of management and a strong and effective HR function staffed by

business-orientated people. It may be difficult to meet these criteria, especially

when the proposed HRM culture conflicts with the established

corporate culture and traditional managerial attitudes and behaviour.

Gratton et al (1999) are convinced on the basis of their research that there

is ‘a 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 that practice as perceived by employers,

and between what senior management believes to be the role of the HR

function, and the role it actually plays’. In their conclusions they refer to the

‘hyperbole and rhetoric of human resource management’.


There is no doubt that many organizations that think they are practising

HRM are doing nothing of the kind. It is difficult, and it is best not to expect

Human resource management l 13

too much. Most of the managements who hurriedly adopted performancerelated

pay as an HRM device that would act as a lever for change have been

sorely disappointed.

But the research conducted by Guest and Conway (1997) covering a stratified

random sample of 1,000 workers established that a notably high level

of HRM was found to be in place. This contradicts the view that

management has tended to ‘talk up’ the adoption of HRM practices. The

HRM characteristics covered by the survey included the opportunity to

express grievances and raise personal concerns on such matters as opportunities

for training and development, communications about business issues,

single status, effective systems for dealing with bullying and harassment at

work, making jobs interesting and varied, promotion from within,

involvement programmes, no compulsory redundancies, performancerelated

pay, profit sharing and the use of attitude surveys.

The philosophy of HRM is indeed aspirational, but what is wrong with

trying to do better, even if success is hard to obtain? The incessant reference

to the rhetoric/reality gap by academics suggests that there is a deeply held

and cynical belief amongst them that managements never mean what they

say or, if they do mean it, don’t do anything about it. This may be so in some

cases but it is not a universal characteristic.

Academics often refer to the ‘rhetoric’ of HR practitioners, but should

more accurately have referred to the rhetoric of the HR academics who have

been debating what HRM means, how different it is, whether or not it is a

good thing and indeed whether or not it exists, endlessly and unproductively.

Practitioners have pressed on regardless, in the justified belief that

what the academics were writing about had little relevance to their day-today

lives as they wrestle with the realities of organizational life. They did

not suddenly see the light in the 1980s and change their ways, for better or

for worse. The true personnel or HR professionals just kept on doing what

they had always done but tried to do it better. They took note of the much

wider range of publications about HR practices and the information on socalled

‘best practice’ provided by management consultants and conference

organizers, and they learnt from the case studies emanating from the

research conducted by the burgeoning academic institutions. They also

recognized that to succeed in an increasingly competitive world they had to

become more professional, and they are encouraged to do so by bodies such

as the Chartered Institute of Personnel and Development. They took

account of new ideas and implemented new practices because they were

persuaded that they were appropriate, not because they fitted into any sort

of HRM philosophy.

14 l The framework of strategic HRM

The morality of HRM


HRM is accused by many academics of being manipulative if not positively

immoral. Willmott (1993) remarks that HRM operates as a form of insidious

‘control by compliance’ when it emphasizes the need for employees to be

committed to do what the organization wants them to do. It preaches mutuality

but the reality is that behind the rhetoric it exploits workers. It is, they

say, a wolf in sheep’s clothing (Keenoy, 1990a). As Legge (1998) pointed out:

Sadly, in a world of intensified competition and scarce resources, it seems

inevitable that, as employees are used as means to an end, there will be some

who will lose out. They may even be in the majority. For these people, the soft

version of HRM may be an irrelevancy, while the hard version is likely to be an

uncomfortable experience.


The accusation that HRM treats employees as means to an end is often made.

However, it could be argued that if organizations exist to achieve ends,

which they obviously do, and if those ends can only be achieved through

people, which is clearly the case, the concern of managements for

commitment and performance from those people is not unnatural and is not

attributable to the concept of HRM – it existed in the good old days of

personnel management before HRM was invented. What matters is how

managements treat people as ends and what managements provide in return.

Much of the hostility to HRM expressed by a number of academics is

based on the belief that it is hostile to the interests of workers, ie that it is

managerialist. However, the Guest and Conway (1997) research established

that the reports of workers on outcomes showed that a higher number of HR

practices were associated with higher ratings of fairness, trust and

management’s delivery of their promises. Those experiencing more HR

activities also felt more secure in and more satisfied with their jobs.

Motivation was significantly higher for those working in organizations

where more HR practices were in place. In summary, as commented by

Guest (1999), it appears that workers like their experience of HRM. These

findings appear to contradict the ‘radical critique’ view produced by

academics such as Mabey et al (1998) that HRM has been ineffectual, pernicious

(ie managerialist) or both. Some of those who adopt this stance tend to

dismiss favourable reports from workers about HRM on the grounds that

they have been brainwashed by management. But there is no evidence to

support this view.

Human resource management l 15

And, as Armstrong (2000) pointed out:

HRM cannot be blamed or given credit for changes that were taking place

anyway. For example, it is often alleged to have inspired a move from pluralism

to unitarism in industrial relations. But newspaper production was moved from

Fleet Street to Wapping by Murdoch, not because he had read a book about

HRM but as a means of breaking the print unions’ control.

Contradictions in the reservations about HRM

Guest (1999) has suggested that there are two contradictory concerns about

HRM. The first as formulated by Legge (1995, 1998) is that while

management rhetoric may express concern for workers, the reality is

harsher. And Keenoy (1997) complains that: ‘The real puzzle about HRMism

is how, in the face of such apparently overwhelming critical “refutation”, it

has secured such influence and institutional presence.’ Other writers,

however, simply claim that HRM does not work. Scott (1994), for example,

finds that both management and workers are captives of their history and

find it very difficult to let go of their traditional adversarial orientations.

But these contentions are contradictory. Guest (1999) remarks that ‘it is

difficult to treat HRM as a major threat (though what it is a threat to is not

always made explicit) deserving of serious critical analysis while at the

same time claiming that it is not practiced or is ineffective’.


A debate about the differences, if any, between HRM and personnel

management went on for some time. It has died down now, especially as the

terms HRM and HR are now in general use both in their own right and as

synonyms for personnel management, but understanding of the concept of

HRM is enhanced by analysing what the differences are and how traditional

approaches to personnel management have evolved to become the presentday

practices of HRM.

Some commentators (Legge, 1989, 1995; Keenoy, 1990b; Sisson, 1990;

Storey, 1993; Hope-Hailey et al, 1998) have highlighted the revolutionary

nature of HRM. Others have denied that there is any significant difference

in the concepts of personnel management and HRM. Torrington (1989)

suggested that: ‘Personnel management has grown through assimilating a

number of additional emphases to produce an even richer combination of

experience… HRM is no revolution but a further dimension to a multifaceted


16 l The framework of strategic HRM

The conclusion based on interviews with HR and personnel directors

reached by Gennard and Kelly (1994) on this issue was that ‘it is six of one

and half a dozen of the other and it is a sterile debate’. An earlier answer to

this question was made by Armstrong (1987):

HRM is regarded by some personnel managers as just a set of initials or old

wine in new bottles. It could indeed be no more and no less than another

name for personnel management, but as usually perceived, at least it has

the virtue of emphasizing the virtue of treating people as a key resource, the

management of which is the direct concern of top management as part of the

strategic planning processes of the enterprise. Although there is nothing new in

the idea, insufficient attention has been paid to it in many organizations.

The similarities and differences between HRM and personnel management are

summarized in Table 1.1.

The differences between personnel management and human resource

management appear to be substantial but they can be seen as a matter of

emphasis and approach rather than one of substance. Or, as Hendry and

Pettigrew (1990) put it, HRM can be perceived as a ‘perspective on

personnel management and not personnel management itself’.

Human resource management l 17

18 l The framework of strategic HRM

Table 1.1 Similarities and differences between HRM and personnel


Similarities Differences

1. Personnel management strategies, 1. HRM places more emphasis on

like HRM strategies, flow from the strategic fit and integration.

business strategy.

2. Personnel management, like HRM, 2. HRM is based on a managementrecognizes

that line managers are and business-orientated

responsible for managing people. philosophy.

The personnel function provides the

necessary advice and support services

to enable managers to carry out their


3. The values of personnel management 3. HRM attaches more importance to

and at least the ‘soft’ version of HRM the management of culture and the

are identical with regard to ‘respect achievement of commitment

for the individual’, balancing (mutuality).

organizational and individual needs,

and developing people to achieve

their maximum level of competence

both for their own satisfaction and to

facilitate the achievement of

organizational objectives.

4. Both personnel management and 4. HRM places greater emphasis on

HRM recognize that one of their the role of line managers as the

most essential functions is that of implementers of HR policies.

matching people to ever-changing

organizational requirements – placing

and developing the right people in

and for the right jobs.

5. The same range of selection, 5. HRM is a holistic approach

competence analysis, performance concerned with the total interests

management, training, management of the business – the interests of

development and reward the members of the organization

management techniques are used are recognized but subordinated to

both in HRM and in personnel those of the enterprise.


6. Personnel management, like the 6. HR specialists are expected to be

‘soft’ version of HRM, attaches business partners rather than

importance to the processes of personnel administrators.

communication and participation

within an employee relations system.


Strategy: concept and


This chapter starts with a definition of strategy and goes on to describe the

fundamentals of strategy in more detail. It concludes with a review of the

process of strategy formulation.


Strategy is about deciding where you want to go and how you mean to get

there. A strategy is a declaration of intent: ‘This is what we want to do and

this is how we intend to do it.’ Strategies define longer-term goals but they

are more concerned with how those goals should be achieved. Strategy is

the means to create value. Agood strategy is one that works, one that guides

purposeful action to deliver the required result.

Strategy has been defined in other ways by the many writers on this

subject, for example:

Strategy is the determination of the basic long-term goals and objectives of an

enterprise, and the adoption of courses of action and the allocation of

resources necessary for carrying out these goals.

(Chandler, 1962)


Strategy is a set of fundamental or critical choices about the ends and means of

a business.

(Child, 1972)

Strategy is concerned with the long-term direction and scope of an organization.

It is also crucially concerned with how the organization positions itself with

regard to the environment and in particular to its competitors… It is concerned

with establishing competitive advantage, ideally sustainable over time, not by

technical manoeuvring, but by taking an overall long-term perspective.

(Faulkner and Johnson, 1992)

Strategy is the direction and scope of an organization over the longer term ideally,

which matches its resources to its changing environment, and in particular, to its

markets, customers and clients to meet stakeholder expectations.

(Johnson and Scholes, 1993)

Business strategy is concerned with the match between the internal capabilities

of the company and its external environment.

(Kay, 1999)

A strategy, whether it is an HR strategy or any other kind of management

strategy, must have two key elements: there must be strategic objectives (i.e.

things the strategy is supposed to achieve), and there must be a plan of action

(i.e. the means by which it is proposed that the objectives will be met).

(Richardson and Thompson, 1999)

The emphasis (in strategy) is on focused actions that differentiate the firm from

its competitors.

(Purcell, 1999)


The concept of strategy is based on three subsidiary concepts: competitive

advantage, distinctive capabilities and strategic fit.

Competitive advantage

The concept of competitive advantage was formulated by Michael Porter

(1985). Competitive advantage, Porter asserts, arises out of a firm creating

value for its customers. To achieve it, firms select markets in which they can

excel and present a moving target to their competitors by continually

improving their position.

20 l The framework of strategic HRM

Porter emphasized the importance of: differentiation, which consists of

offering a product or service ‘that is perceived industry-wise as being

unique’; and focus – seeing a particular buyer group or product market ‘more

effectively or efficiently than competitors who compete more broadly’. He

then developed his well-known framework of three generic strategies that

organizations can use to gain competitive advantage. These are:

l innovation – being the unique producer;

l quality – delivering high-quality goods and services to customers;

l cost leadership – the planned result of policies aimed at ‘managing away


A distinction has been made by Barney (1991) between the competitive

advantage that a firm presently enjoys but others will be able to copy, and

sustained competitive advantage, which competitors cannot imitate. This

leads to the important concept of distinctive capabilities.

Distinctive capabilities

As Kay (1999) comments: ‘The opportunities for companies to sustain…

competitive advantage [are] determined by their capabilities.’ A distinctive

capability or competence can be described as an important feature that in

Quinn’s (1980) phrase ‘confers superiority on the organization’. Kay extends

this definition by emphasizing that there is a difference between distinctive

capabilities and reproducible capabilities. Distinctive capabilities are those

characteristics that cannot be replicated by competitors, or can only be

imitated with great difficulty. Reproducible capabilities are those that can be

bought or created by any company with reasonable management skills, diligence

and financial resources. Most technical capabilities are reproducible.

Prahalad and Hamel (1990) argue that competitive advantage stems in

the long term when a firm builds ‘core competences’ that are superior to its

rivals and when it learns faster and applies its learning more effectively than

its competitors.

Distinctive capabilities or core competences describe what the organization

is specially or uniquely capable of doing. They are what the company

does particularly well in comparison with its competitors. Key capabilities

can exist in such areas as technology, innovation, marketing, delivering

quality, and making good use of human and financial resources. If a

company is aware of what its distinctive capabilities are, it can concentrate

on using and developing them without diverting effort into less-rewarding

activities. It can be argued that the most distinctive capability of all is that

represented by the knowledge, skills, expertise and commitment of the

Strategy: concept and process l 21

employees of the organization. This belief provides the basis for the

philosophy of strategic human resource management.

Four criteria have been proposed by Barney (1991) for deciding whether a

resource can be regarded as a distinctive capability or competency:

l value creation for the customer;

l rarity compared to the competition;

l non-imitability;

l non-substitutability.

The concept of distinctive capability forms the foundation of the resourcebased

approach to strategy as described later in this chapter.

Strategic fit

The concept of strategic fit states that to maximize competitive advantage a

firm must match its capabilities and resources to the opportunities available

in the external environment. As Hofer and Schendel (1986) conclude: ‘A

critical aspect of top management’s work today involves matching organizational

competences (internal resources and skills) with the opportunities

and risks created by environmental change in ways that will be both

effective and efficient over the time such resources will be deployed.’


Fundamentally, strategy is about defining intentions (strategic intent) and

achieving strategic fit by allocating or matching resources to opportunities

(resource-based strategy). The effective development and implementation of

strategy depends on the strategic capability of the organization, which will

include the ability not only to formulate strategic goals but also to develop

and implement strategic plans through the processes of strategic management

and strategic planning.

Strategic intent

In its simplest form, strategy could be described as an expression of the

intentions of the organization – what it means to do and how or, as Wickens

(1987) put it, how the business means to ‘get from here to there’. As defined

by Hamel and Prahalad (1989), strategic intent refers to the expression of the

leadership position the organization wants to attain and establishes a clear

criterion on how progress towards its achievement will be measured.

22 l The framework of strategic HRM

Strategic intent could be a very broad statement of vision or mission and/or

it could more specifically spell out the goals and objectives to be attained

over the longer term.

The strategic intent sequence has been defined by Miller and Dess (1996) as:

1. a broad vision of what the organization should be;

2. the organization’s mission;

3. specific goals, which are operationalized as:

4. strategic objectives.

Resource-based strategy

The resource-based view of strategy is that the strategic capability of a firm

depends on its resource capability. Resource-based strategy theorists such

as Barney (1991) argue that sustained competitive advantage stems from the

acquisition and effective use of bundles of distinctive resources that

competitors cannot imitate.

As Boxall (1996) comments: ‘Competitive success does not come simply

from making choices in the present; it stems from building up distinctive

capabilities over significant periods of time.’ Teece, Pisano and Shuen (1997)

define ‘dynamic capabilities’ as ‘the capacity of a firm to renew, augment

and adapt its core competencies over time’.

Strategic capability

Strategic capability is a concept that refers to the ability of an organization to

develop and implement strategies that will achieve sustained competitive

advantage. It is therefore about the capacity to select the most appropriate

vision, to define realistic intentions, to match resources to opportunities and to

prepare and implement strategic plans.

The strategic capability of an organization depends on the strategic capabilities

of its managers. People who display high levels of strategic capability

know where they are going and know how they are going to get there. They

recognize that, although they must be successful now to succeed in the future,

it is always necessary to create and sustain a sense of purpose and direction.

Strategic management

The purpose of strategic management has been expressed by Rosabeth

Moss Kanter (1984) as being to ‘elicit the present actions for the future’ and

become ‘action vehicles – integrating and institutionalizing mechanisms for

change’. Strategic management has been defined by Pearce and Robinson

Strategy: concept and process l 23

(1988) as follows: ‘Strategic management is the set of decisions and actions

resulting in the formulation and implementation of strategies designed to

achieve the objectives of an organization.’

Strategic management has been described by Burns (1992) as being

primarily concerned with:

l the full scope of an organization’s activities, including corporate objectives

and organizational boundaries;

l matching the activities of an organization to the environment in which it


l ensuring that the internal structures, practices and procedures enable the

organization to achieve its objectives;

l matching the activities of an organization to its resource capability, assessing

the extent to which sufficient resources can be provided to take advantage of

opportunities or to avoid threats in the organization’s environment;

l acquiring, divesting and reallocating resources;

l translating the complex and dynamic set of external and internal variables

that an organization faces into a structured set of clear future objectives,

which can then be implemented on a day-to-day basis.

Strategic management means that managers are looking ahead at what they

need to achieve in the middle or relatively distant future. It deals with both

ends and means. As an end it describes a vision of what something will look

like in a few years’ time. As a means, it shows how it is expected that the

vision will be realized. Strategic management is therefore visionary

management, concerned with creating and conceptualizing ideas of where

the organization should be going. But it is also empirical management,

which decides how in practice it is going to get there.

The focus is on identifying the organization’s mission and strategies, but

attention is also given to the resource base required to make it succeed.

Managers who think strategically will have a broad and long-term view of

where they are going. But they will also be aware that they are responsible

first for planning how to allocate resources to opportunities that contribute

to the implementation of strategy and, second, for managing these opportunities

in ways that will add value to the results achieved by the firm.


The formulation of corporate strategy can be defined as a process for developing

a sense of direction. It has often been described as a logical, step-by-step

affair, the outcome of which is a formal written statement that provides a

24 l The framework of strategic HRM

definitive guide to the organization’s long-term intentions. Many people still

believe and act as if this were the case, but it is a misrepresentation of reality.

This is not to dismiss completely the ideal of adopting a systematic approach

as described below – it has its uses as a means of providing an analytical

framework for strategic decision making and a reference point for monitoring

the implementation of strategy. But in practice, and for reasons also explained

below, the formulation of strategy can never be as rational and linear a process

as some writers describe it or as some managers attempt to make it.

The systematic approach to formulating strategy

In theory, the process of formulating strategy consists of the following steps:

1. Define the mission.

2. Set objectives.

3. Conduct internal and external environmental scans to assess internal

strengths and weaknesses and external opportunities and threats (a

SWOT analysis).

4. Analyse existing strategies to determine their relevance in the light of

the internal and external appraisal. This may include gap analysis,

which will establish the extent to which environmental factors might

lead to gaps between what could be achieved if no changes were made

and what needs to be achieved. The analysis would also cover resource

capability, answering the question: ‘Have we sufficient human or

financial resources available now or that can readily be made available

in the future to enable us to achieve our objectives?’

5. Define in the light of this analysis the distinctive capabilities of the


6. Define the key strategic issues emerging from the previous analysis. These

will be concerned with such matters as product-market scope, enhancing

shareholder value and resource capability.

7. Determine corporate and functional strategies for achieving goals and

competitive advantage, taking into account the key strategic issues.

These may include business strategies for growth or diversification, or

broad generic strategies for innovation, quality or cost leadership; or

they could take the form of specific corporate/functional strategies

concerned with product-market scope, technological development or

human resource development.

8. Prepare integrated strategic plans for implementing strategies.

9. Implement the strategies.

10. Monitor implementation and revise existing strategies or develop new

strategies as necessary.

Strategy: concept and process l 25

This model of the process of strategy formulation should allow scope for

iteration and feedback, and the activities incorporated in the model are all

appropriate in any process of strategy formulation. But the model is essentially

linear and deterministic – each step logically follows the earlier one

and is conditioned entirely by the preceding sequence of events; and this is

not what happens in real life.

The reality of strategy formulation

It has been said (Bower, 1982) that ‘strategy is everything not well defined or

understood’. This may be going too far but, in reality, strategy formulation

can best be described as ‘problem solving in unstructured situations’

(Digman, 1990) and strategies will always be formed under conditions of

partial ignorance.

The difficulty is that strategies are often based on the questionable

assumption that the future will resemble the past. Some years ago, Robert

Heller (1972) had a go at the cult of long-range planning: ‘What goes

wrong’, he wrote, ‘is that sensible anticipation gets converted into foolish

numbers: and their validity always hinges on large loose assumptions.’

More recently, Faulkner and Johnson (1992) have said of long-term

planning that it:

was inclined to take a definitive view of the future, and to extrapolate trend

lines for the key business variables in order to arrive at this view. Economic

turbulence was insufficiently considered, and the reality that much strategy is

formulated and implemented in the act of managing the enterprise was

ignored. Precise forecasts ending with derived financials were constructed,

the only weakness of which was that the future almost invariably turned out


Strategy formulation is not necessarily a rational and continuous process, as

was pointed out by Mintzberg (1987). He believes that, rather than being

consciously and systematically developed, strategy reorientation happens

in what he calls brief ‘quantum loops’. A strategy, according to Mintzberg,

can be deliberate – it can realize the intentions of senior management, for

example to attack and conquer a new market. But this is not always the case.

In theory, he says, strategy is a systematic process: first we think and then

we act; we formulate and then we implement. But we also ‘act in order to

think’. In practice, ‘a realized strategy can emerge in response to an evolving

situation’ and the strategic planner is often ‘a pattern organizer, a learner if

you like, who manages a process in which strategies and visions can emerge

as well as be deliberately conceived’.

26 l The framework of strategic HRM

Mintzberg was even more scathing about the weaknesses of strategic

planning in his 1994 article in the Harvard Business Review on ‘The rise and

fall of strategic planning’. He contends that ‘the failure of systematic

planning is the failure of systems to do better than, or nearly as well as,

human beings’. He went on to say that: ‘Far from providing strategies,

planning could not proceed without their prior existence… real strategists

get their hands dirty digging for ideas, and real strategies are built from the

nuggets they discover.’ And ‘sometimes strategies must be left as broad

visions, not precisely articulated, to adapt to a changing environment’.

Other writers have criticized the deterministic concept of strategy, for


Business strategy, far from being a straightforward, rational phenomenon, is in

fact interpreted by managers according to their own frame of reference, their

particular motivations and information.

(Pettigrew and Whipp, 1991)

Although excellent for some purposes, the formal planning approach emphasizes

‘measurable quantitative forces’ at the expense of the ‘qualitative, organizational

and power-behavioural factors that so often determine strategic

success’… Large organizations typically construct their strategies with

processes which are ‘fragmented, evolutionary, and largely intuitive’.

(Quinn, 1980)

The most effective decision-makers are usually creative, intuitive people

‘employing an adaptive, flexible process’. Moreover, since most strategic decisions

are event-driven rather than pre-programmed, they are unplanned.

(Digman, 1990)

Goold and Campbell (1986) also emphasize the variety and ambiguity of

influences that shape strategy: ‘Informed understandings work alongside

more formal processes and analyses. The headquarters agenda becomes

entwined with the business unit agenda, and both are interpreted in the

light of personal interests. The sequence of events from decision to action

can often be reversed, so that “decisions” get made retrospectively to justify

actions that have already taken place.’

Mintzberg (1978, 1987, 1994) summarizes the non-deterministic view of

strategy admirably. He perceives strategy as a ‘pattern in a stream of activities’

and highlights the importance of the interactive process between key

players. He has emphasized the concept of ‘emergent strategies’, and a key

aspect of this process is the production of something that is new to the

organization, even if this is not developed as logically as the traditional

corporate planners believed to be appropriate.

Strategy: concept and process l 27

Kay (1999) also refers to the evolutionary nature of strategy. He comments

that there is often little ‘intentionality’ in firms and that it is frequently the

market rather than the visionary executive that chose the strategic match that

was most effective. Quinn (1980) has produced the concept of ‘logical incrementalism’,

which suggests that strategy evolves in several steps rather than

being conceived as a whole.

Afourfold typology of strategy has been produced by Whittington (1993).

The four types are:

1. Classical – strategy formulation as a rational process of deliberate calculation.

The process of strategy formulation is seen as being separate

from the process of implementation.

2. Evolutionary – strategy formulation as an evolutionary process that is a

product of market forces in which the most efficient and productive

organizations win through.

3. Process based – strategy formulation as an incremental process that

evolves through discussion and disagreement. It may be impossible to

specify what the strategy is until after the event.

4. Systemic – strategy as shaped by the social system in which it is

embedded. Choices are constrained by the cultural and institutional

interests of a broader society rather than the limitations of those

attempting to formulate corporate strategy.

The reality of strategic management

Tyson (1997) points out that, realistically, strategy:

l has always been emergent and flexible – it is always ‘about to be’ and it

never exists at the present time;

l not only is realized by formal statements but also comes about by actions

and reactions;

l is a description of a future-orientated action that is always directed

towards change;

l is conditioned by the management process itself.

The reality of strategic management is that managers attempt to behave

strategically in conditions of uncertainty, change and turbulence, even

chaos. The strategic management approach is as difficult as it is desirable,

and this has to be borne in mind when consideration is given to the concept

of strategic HRM as described in Chapter 3.

28 l The framework of strategic HRM


Strategic human resource

management: concept and


The concept of strategic human resource management (strategic HRM) and

the processes involved are considered in this chapter under the following


l strategic HRM defined;

l the meaning of strategic HRM;

l the aims of strategic HRM;

l approaches to strategic HRM;

l limitations to the concept of strategic HRM.


Strategic HRM defines the organization’s intentions and plans on how its

business goals should be achieved through people. It is based on three

propositions: first, that human capital is a major source of competitive


advantage; second, that it is people who implement the strategic plan; and,

third, that a systematic approach should be adopted to defining where the

organization wants to go and how it should get there.

Strategic HRM is a process that involves the use of overarching

approaches to the development of HR strategies, which are integrated

vertically with the business strategy and horizontally with one another.

These strategies define intentions and plans related to overall organizational

considerations, such as organizational effectiveness, and to more

specific aspects of people management, such as resourcing, learning and

development, reward and employee relations.


Strategic HRM focuses on actions that differentiate the firm from its

competitors (Purcell, 1999). It is suggested by Hendry and Pettigrew (1986)

that it has four meanings:

l the use of planning;

l a coherent approach to the design and management of personnel

systems based on an employment policy and workforce strategy and

often underpinned by a ‘philosophy’;

l matching HRM activities and policies to some explicit business strategy;

l seeing the people of the organization as a ‘strategic resource’ for the

achievement of ‘competitive advantage’.

Strategic HRM addresses broad organizational issues relating to changes in

structure and culture, organizational effectiveness and performance,

matching resources to future requirements, the development of distinctive

capabilities, knowledge management, and the management of change. It is

concerned with both human capital requirements and the development of

process capabilities, that is, the ability to get things done effectively. Overall,

it deals with any major people issues that affect or are affected by the

strategic plans of the organization. As Boxall (1996) remarks: ‘The critical

concerns of HRM, such as choice of executive leadership and formation of

positive patterns of labour relations, are strategic in any firm.’


The rationale for strategic HRM is the perceived advantage of having an

agreed and understood basis for developing approaches to people

30 l The framework of strategic HRM

management in the longer term. It has been suggested by Lengnick-Hall

and Lengnick-Hall (1990) that underlying this rationale in a business is the

concept of achieving competitive advantage through HRM.

Strategic HRM supplies a perspective on the way in which critical issues

or success factors related to people can be addressed, and strategic decisions

are made that have a major and long-term impact on the behaviour and

success of the organization. The fundamental aim of strategic HRM is to

generate strategic capability by ensuring that the organization has the

skilled, committed and well-motivated employees it needs to achieve

sustained competitive advantage. Its objective is to provide a sense of

direction in an often turbulent environment so that the business needs of the

organization, and the individual and collective needs of its employees can

be met by the development and implementation of coherent and practical

HR policies and programmes. As Dyer and Holder (1988) remark, strategic

HRM should provide ‘unifying frameworks which are at once broad,

contingency based and integrative’.

When considering the aims of strategic HRM it is necessary to consider

how HR strategies will take into account the interests of all the stakeholders

in the organization: employees in general as well as owners and

management. In Storey’s (1989) terms, ‘soft strategic HRM’ will place

greater emphasis on the human relations aspect of people management,

stressing continuous development, communication, involvement, security

of employment, the quality of working life and work–life balance. Ethical

considerations will be important. ‘Hard strategic HRM’ on the other hand

will emphasize the yield to be obtained by investing in human resources in

the interests of the business.

Strategic HRM should attempt to achieve a proper balance between the

hard and soft elements. All organizations exist to achieve a purpose and

they must ensure that they have the resources required to do so and that

they use them effectively. But they should also take into account the human

considerations contained in the concept of soft strategic HRM. In the words

of Quinn Mills (1983), they should plan with people in mind, taking into

account the needs and aspirations of all the members of the organization.

The problem is that hard considerations in many businesses will come first,

leaving soft ones some way behind.


There are five approaches to strategic HRM. These consist of resource-based

strategy, achieving strategic fit, high-performance management, high-

Strategic HRM: concept and process l 31

commitment management and high-involvement management, as described


The resource-based approach

A fundamental aim of resource-based HR strategy, as Barney (1991) indicates,

is to develop strategic capability – achieving strategic fit between

resources and opportunities and obtaining added value from the effective

deployment of resources. A resource-based approach will address methods

of increasing the firm’s strategic capability by the development of managers

and other staff who can think and plan strategically and who understand the

key strategic issues.

The resource-based approach is founded on the belief that competitive

advantage is obtained if a firm can obtain and develop human resources

that enable it to learn faster and apply its learning more effectively than its

rivals (Hamel and Prahalad, 1989). Human resources are defined by Barney

(1995) as follows: ‘Human resources include all the experience, knowledge,

judgement, risk-taking propensity and wisdom of individuals associated

with the firm.’ Kamoche (1996) suggests that: ‘In the resource-based view,

the firm is seen as a bundle of tangible and intangible resources and capabilities

required for product/market competition.’

In line with human capital theory, resource-based theory emphasizes that

investment in people adds to their value in the firm. The strategic goal will be

to ‘create firms which are more intelligent and flexible than their

competitors’ (Boxall, 1996) by hiring and developing more talented staff and

by extending their skills base. Resource-based strategy is therefore

concerned with the enhancement of the human or intellectual capital of the

firm. As Ulrich (1998) comments: ‘Knowledge has become a direct competitive

advantage for companies selling ideas and relationships. The challenge

to organizations is to ensure that they have the capability to find, assimilate,

compensate and retain the talented individuals they need.’

Aconvincing rationale for resource-based strategy has been produced by

Grant (1991):

When the external environment is in a state of flux, the firm’s own resources

and capabilities may be a much more stable basis on which to define its

identity. Hence, a definition of a business in terms of what it is capable of doing

may offer a more durable basis for strategy than a definition based upon the

needs (eg markets) which the business seeks to satisfy.

Unique talents among employees, including superior performance,

productivity, flexibility, innovation, and the ability to deliver high levels

32 l The framework of strategic HRM

of personal customer service, are ways in which people provide a critical

ingredient in developing an organization’s competitive position. People

also provide the key to managing the pivotal interdependencies across

functional activities and the important external relationships. It can be

argued that one of the clear benefits arising from competitive advantage

based on the effective management of people is that such an advantage is

hard to imitate. An organization’s HR strategies, policies and practices

are a unique blend of processes, procedures, personalities, styles, capabilities

and organizational culture. One of the keys to competitive

advantage is the ability to differentiate what the business supplies to its

customers from what is supplied by its competitors. Such differentiation

can be achieved by having HR strategies that ensure that the firm has

higher-quality people than its competitors, by developing and nurturing

the intellectual capital possessed by the business and by functioning as a

‘learning organization’.

Strategic fit

The HR strategy should be aligned to the business strategy (vertical fit).

Better still, HR strategy should be an integral part of the business strategy,

contributing to the business planning process as it happens. 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. Horizontal integration with other

aspects of the HR strategy is required so that its different elements fit

together. The aim is to achieve a coherent approach to managing people in

which the various practices are mutually supportive.

High-performance management

High-performance management (called in the United States highperformance

work systems or practices) aims to make an impact on the

performance of the firm through its people in such areas as productivity,

quality, levels of customer service, growth, profits and, ultimately, the

delivery of increased shareholder value. High-performance management

practices include rigorous recruitment and selection procedures, extensive

and relevant training and management development activities, incentive

pay systems and performance management processes.

A well-known definition of a high-performance work system was

produced by the US Department of Labor (1993). The characteristics listed


Strategic HRM: concept and process l 33

l careful and extensive systems for recruitment, selection and training;

l formal systems for sharing information with the individuals who work

in the organization;

l clear job design;

l high-level participation processes;

l monitoring of attitudes;

l performance appraisals;

l properly functioning grievance procedures;

l promotion and compensation schemes that provide for the recognition

and financial rewarding of the high-performing members of the


High-commitment management

One of the defining characteristics of HRM is its emphasis on the importance

of enhancing mutual commitment (Walton, 1985). High-commitment

management has been described by Wood (1996) as: ‘A form of

management which is aimed at eliciting a commitment so that behaviour is

primarily self-regulated rather than controlled by sanctions and pressures

external to the individual, and relations within the organization are based

on high levels of trust.’

The approaches to achieving high commitment as described by Beer et al

(1984) and Walton (1985) are:

l the development of career ladders and emphasis on trainability and

commitment as highly valued characteristics of employees at all levels in

the organization;

l a high level of functional flexibility with the abandonment of potentially

rigid job descriptions;

l the reduction of hierarchies and the ending of status differentials;

l a heavy reliance on team structure for disseminating information (team

briefing), structuring work (team working) and problem solving

(improvement groups or quality circles).

Wood and Albanese (1995) added to this list:

l job design as something management consciously does in order to

provide jobs that have a considerable level of intrinsic satisfaction;

l a policy of no compulsory lay-offs or redundancies and permanent

employment guarantees with the possible use of temporary workers to

cushion fluctuations in the demand for labour;

34 l The framework of strategic HRM

l new forms of assessment and payment systems and, more specifically,

merit pay and profit sharing;

l a high involvement of employees in the management of quality.

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 aim is to

create a climate in which a continuing dialogue between managers and the

members of their teams takes place in order to define expectations and share

information on the organization’s 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 concept of strategic HRM appears to be based on the belief that the

formulation of strategy is a rational and linear process, as modelled in

Figure 3.1. This indicates that the overall HR strategy flows from the

business strategy and generates specific HR strategies in key areas. The

process takes place by reference to systematic reviews of the internal and

external environment of the organization, which identify the business, organizational

and HR issues that need to be dealt with.

But strategic HRM in real life does not usually take the form of a formal, wellarticulated

and linear process that flows logically from the business strategy, as

Mintzberg (1987) and others have emphasized. The research conducted by

Gratton et al (1999) in eight British organizations established that ‘In no case was

there a clearly developed and articulated strategy that was translated into a

mutually supportive set of human resource initiatives or practices.’ Strategic fit

is a good idea but one that is difficult to attain, as is explained in Chapter 5.


Strategic HRM is in some ways an attitude of mind that expresses a way of

doing things. It is realized in the form of HR strategies, as described in the

next chapter.

Strategic HRM: concept and process l 35

36 l The framework of strategic HRM

Figure 3.1 Alinear strategic HRM model

Overall HR




Human resource






relations strategy








HR strategies

Strategic HRM as described in the last chapter is the process that results in

the formulation of HR strategies. The terms ‘strategic HRM’ and ‘HR

strategy’ are often used interchangeably, but a distinction can be made

between them.

Strategic HRM can be regarded as a general approach to the strategic

management of human resources in accordance with the intentions of the

organization on the future direction it wants to take. What emerges from

this process is a stream of decisions over time, which form the pattern

adopted by the organization for managing its human resources and define

the areas in which specific HR strategies need to be developed. HR

strategies will focus on the specific intentions of the organization on what

needs to be done and what needs to be changed.

This chapter starts by defining what HR strategies are and what they set

out to do, continues with descriptions of different types of strategy with

examples, and concludes with a list of the criteria for an effective strategy.


HR strategies set out what the organization intends to do about its human

resource management policies and practices, and how they should be integrated

with the business strategy and each other. They are described by


Dyer and Reeves (1995) as ‘internally consistent bundles of human resource

practices’, and in the words of Peter Boxall (1996) they provide ‘a

framework of critical ends and means’.

The purpose of HR strategies is to guide development and implementation

programmes. They provide a means of communicating to all

concerned the intentions of the organization about how its human resources

will be managed. They enable the organization to measure progress and

evaluate outcomes against objectives.


Because all organizations are different, all HR strategies are different. There

is no such thing as a set of standard characteristics. Research into HR

strategy conducted by Armstrong and Long (1994) and Armstrong and

Baron (2002) revealed many variations. Some strategies are simply very

general declarations of intent. Others go into much more detail. But two

basic types of HR strategies can be identified. These are: 1) overarching

strategies; and 2) specific strategies relating to the different aspects of

human resource management.

Overarching HR strategies

Overarching strategies describe the general intentions of the organization

about how people should be managed and developed and what steps

should be taken to ensure that the organization can attract and retain the

people it needs and ensure so far as possible that employees are committed,

motivated and engaged. They are likely to be expressed as broad-brush

statements of aims and purpose, which set the scene for more specific

strategies. They are concerned with overall organizational effectiveness –

achieving human resource advantage by, as Boxall and Purcell (2003) point

out, employing ‘better people in organizations with better process’, developing

high-performance work processes and generally creating ‘a great

place to work’.

The following are some examples of overarching HR strategy statements:


The Human Resources Integrated Approach aims to ensure that from

whatever angle staff now look at the elements of pay management,

performance, career development and reward, they are consistent and linked.

38 l The framework of strategic HRM


l Enhance employee commitment and minimize the loss of B&Q’s best


l Position B&Q as one of the best employers in the UK.


The major factor influencing HR strategy was the need to attract, maintain and

retain the right people to deliver it. The aim was to introduce a system that

complemented the business, that reflected the way we wanted to treat our

customers – treating our people the same. What we would do for our

customers we would also do for our people. We wanted to make an impact on

the culture – the way people do business.

(HR Director)


We want GSK to be a place where the best people do their best work.

An insurance company:

Without the people in this business we don’t have anything to deliver. We are

driven to getting the people issues right in order to deliver the strategy. To a

great extent it’s the people that create and implement the strategy on behalf of

the organization. We put people very much at the front of our strategic

thought process. If we have the right people, the right training, the right qualifications

and the right sort of culture then we can deliver our strategy. We

cannot do it otherwise.

(Chief Executive)

Lands’ End:

Based on the principle that staff who are enjoying themselves, are being

supported and developed, and who feel fulfilled and respected at work, will

provide the best service to customers.

Pilkington Optronics:

The business strategy defines what has to be done to achieve success and that

HR strategy must complement it, bearing in mind that one of the critical

success factors for the company is its ability to attract and retain the best

people. HR strategy must be in line with what is best in industry.

HR strategies l 39

Apublic utility:

The only HR strategy you really need is the tangible expression of values and

the implementation of values… unless you get the human resource values

right you can forget all the rest.

(Managing Director)

Amanufacturing company:

The HR strategy is to stimulate changes on a broad front aimed ultimately at

achieving competitive advantage through the efforts of our people. In an

industry of fast followers, those who learn quickest will be the winners.

(HR Director)

Aretail stores group:

The biggest challenge will be to maintain [our] competitive advantage and to

do that we need to maintain and continue to attract very high calibre people.

The key differentiator on anything any company does is fundamentally the

people, and I think that people tend to forget that they are the most important

asset. Money is easy to get hold of; good people are not. All we do in terms of

training and manpower planning is directly linked to business improvement.

(Managing Director)

Specific HR strategies

Specific HR strategies set out what the organization intends to do in areas

such as:

l talent management – how the organization intends to ‘win the war for talent’;

l continuous improvement – providing for focused and continuous incremental

innovation sustained over a period of time;

l knowledge management – creating, acquiring, capturing, sharing and

using knowledge to enhance learning and performance;

l resourcing – attracting and retaining high-quality people;

l learning and developing – providing an environment in which employees

are encouraged to learn and develop;

l reward – defining what the organization wants to do in the longer term to

develop and implement reward policies, practices and processes that

will further the achievement of its business goals and meet the needs of

its stakeholders;

l employee relations – defining the intentions of the organization about

what needs to be done and what needs to be changed in the ways in

40 l The framework of strategic HRM

which the organization manages its relationships with employees and

their trade unions.

The following are some examples of specific HR strategies:

The Children’s Society:

l Implement the rewards strategy of the Society to support the corporate

plan and secure the recruitment, retention and motivation of staff to

deliver its business objectives.

l Manage the development of the human resources information system to

secure productivity improvements in administrative processes.

l Introduce improved performance management processes for managers

and staff of the Society.

l Implement training and development which supports the business objectives

of the Society and improves the quality of work with children and

young people.


These are the three broad strands to the Organization and People Strategy:

1. Reward and recognition: use recognition and reward programmes to stimulate

outstanding team and individual performance contributions.

2. Talent management: drive the attraction, retention and professional growth

of a deep pool of diverse, talented employees.

3. Organizational effectiveness: ensure that the business adapts its organization

to maximize employee contribution and deliver performance goals.

It provides direction to the company’s talent, operational effectiveness and

performance and reward agendas. The company’s underlying thinking is that

the people strategy is not for the human resource function to own but is the

responsibility of the whole organization, hence the title ‘Organization and

People Strategy’.

Agovernment agency:

The key components of the HR strategy are:

l Investing in people – improving the level of intellectual capital.

l Performance management – integrating the values contained in the HR

strategy into performance management processes and ensuring that

reviews concentrate on how well people are performing those values.

l Job design – a key component concerned with how jobs are designed and

how they relate to the whole business.

l The reward system – in developing rewards strategies, taking into account

that this is a very hard driven business.

HR strategies l 41

HR strategies for higher education institutions (The Higher Education

Funding Council):

1. Address recruitment and retention difficulties in a targeted and costeffective


2. Meet specific staff development and training objectives that not only equip

staff to meet their current needs but also prepare them for future changes,

such as using new technologies for learning and teaching. This would

include management development.

3. Develop equal opportunity targets with programmes to implement good

practice throughout an institution. This would include ensuring equal pay

for work of equal value, using institution-wide systems of job evaluation.

This could involve institutions working collectively – regionally or


4. Carry out regular reviews of staffing needs, reflecting changes in market

demands and technology. The reviews would consider overall numbers

and the balance of different categories of staff.

5. Conduct annual performance reviews of all staff, based on open and

objective criteria, with reward connected to the performance of individuals

including, where appropriate, their contribution to teams.

6. Take action to tackle poor performance.

Alocal authority:

The focus is on the organization of excellence. The strategy is broken down

into eight sections: employee relations, recruitment and retention, training,

performance management, pay and benefits, health and safety, absence

management and equal opportunities.


An effective HR strategy is one that works in the sense that it achieves what

it sets out to achieve. In particular, it:

l will satisfy business needs;

l be founded on detailed analysis and study, not just wishful thinking;

l can be turned into actionable programmes that anticipate implementation

requirements and problems;

l is coherent and integrated, being composed of components that fit with

and support each other;

l takes account of the needs of line managers and employees generally as

well as those of the organization and its other stakeholders. As Boxall

42 l The framework of strategic HRM

and Purcell (2003) emphasize: ‘HR planning should aim to meet the

needs of the key stakeholder groups involved in people management in

the firm.’

Here is a comment on what makes a good HR strategy:

A good strategy is one which actually makes people feel valued. It makes them

knowledgeable about the organization and makes them feel clear about

where they sit as a group, or team, or individual. It must show them how what

they do either together or individually fits into that strategy. Importantly, it

should indicate how people are going to be rewarded for their contribution

and how they might be developed and grow in the organization.

(Chief Executive, Peabody Trust)

HR strategies l 43

Part 2

Strategic human resource

management in action



Formulating and

implementing HR strategies

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:

l fundamental process considerations;

l characteristics of the process;

l developing HR strategies;


l setting out HR strategies;

l conducting a strategic review;

l implementing HR strategies.


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


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.



Boxall (1993) has drawn up the following propositions about the formulation

of HR strategy from the literature:

l 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.

l Business strategy may be an important influence on HR strategy but it is

only one of several factors.

l 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


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)


l ‘upstream’ first-order decisions, which are concerned with the long-term

direction of the enterprise or the scope of its activities;

l ‘downstream’ second-order decisions, which are concerned with internal

operating procedures and how the firm is organized to achieve its goals;

50 l Strategic HRM in action

l ‘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


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.

Formulating and implementing HR strategies l 51


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


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 and

Holder (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).

52 l Strategic HRM in action

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


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

Formulating and implementing HR strategies l 53

54 l Strategic HRM in action

Table 5.1 HRM best practices

Guest (1999) Patterson et al


Pfeffer (1994) US Department of

Labor (1993)

Selection and the

careful use of

selection tests to

identify those with

potential to make a


Training and in

particular a

recognition that

training is an ongoing


Job design to ensure


commitment and

motivation, including

steps to ensure that

employees have the

responsibility and

autonomy fully to use

their knowledge and


Communication to

ensure that a two-way

process keeps

everyone fully


Employee share


programmes to

increase employees’

awareness of the

implications of their

actions for the

financial performance

of the firm.


selection and








Coherent appraisal


Flexibility of

workforce skills.

Job variety on shop


Use of formal


Frequent and


communication to


Use of quality



Harmonized terms

and conditions.

Basic pay higher

than competition.

Use of incentive




Selective hiring.





contingent on


Training to

provide a skilled

and motivated


Reduction of





Careful and

extensive systems

for recruitment,

selection and


Formal systems for

sharing information

with employees.

Clear job design.




Monitoring of








Promotion and


schemes that

provide for the

recognition and

reward of highperforming


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.

Best fit

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


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’.

Formulating and implementing HR strategies l 57

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.

Achieving vertical integration

Vertical integration comes in two forms: 1) integration with the culture of

the organization; and 2) fit with the business strategy.

Culture integration

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

58 l Strategic HRM in action

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:

l intentions concerning growth or retrenchment, acquisitions, mergers,

divestments, diversification, product/market development;

l proposals on increasing competitive advantage through innovation

leading to product/service differentiation, productivity gains, improved

quality/customer service, cost reduction (downsizing);

l 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


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


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


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;

Formulating and implementing HR strategies l 59

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.

Formulating and implementing HR strategies l 61

Table 5.2 Aconceptual approach to linking business and HR strategies

Business strategy – growth through:







Mergers and












62 l Strategic HRM in action

Table 5.3 Linking HR and competitive strategies



HR strategy

Resourcing HR development Reward


















advantage by


people who

are better

than those

employed by


Recruit and retain

high-quality people

with innovative

skills and a good

track record in


Use sophisticated


procedures to

recruit people who

are likely to deliver

quality and high

levels of customer


Develop core/



structures; recruit

people who are

likely to add value;

if unavoidable, plan

and manage



Use sophisticated

recruitment and


procedures based

on a rigorous

analysis of the

special capabilities

required by the


Develop strategic

capability and provide

encouragement and

facilities for enhancing

innovative skills and

enhancing the

intellectual capital of the


Encourage the

development of a

learning organization,

develop and implement

knowledge management

processes, support total

quality and customer

care initiatives with

focused training.

Provide training designed

to improve productivity;

inaugurate just-in-time

training that is closely

linked to immediate

business needs and can

generate measurable

improvements in


Develop organizational

learning processes;

encourage self-managed

learning through the use

of personal development

plans as part of a


management process.

Provide financial

incentives and

rewards and

recognition for



Link rewards to


performance and

the achievement of

high standards of

customer service.

Review all reward

practices to ensure

that they provide

value for money

and do not lead to






processes that

enable both

financial and nonfinancial

rewards to

be related to

competence and

skills; ensure that

pay levels are


Integrative processes

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


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

Formulating and implementing HR strategies l 63

Figure 5.1 Performance management as an integrating force










with resourcing, human resource development and reward management. It

is necessary to take deliberate steps in the latter areas to achieve coherence.


The following are the headings under which a strategy and the plans for

implementing it could be set out:

1. Basis

– 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.

64 l Strategic HRM in action


Use of




Figure 5.2 Use of competencies as an integrating force

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



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


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:

l redefined the purpose of the organization;

l emphasized that the core purpose will continue to be given absolute


l set out the need to secure the future of activities outside its core purpose;

and importantly

l made proposals designed to shape and secure the financial future.

Formulating and implementing HR strategies l 65

66 l Strategic HRM in action


• What is the business strategy and what are the business

needs emerging from it?

• What are the cultural and environmental factors we need

to take into account?

• What are the key HR weaknesses and issues?

• What are the gaps between what we are doing and what

we ought to do?


• Why do the HR weaknesses and issues exist?

• What is the cause of any gaps?

What factors are influencing the situation (cultural,

environmental, competition, political, etc)?

Conclusions and recommendations:

• What are our conclusions from the analysis/diagnosis?

• What do we need to do to fill the gaps?

• What alternative strategies are available?

Which alternative is recommended and why?

Action planning

• What actions do we need to take to implement the


• What problems may we meet and how will we overcome


• Who takes the action and when?

• How do we ensure that we have the committed and

capable line managers required?

Resource planning:

• What resources will we need (money, people, time)?

• How will we obtain these resources?

• How do we convince management that these resources

are required?

• What supporting processes are required?


• What are the benefits to the organization of implementing

these proposals?

• How do they benefit individual employees?

• How do they satisfy business needs?

Figure 5.3 Strategic review sequence

HR issues emerging from the strategic review

The key HR issues emerging from the strategic review are that:

l it will lead to the transformation of the organization;

l 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


– 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


– greater concentration on the financial requirement to balance income

and expenditure while continuing to develop and improve service


l 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;

l 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;

l 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:

Formulating and implementing HR strategies l 67

l major communication initiatives introduced by the Chief Executive;

l 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;

l decisions on the shape of the regional organization;

l an analysis and diagnosis on cultural issues, ie what the present culture

is and what it should become.

Future strategy

Against this background, it is necessary to build on the steps already taken


l 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;

l 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;

l focusing on the activities that will not only deal with the HR issues, but

also help to achieve culture change, namely:

– 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.

68 l Strategic HRM in action

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.


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.

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


l the tendency of employees in diverse organizations only to accept initiatives

they perceive to be relevant to their own areas;

l the tendency of long-serving employees to cling to the status quo;

l complex or ambiguous initiatives may not be understood by employees

or will be perceived differently by them, especially in large, diverse


l it is more difficult to gain acceptance of non-routine initiatives;

l 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


l the initiative is seen as a threat;

Formulating and implementing HR strategies l 69

l inconsistencies between corporate strategies and values;

l the extent to which senior management is trusted;

l the perceived fairness of the initiative;

l the extent to which existing processes could help to embed the initiative;

l 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.

70 l Strategic HRM in action


Improving business

performance through

strategic HRM

Strategic HRM is about improving business performance through people.

Organizations in all sectors (private, public or voluntary) have to be

business-like in the sense that they are in the business of effectively and efficiently

achieving their purpose, whether this is to make profits, deliver a

public service or undertake charitable functions. The major concerns of

strategic HRM are to meet the business needs of the organization and the

individual and collective needs of the people employed in it. Aconsiderable

amount of research has been conducted recently on how HRM impacts on

organizational performance, and this is summarized in the first section of

this chapter. The second part of the chapter explores the general lessons that

can be learnt from this research and other relevant research projects. Finally,

consideration is given to how, in the light of the research, strategic HRM can

make a contribution to improving business performance.




The assumption underpinning the practice of HRM is that people are the

organization’s key resource and organizational performance largely

depends on them. If, therefore, an appropriate range of HR policies and

processes is developed and implemented effectively, then HR will make a

substantial impact on firm performance.

The Holy Grail sought by many commentators on human resource

management is to establish that a clear positive link between HRM practices

and organizational performance exists. There has been much research,

summarized in Table 6.1, over the last decade or so that has attempted to

answer two basic questions: 1) ‘Do HR practices make a positive impact on

organizational performance?’ and 2) ‘If so, how is the impact achieved?’ The

second question is the more important one. It is not enough to justify HRM

by proving that it is a good thing. What counts is what can be done to ensure

that it is a good thing. This is the ‘black box’ mentioned by Purcell et al (2003)

that lies between intentions and outcomes.

Ulrich (1998) has pointed out that: ‘HR practices seem to matter; logic

says it is so; survey findings confirm it. Direct relationships between

investment and attention to HR practices are often fuzzy, however, and vary

according to the population sampled and the measures used.’

Purcell et al (2003) have cast doubts on the validity of some of the attempts

through research to make the connection: ‘Our study has demonstrated

convincingly that research which only asks about the number and extent of

HR practices can never be sufficient to understand the link between HR

practices and business performance. As we have discussed it is misleading

to assume that simply because HR policies are present that they will be

implemented as intended.’

Further comments about attempts to trace the link have been made by Truss

(1999), who, following research in Hewlett-Packard, remarked that:

Our findings did lend strong support to the argument put forward by Mueller

(1996) that the informal organization has a key role to play in the HRM process

such that informal practice and norms of behaviour interact with formal HR

policies… We cannot consider how HRM and performance are linked without

analysing, in some detail, how policy is turned into practice through the lens of

the informal organization.

72 l Strategic HRM in action

Improving business performance through strategic HRM l 73

Table 6.1 Outcomes of research on the link between HR and

organizational performance

Researcher(s) Methodology Outcomes

Arthur (1990,

1992, 1994)

Data from 30 US strip mills used

to assess impact on labour

efficiency and scrap rate by

reference to the existence of

either a high-commitment

strategy or a control strategy.

Firms with a high-commitment

strategy had significantly higher

levels of both productivity and

quality than those with a

control strategy.



Analysis of the responses of 968

US firms to a questionnaire

exploring the use of highperformance

work practices,*

the development of synergies

between them and the alignment

of these practices with the

competitive strategy.

Productivity is influenced by

employee motivation; financial

performance is influenced by

employee skills, motivation

and organizational structures.

Huselid and

Becker (1995)

An index of HR systems in 740

firms was created to indicate the

degree to which each firm

adopted a high-performance

work system.

Firms with high values on the

index had economically and

statistically higher levels of


Becker et al


Outcomes of a number of

research projects were analysed

to assess the strategic impact on

shareholder value of highperformance

work systems.

High-performance systems

make an impact as long as they

are embedded in the

management infrastructure.

Patterson et al


The research examined the link

between business performance

and organization culture and the

use of a number of HR practices.

HR practices explained

significant variations in

profitability and productivity

(19% and 18% respectively).

Two HR practices were

particularly significant: 1) the

acquisition and development

of employee skills; and 2) job

design including flexibility,

responsibility, variety and the

use of formal teams.



A study of the impact of highperformance

work practices such

as teamworking, appraisal, job

rotation, broad-banded grade

structures and sharing of business

information in 623 UK aerospace


The number of HR practices

and the proportion of the

workforce covered appeared to

be the key differentiating

factors between more and less

successful firms.

*In the US research projects noted in Table 6.1, reference is made to the impact

made by the following strategies:

74 l Strategic HRM in action

Researcher(s) Methodology Outcomes

The 1998




Survey (as

analysed by

Guest et al,


An analysis of the survey, which

sampled some 2,000 workplaces

and obtained the views of about

28,000 employees.

A strong association exists

between HRM and both

employee attitudes and

workplace performance.

The Future of

Work Survey,

Guest et al


The survey covered 835 private

sector organizations, and

interviews were carried out with

610 HR professionals and 462

chief executives.

A greater use of HR practices is

associated with higher levels of

employee commitment and

contribution and is in turn

linked to higher levels of

productivity and quality of


Purcell et al


A University of Bath longitudinal

study of 12 companies to

establish how people

management impacts on

organizational performance.

The most successful companies

had what the researchers called

‘the big idea’. The companies

had a clear vision and a set of

integrated values that were

embedded, enduring,

collective, measured and

managed. They were

concerned with sustaining

performance and flexibility.

Clear evidence existed between

positive attitudes towards HR

policies and practices, levels of

satisfaction, motivation and

commitment, and operational

performance. Policy and

practice implementation (not

the number of HR practices

adopted) is the vital ingredient

in linking people management

to business performance and

this is primarily the task of line


Table 6.1 continued

l a commitment strategy – a strategy, as described by Walton (1985), that

promotes mutuality between employers and employees;

l a control strategy – as described by Walton (1985), one in which the aim is

to establish order, exercise control and achieve efficiency in the application

of the workforce but where employees do not have a voice except

through their unions;

l high-performance work systems – these aim to impact on performance

through people by the use of such practices as rigorous recruitment and

selection procedures, extensive and relevant training and management

development activities, incentive pay systems and performance

management processes.


In Guest et al (2000b) the relationship between HRM and performance was

modelled as shown in Figure 6.1.

The Bath People and Performance Model developed by Purcell et al (2003)

is shown in Figure 6.2.

Central to this model is the concept that performance is a function of

Ability + Motivation + Opportunity (AMO). On the outside ring, 11 policy or

practice areas are identified to feed into and give meaning to AMO. The

second crucial feature of the model is the central box – front-line

management – which draws attention to the fact that nearly all HR policies

are applied through and by line managers. It is these managers who bring

policies to life. Organizational commitment, motivation and job satisfaction

all lead to discretionary behaviour, which in turn generates performance

outcomes, which in themselves contribute to commitment, motivation and

job satisfaction.

Improving business performance through strategic HRM l 75

Figure 6.1 Model of the link between HRM and performance (from Guest et al,


HR practice s

Quality of

goods and

services Financial

performan ce

Productivi ty



HR strategy



HR outcomes





76 l Strategic HRM in action



Training and
















Ability and



and incentive


to participate



– implementing

– enacting

– leading

– controlling












Figure 6.2 The Bath People and Performance Model (from Purcell et al, 2003)



The practice areas covered by HR strategies that impact on performance are

summarized in Table 6.2.

Improving business performance through strategic HRM l 77

Table 6.2 The HR practices that impact on performance

HR practice area How it impacts

Attracting, developing and

retaining high-quality


Matches people to the strategic and operational

needs of the organization. Provides for the

acquisition, development and retention of talented

employees who can deliver superior performance,

productivity, flexibility, innovation and high levels of

personal customer service and who ‘fit’ the culture

and the strategic requirements of the organization.

Talent management Wins ‘war for talent’ by ensuring that the talented and

well-motivated people required by the organization

to meet present and future needs are available.

Working environment –

core values, leadership,

work–life balance,

managing diversity, secure


Develops ‘the big idea’ (Purcell et al, 2003), ie a clear

vision and a set of integrated values. Makes the

organization ‘a great place to work’.

Job and work design Provides individuals with stimulating and interesting

work and gives them the autonomy and flexibility to

perform their jobs well. Enhances job satisfaction and

flexibility, which encourages high performance and


Learning and development Enlarges the skill base and develops the levels of

competence required in the workforce. Encourages

discretionary learning, which happens when

individuals actively seek to acquire the knowledge

and skills that promote the organization’s objectives.

Develops a climate of learning – a growth medium in

which self-managed learning as well as coaching,

mentoring and training flourish.

78 l Strategic HRM in action

Table 6.2 continued

HR practice area How it impacts

Managing knowledge and

intellectual capital

Focuses on both organizational and individual

learning and on providing learning opportunities and

opportunities to share knowledge in a systematic way.

Ensures that vital stocks of knowledge are retained

and deals with improving the flow of knowledge,

information and learning within the organization.

Increasing motivation,

commitment and role


Encourages people to identify themselves with and

act upon the core values of the organization and

willingly to contribute to the achievement of

organizational goals. Develops a climate of

cooperation and trust, clarifying the psychological




Develops a performance culture that encourages high

performance in such areas as productivity, quality,

levels of customer service, growth, profits and,

ultimately, the delivery of increased shareholder

value. Empowers employees to exhibit the

discretionary behaviours most closely associated with

higher business performance such as risk taking,

innovation, knowledge sharing and establishing trust

between managers and subordinates.

Reward management Develops motivation, commitment, job engagement

and discretionary behaviour by valuing and rewarding

people in accordance with their contribution.


Roles in strategic HRM

This chapter is concerned with the strategic roles of the people involved as

top managers, front line managers, HR directors, or members of the HR



Top management is there to provide visionary leadership, define purposes

and values and set the direction. It develops the overall business strategies

and ensures that functional strategies for marketing, product/service development,

customer service, operations, IT and HR are prepared and implemented

in ways that provide sustained support to the achievement of

business goals.


HR can initiate new policies and practices but it is the line that has the main

responsibility for implementing them. In other words, ‘HR proposes but the

line disposes’. Front-line managers, in the words of Purcell et al (2003),

‘bring HR policies to life’. If line managers are not disposed favourably


towards what HR wants them to do, they won’t do it or, if compelled to,

they will be half-hearted about it.

As pointed out by Purcell et al, high levels of organizational performance

are not achieved simply by having a range of well-conceived HR policies

and practices in place. What makes the difference is how these policies and

practices are implemented. That is where the role of line managers in people

management is crucial: ‘The way line managers implement and enact

policies, show leadership in dealing with employees and in exercising

control come through as a major issue.’ Purcell et al noted that dealing with

people is perhaps the aspect of their work in which line managers can

exercise the greatest amount of discretion. If they use their discretion to

avoid putting HR’s ideas into practice, then the rhetoric is unlikely to be

converted into reality. Performance management schemes often fail because

of the reluctance of managers to carry out reviews.

Afurther factor affecting the role of line management is their ability to do

the HR tasks assigned to them. People-centred activities such as defining

roles, interviewing, reviewing performance, providing feedback, coaching

and identifying learning and development needs all require special skills.

Some managers have them; some don’t. Performance-related pay schemes

sometimes fail because of untrained line managers.

It is argued by Floyd and Woolridge (1997) that line managers should

actively participate in the ‘thinking’ as well as the ‘doing’ of strategy. They

suggest that line managers can champion alternatives by conceiving

opportunities that fall outside an organization’s current concept of

strategy. They can synthesize information about emerging issues, for

example internal or external developments and events and trends viewed

as important to the organization. They can also stimulate change that has

not been catered for in the organization’s deliberate strategy by supporting

more radical activities. Line managers can carry out these roles if they are

given authority as well as responsibility, have the freedom to experiment

and, importantly, are included in strategic decision making. As Currie and

Procter (2001) point out, ‘HR strategy may best be composed of broad

themes which can be contextualized at local level… This encourages

middle managers to elaborate on these broad themes, taking into account

specific operational contexts, and to determine how best those themes are


To promote the role of front-line managers as ‘strategic partners’ it is

necessary to involve them in strategic planning activities as members of crossfunctional

project teams and to provide them with the training and development

that will enable them to play their part. As Barnett et al (1996)

comment, the realization of HR strategy is likely to be a process of ‘negotiated

evolution’ with line managers and other stakeholders.

80 l Strategic HRM in action


HR directors have a key role in strategic HRM, especially if they are – as

they should be – on the board or members of the top management team.

They are there to envision how HR strategies can be integrated with the

business strategy, to prepare strategic plans and to oversee their implementation.

They should play a major part in organization development and

change management and in the achievement of coherence in the different

aspects of HR policy. HR directors who will most probably play a full

strategic role as business partners are likely to be involved in business

planning and the integration of human resource plans with business plans

and will be well placed to exert influence on the way in which the enterprise

is organized, managed and staffed – all with a view to helping it achieve its

strategic objectives. Although professionally competent in HR techniques,

their contribution and credibility will depend mainly on their business

awareness and skills and their ability to play a full part as members of the

top team.


It is Ulrich’s (1998) view that HR executives, to be fully fledged strategic

partners with senior management, should ‘impel and guide serious

discussion of how the company should be organized to carry out its


HR must take stock of its own work and set clear priorities. At any given

moment, the HR staff might have a dozen initiatives in its sights, such as payfor-

performance, global teamwork and action-learning development experiences.

But to be truly tied to business outcomes, HR needs to join forces with

operating managers to assess systematically the impact and importance of

each one of these initiatives. Which ones are really aligned with strategy

implementation? Which ones should receive immediate attention and which

ones can wait? Which ones, in short, are really linked to business results?

The answers must be obtained to six questions:

1. Shared mindset: To what extent does our company have the right culture

to achieve our goals?

2. Competence: To what extent does our company have the required

knowledge, skills and abilities?

3. Consequence: To what extent does our company have the appropriate

measures, rewards and incentives?

Roles in strategic HRM l 81

4. Governance: To what extent does our company have the right organization

structure, communication systems and policies?

5. Capacity for change: To what extent does our company have the ability to

improve work processes, to change and to learn?

6. Leadership: To what extent does our company have the leadership to

achieve its goals?

The new mandate for HR

According to Ulrich (1998), ‘HR should not be defined by what it does but

by what it delivers – results that enrich the organization’s value to

customers, investors and employees’. Ulrich believes that for HR to deliver

excellence it should:

l become a partner with senior and line managers in strategy execution,

helping to improve planning from the conference room to the marketplace;

l become an expert in the way work is organized and executed, delivering

administrative efficiency to ensure that costs are reduced while quality is


l become a champion for employees, vigorously representing their

concerns to senior management and at the same time working to increase

employee contribution, that is, employees’ commitment to the organization

and their ability to deliver results;

l become an agent of continuous transformation, shaping processes and a

culture that together improve an organization’s capacity for change;

l communicate the importance of the soft, people-centred issues;

l define HR deliverables and be accountable for them;

l invest in innovative HR practices.

The specific strategic roles of HR

The four specific strategic roles of HR as discussed below are:

1. business partner – working alongside business colleagues to align HR and

business strategy and manage human resources strategically;

2. innovator – developing integrated HR strategies;

3. change agent – the management of transformation and change;

4. implementer – getting strategies into action.

Business partner

HR practitioners as business partners share responsibility with their line

management colleagues for the success of the enterprise. As described by

82 l Strategic HRM in action

Tyson (1985), they have the capacity to identify business opportunities, to

see the broad picture and to see how their HR role can help to achieve the

company’s business objectives. They integrate their activities closely with

top management and ensure that they serve a long-term strategic purpose.

As business partners, HR practitioners are aware of business strategies

and the opportunities and threats facing the organization. They are capable

of analysing organizational strengths and weaknesses, and diagnosing the

issues facing the enterprise (PESTLE analysis) and their human resource

implications. They know about the critical success factors that will create

competitive advantage and they can draw up a convincing business case

for innovations that will add value.

But in acting as a business partner, HR must still deliver effective services.

The innovation role

A strategic approach to HRM will mean that HR specialists will innovate –

they introduce new processes and procedures that they believe will increase

organizational effectiveness.

The need for innovation should be established by processes of analysis

and diagnosis that identify the business need and the issues to be

addressed. ‘Benchmarking’ can take place to identify ‘best practice’ as

adopted by other organizations. But in the interests of achieving ‘best fit’ the

innovation should meet the particular needs of the business, which are

likely to differ from those of other ‘best practice’ organizations. It has to be

demonstrable that the innovation is appropriate, beneficial and practical in

the circumstances and can be implemented without too much difficulty in

the shape of opposition from those affected by it or the unjustifiable use of

resources – financial and the time of those involved.

The danger, according to Marchington (1995), is that HR people may go in

for ‘impression management’ – aiming to make an impact on senior managers

and colleagues through publicizing high-profile innovations. HR specialists

who aim to draw attention to themselves simply by promoting the latest

flavour of the month, irrespective of its relevance or practicality, are falling

into the trap that Drucker (1955), anticipating Marchington by 40 years,

described as follows: ‘The constant worry of all HR administrators is their

inability to prove that they are making a contribution to the enterprise. Their

pre-occupation is with the search for a “gimmick” which will impress their

management colleagues.’ As Marchington points out, the risk is that people

believe ‘all can be improved by a wave of the magic wand and the slaying of a

few evil characters along the way’. This facile assumption means that people

can too readily devise elegant solutions that do not solve the problem because

of the hazards encountered during implementation, for example indifference

or open hostility. These have to be anticipated and catered for.

Roles in strategic HRM l 83

The change manager role

Johnson and Scholes (1993) in their classic book on strategy suggest that

‘organizations that successfully manage change are those that have integrated

their human resource management policies with their strategies and

the strategic change process’.

Strategies involve change, and failures to implement strategies often arise

because the changes involved have not been managed effectively. HR practitioners

can play a major part in developing and implementing organizational

change. They must pay particular attention to managing change

when implementing HR initiatives. This means considering:

l who will be affected by the change;

l how they will react to it;

l barriers to implementation (eg resistance or indifference to change) and

how they will be overcome;

l resource requirements for implementing change (these resources include

the commitment and skill of those involved in the change as well as

people, time and money);

l who is available to champion the change;

l how line managers and others will be involved in the change process,

including the formulation as well as the implementation of changed


l how the purpose and impact of change will be communicated to all


l what different skills and behaviours will be required and how they are to

be developed;

l how the change process will be monitored;

l how the effectiveness of the change will be measured;

l what steps will be taken to evaluate the impact of change.

A change model used by HR staff at GE in the United States to guide a

transformation process in the company is shown in Table 7.1. The model is

based on the statement that ‘change begins by asking who, why, what and


The implementer role

HR strategists have to decide where they want to go and how they mean to

get there. They are in the delivery business – making things happen, getting

things done. They are thinking performers – they have to think carefully

about what they are planning in the context of their organization and within

84 l Strategic HRM in action

Roles in strategic HRM l 85

Table 7.1 Change model (from Ulrich, 1998)

Key success

factors in change

Questions to assess and accomplish the key success factors for


Leadership Do we have a leader:

– who owns and champions change?

– who publicly commits to making it happen?

– who will garner the resources necessary to sustain it?

– who will put in the personal time and attention needed to

follow through?

Creating a shared


(Why do it?)

Do employees:

– see the reason for the change?

– understand why it is important?

– see how it will help them and the business in the short and

long term?

Shaping a vision

(What will it look

like when it is


Do employees:

– see the outcomes of the change in behavioural terms (ie in

terms of what people will do differently as a result of the


– get excited about the results of accomplishing the change?

– understand how it will benefit customers and other




(Who else needs

to be involved?)

Do the sponsors of the change:

– recognize who else has to be committed to the change to

make it happen?

– know how to build a coalition of support for the change?

– have the ability to enlist the support of key individuals in the


– have the ability to build a responsibility matrix to make it


Leading change

(Who is


Do the sponsors of the change:

– understand how to link it to other HR systems such as

staffing, training, appraisal, rewards, structure and


– recognize the systems implications of the change?



(How will it be


Do the sponsors of the change:

– have a means of measuring its success?

– plan to benchmark progress against both the results of the

change and the process of implementing it?

Making it last

(How will it get

started and last?)

Do the sponsors of the change:

– recognize the first steps in getting it started?

– have a short-term and long-term plan to keep attention

focused on the change?

– have a plan to adapt the change over time?

the framework of a recognized body of knowledge, and they have to

perform effectively in the sense of delivering advice, guidance and services

that will help the organization to achieve its strategic goals. Karen Legge

(1995) made a similar point when she referred to HRM as a process of

‘thinking pragmatism’.

86 l Strategic HRM in action

Part 3

HR strategies



Strategies for improving

organizational effectiveness

An effective organization is one that achieves its purpose by meeting the

needs of its stakeholders, matching its resources to opportunities, adapting

flexibly to environmental changes and creating a culture that promotes

commitment, creativity, shared values and mutual trust. The improvement

of organizational effectiveness is an overall objective of strategic HRM,

which addresses the organization-wide process issues discussed in this

chapter relating to organizational development and transformation, culture

management, knowledge management, change management, developing a

climate of high commitment and trust, quality management, continuous

improvement and customer relations. The last three of these areas are the

special concern of front-line managers, but the HR function can provide

support and help in developing and implementing the required strategies.

A holistic approach is required that provides the basis for integrated HR

strategies in the main areas of resourcing and talent management, learning

and development, performance management, reward and employee relations,

which are discussed in the next five chapters.




Strategies for improving organizational effectiveness will focus on developing

processes that support the achievement of business goals and a

positive culture. There are no universal prescriptions for the development of

strategies. Some of the areas that might be considered are listed in the box,

but these are generalities and would have to be turned into specifics in accordance

with an assessment of the particular business environment and needs.

Rosabeth Moss Kanter (1989) noted that corporations are being pushed in

ever less bureaucratic and ever more entrepreneurial directions, cutting out

unnecessary layers of the hierarchy and forging closer ties with employees.

She emphasizes, however, that the pursuit of excellence has multiplied the

number of demands on executives and managers and described this as the

‘post-entrepreneurial corporation’. This represents ‘a triumph of process

over structure’. She suggests that relationships and communication and the

flexibility to combine resources are more important than the formal

channels and reporting relationships represented in an organization chart:

‘What is important is not how responsibilities are divided but how people

can pull together to pursue new opportunities.’

90 l HR strategies

Areas for developing organizational effectiveness

l Clearly defined goals and strategies to accomplish them.

l A value system that emphasizes performance, productivity,

quality, customer service, teamwork and flexibility.

l Strong visionary leadership from the top.

l Apowerful management team.

l Awell-motivated, committed, skilled and flexible workforce.

l Effective teamwork throughout the organization, with win/lose

conflict well under control.

l Continuous pressure to innovate and grow.

l The ability to respond fast to opportunities and threats.

l The capacity to manage, indeed thrive, on change.

l A sound financial base and good systems for management

accounting and cost control.

In Managing on the Edge, Richard Pascale (1990) suggested a new

‘paradigm’ for organizations in which they are:

l placing increased emphasis on the ‘soft’ dimensions of style and shared


l operating as networks rather than hierarchies;

l moving from the status-driven view that managers think and workers

do as they are told, to a belief in managers as ‘facilitators’ with workers

empowered to initiate improvements and change;

l placing less emphasis on vertical tasks within functional units and more

on horizontal tasks and collaboration across units;

l focusing less on content and the prescribed use of specific tools and techniques

and more on ‘process’ and a holistic synthesis of techniques;

l changing the military command model to a commitment model.

Linda Gratton (2004) has proposed the following six tenets of the democratic


1. The relationship between the organization and the individual is adult to


2. Individuals are seen primarily as investors actively building and

deploying their human capital.

3. Individuals are able to develop their natures and express their diverse


4. Individuals are able to participate in determining the nature of their


5. The liberty of some individuals is not at the expense of others.

6. Individuals have accountabilities and obligations both to themselves

and to the organization.


Strategies for improving organizational processes can involve preparing and

implementing organization development programmes. Organization development

(OD) has been defined by French and Bell (1990) as:

A planned systematic process in which applied behavioural science principles

and practices are introduced into an ongoing organization towards the goals of

effecting organizational improvement, greater organizational competence,

and greater organizational effectiveness. The focus is on organizations and

their improvement or, to put it another way, total systems change. The orientation

is on action – achieving desired results as a result of planned activities.

Strategies for improving organizational effectiveness l 91

OD was originally based on behavioural science concepts, but during the

1980s and 1990s the focus shifted to a number of other approaches. Some of

these, such as organizational transformation, are not entirely dissimilar to

OD. Others such as team building, change management and culture change

or management are built on some of the basic ideas developed by writers on

organization development and OD practitioners. Yet other approaches such

as continuous improvement (kaizen), total quality management, business

process re-engineering and performance management would be described

as holistic processes that attempt to improve overall organizational effectiveness

from a particular perspective.

Characteristics of OD strategies

OD concentrates on how things are done as well as what is done. It is

concerned with system-wide change. The organization is considered as a total

system and the emphasis is on the interrelationships, interactions and interdependencies

of different aspects of how systems operate as they transform

inputs and outputs and use feedback mechanisms for self-regulation. OD

practitioners talk about ‘the client system’ – meaning that they are dealing

with the total organizational system.

Assumptions and values of OD

OD is based upon the following assumptions and values:

l Most individuals are driven by the need for personal growth and development

as long as their environment is both supportive and challenging.

l The work team, especially at the informal level, has great significance for

feelings of satisfaction, and the dynamics of such teams have a powerful

effect on the behaviour of their members.

l OD programmes aim to improve the quality of working life of all

members of the organization.

l Organizations can be more effective if they learn to diagnose their own

strengths and weaknesses.

l But managers often do not know what is wrong and need special help in

diagnosing problems, although the outside ‘process consultant’ ensures

that decision making remains in the hands of the client.

Features of OD strategies

OD strategies are developed as programmes with the following features:

92 l HR strategies

1. They are managed, or at least strongly supported, from the top but often

make use of third parties or ‘change agents’ to diagnose problems and to

manage change by various kinds of planned activity or ‘intervention’.

2. The plans for organization development are based upon a systematic

analysis and diagnosis of the circumstances of the organization and the

changes and problems affecting it.

3. They use behavioural science knowledge and aim to improve the way

the organization copes in times of change through such processes as

interaction, communications, participation, planning and conflict


OD activities

The activities that may be incorporated in an OD programme are summarized


Action research

This is an approach developed by Lewin (1947), which takes the form of

systematically collecting data from people about process issues and feeding

the data back in order to identify problems and their likely causes. This

provides the basis for an action plan to deal with the problem that can be

implemented cooperatively by the people involved. The essential elements

of action research are data collection, diagnosis, feedback, action planning,

action and evaluation.

Survey feedback

This is a variety of action research in which data are systematically collected

about the system and then fed back to groups to analyse and interpret as the

basis for preparing action plans. The techniques of survey feedback include

the use of attitude surveys and workshops to feed back results and discuss



The term ‘intervention’ in OD refers to core structured activities involving

clients and consultants. The activities can take the form of action research,

survey feedback or any of those mentioned below. Argyris (1970) summed

up the three primary tasks of the OD practitioner or interventionist as being


Strategies for improving organizational effectiveness l 93

1. generate and help clients to generate valid information that they can

understand about their problems;

2. create opportunities for clients to search effectively for solutions to their

problems, to make free choices;

3. create conditions for internal commitment to their choices and opportunities

for the continual monitoring of the action taken.

Process consultation

As described by Schein (1969) this involves helping clients to generate and

analyse information that they can understand and, following a thorough

diagnosis, act upon. The information will relate to organizational processes

such as inter-group relations, interpersonal relations and communications.

The job of the process consultant was defined by Schein as being to ‘help the

organization to solve its own problems by making it aware of organizational

processes, of the consequences of these processes, and of the mechanisms by

which they can be changed’.

Team-building interventions

These deal with permanent work teams or those set up to deal with projects

or to solve particular problems. Interventions are directed towards the

analysis of the effectiveness of team processes such as problem solving,

decision making and interpersonal relationships, a diagnosis and

discussion of the issues and joint consideration of the actions required to

improve effectiveness.

Inter-group conflict interventions

As developed by Blake, Shepart and Mouton (1964) these aim to improve

inter-group relations by getting groups to share their perceptions of one

another and to analyse what they have learnt about themselves and the

other group. The groups involved meet each other to share what they have

learnt and to agree on the issues to be resolved and the actions required.

Personal interventions

These include sensitivity training laboratories (T-groups), transactional

analysis and, more recently, neuro-linguistic programming (NLP). Another

approach is behaviour modelling, which is based on Bandura’s (1977) social

learning theory. This states that for people to engage successfully in a

behaviour they 1) must perceive a link between the behaviour and certain

94 l HR strategies

outcomes, 2) must desire those outcomes (this is termed ‘positive valence’)

and 3) must believe they can do it (termed ‘self-efficacy’). Behaviour

modelling training involves getting a group to identify the problem and

develop and practise the skills required by looking at videos showing what

skills can be applied, role-playing, practising the use of skills on the job and

discussing how well they have been applied.

Use of OD

The decline of traditional OD as mentioned earlier has been partly caused

by disenchantment with the jargon used by consultants and the unfulfilled

expectations of significant improvements in organizational effectiveness.

There was also a reaction in the hard-nosed 1980s against the perceived

softness of the messages preached by the behavioural scientists.

Managements in the later 1980s and 1990s wanted more specific strategies

that would impact on processes they believed to be important as means of

improving performance, such as total quality management, business

process re-engineering and performance management. The need to manage

change to processes, systems or culture was still recognized as long as it was

results driven, rather than activity centred. Team-building activities in the

new process-based organizations were also regarded favourably as long as

they were directed towards measurable improvements in the shorter term.

It was also recognized that organizations were often compelled to transform

themselves in the face of massive challenges and external pressures, and

that traditional OD approaches would not make a sufficient or speedy

impact. Many of the approaches to organizational transformation as

described below were, however, developed during the heyday of OD – the

philosophy may have been rejected but the practices that worked, based on

action learning and survey feedback techniques, were often retained.



Transformation, according to Webster’s Dictionary, is: ‘A change in the shape,

structure, nature of something’. Organizational transformation strategies are

concerned with the development of programmes that will ensure that the

organization responds strategically to new demands and continues to

function effectively in the dynamic environment in which it operates.

Organizational transformation strategic plans may involve radical

changes to the structure, culture and processes of the organization – the way

Strategies for improving organizational effectiveness l 95

it looks at the world. This may be in response to competitive pressures,

mergers, acquisitions, investments, disinvestments, changes in technology,

product lines, markets, cost reduction exercises and decisions to downsize

or outsource work. Transformational change may be forced on an organization

by investors or government decisions. It may be initiated by a new

chief executive and top management team with a remit to ‘turn round’ the


Transformational change strategies involve planning and implementing

significant and far-reaching developments in corporate structures and

organization-wide processes. The change is neither incremental (bit by bit)

nor transactional (concerned solely with systems and procedures).

Transactional change, according to Pascale (1990), is merely concerned with

the alteration of ways in which the organization does business and people

interact with one another on a day-to-day basis and ‘is effective when what

you want is more of what you’ve already got’. He advocates a ‘discontinuous

improvement in capability’ and this he describes as transformation.

A distinction can also be made between first-order and second-order

transformational development. First-order development is concerned with

changes to the ways in which particular parts of the organization function.

Second-order change aims to make an impact on the whole organization.

Types of transformational strategies

Four strategies for transformational change have been identified by

Beckhard (1989):

1. a change in what drives the organization – for example, a change from being

production driven to being market driven would be transformational;

2. a fundamental change in the relationships between or among organizational

parts – for example, decentralization;

3. a major change in the ways of doing work – for example, the introduction of

new technology such as computer-integrated manufacturing;

4. a basic, cultural change in norms, values or research systems – for example,

developing a customer-focused culture.

Transformation through leadership

Transformation programmes are led from the top within the organization.

They do not rely on an external ‘change agent’ as did traditional OD interventions,

although specialist external advice might be obtained on aspects

of the transformation such as strategic planning, reorganization or developing

new reward processes.

96 l HR strategies

The prerequisite for a successful programme is the presence of a transformational

leader who, as defined by Burns (1978), motivates others to strive for

higher-order goals rather than merely short-term interest. Transformational

leaders go beyond dealing with day-to-day management problems; they

commit people to action and focus on the development of new levels of

awareness of where the future lies, and commitment to achieving that future.

Burns contrasts transformational leaders with transactional leaders, who

operate by building up a network of interpersonal transactions in a stable

situation and who enlist compliance rather than commitment through the

reward system and the exercise of authority and power. Transactional leaders

may be good at dealing with here-and-now problems but they will not

provide the vision required to transform the future.

Managing the transition

Strategies need to be developed for managing the transition from where the

organization is to where the organization wants to be. This is the critical part

of a transformation programme. It is during the transition period of getting

from here to there that change takes place. Transition management starts

from a definition of the future state and a diagnosis of the present state. It is

then necessary to define what has to be done to achieve the transformation.

This means deciding on the new processes, systems, procedures, structures,

products and markets to be developed. Having defined these, the work can

be programmed and the resources required (people, money, equipment and

time) can be defined. The strategic plan for managing the transition should

include provisions for involving people in the process and for communicating

to them about what is happening, why it is happening and how it will

affect them. Clearly the aims are to get as many people as possible

committed to the change.

The transformation programme

The eight steps required to transform an organization have been summed

up by Kotter (1995) as follows:

1. Establishing a sense of urgency:

– examining market and competitive realities;

– identifying and discussing crises, potential crises or major opportunities.

2. Forming a powerful guiding coalition:

– assembling a group with enough power to lead the change effort;

– encouraging the group to work together as a team.

Strategies for improving organizational effectiveness l 97

3. Creating a vision:

– creating a vision to help direct the change effort;

– developing strategies for achieving that vision.

4. Communicating the vision:

– using every vehicle possible to communicate the new vision and


– teaching new behaviours by the example of the guiding coalition.

5. Empowering others to act on the vision:

– getting rid of obstacles to change;

– changing systems or structures that seriously undermine the vision;

– encouraging risk taking and non-traditional ideas, activities and


6. Planning for and creating short-term wins:

– planning for visible performance improvement;

– creating those improvements;

– recognizing and rewarding employees involved in the improvements.

7. Consolidating improvements and producing still more change:

– using increased credibility to change systems, structures and policies

that do not fit the vision;

– hiring, promoting and developing employees who can implement

the vision;

– reinvigorating the process with new projects, themes and change agents.

8. Institutionalizing new approaches:

– articulating the connections between the new behaviours and

corporate success;

– developing the means to ensure leadership development and


Transformation capability

The development and implementation of transformation strategies require

special capabilities. As Gratton (1999) points out: ‘Transformation capability

depends in part on the ability to create and embed processes which link

business strategy to the behaviours and performance of individuals and

teams. These clusters of processes link vertically (to create alignment with

short-term business needs), horizontally (to create cohesion), and temporally

(to transform to meet future business needs).’

The strategic role of HR in organizational transformation

HR can and should play a key strategic role in developing and implementing

organizational transition and transformation strategies. It can

98 l HR strategies

provide help and guidance in analysis and diagnosis, highlighting the

people issues that will fundamentally affect the success of the strategy. HR

can advise on resourcing programmes and planning and implementing the

vital learning, reward, communications and involvement aspects of the

process. It can anticipate people problems and deal with them before they

become serious. If the programme does involve restructuring and downsizing,

HR can advise on how this should be done humanely and with the

minimum disruption to people’s lives.


Strategies for culture management are about the achievement of longer-term

objectives either for changing the culture in specified ways or for reinforcing

the existing culture of an organization – its values and ‘the way things are

done around here’. Culture change strategies are concerned with how the

culture of the organization can be moved from a present state to a future

desired state. The strategy will be based on an analysis of the present culture

and the extent that it supports the achievement of business goals. This should

identify areas where changes are deemed to be desirable. Those changes can

then be specified and plans developed for them to be implemented.

Culture reinforcement strategies are also based on an analysis of the

existing culture and how it supports the attainment of goals. In so far as it is

seen to be supportive, steps can be taken to ensure that the desirable

features of the culture are maintained.

Culture change or reinforcement strategies should be based on an understanding

of the meaning of organizational culture and climate and how they

can be analysed, as described later in this section of the chapter. It is then a

matter of being aware of the various approaches that can be adopted to

manage the culture.

Culture management often focuses on the development of shared values

and gaining commitment to them. These values will be concerned with the

sort of behaviour the management believes is appropriate in the interests of

the organization. The core values of a business express the beliefs about

what management regards as important with regard to how the organization

functions and how people should behave. The aim is to ensure that

these beliefs are also held and acted upon by employees. As Hailey (1999)

suggests: ‘The business case for inculcating shared values through

managing culture is based on the idea that ultimately employees could then

be given license to innovate in the confidence that their adherence to

corporate values would prevent them from acting against the interests of

the company.’

Strategies for improving organizational effectiveness l 99

The case for culture management therefore rests on the belief that the

prescription of shared values results in appropriate behaviour. It is argued

by Hailey, however, that, instead of focusing on values initially (and hoping

that behaviour would change), organizations should focus first on behaviours

so that values would then emerge. Values are abstract and can be

espoused but not acted upon. Behaviour is real and if it is the right sort of

behaviour will produce the desired results. It follows therefore that culture

management strategies should be concerned with analysing what behaviours

are appropriate and then bringing in processes such as performance

management that will encourage the development of those behaviours. If,

for example, it is important for people to behave effectively as members of

teams, then team performance management processes can be introduced

(self-managed teams setting their own standards and monitoring their own

performance against those standards) and behaviour conducive to good

teamwork rewarded by financial or non-financial means.

But Hailey refers with approval to the approach to culture management

adopted by Hewlett-Packard, which is based on a values statement, ‘The HP

Way’. This focuses on a ‘belief in our people’, which incorporates:

‘Confidence and respect for our people as opposed to depending on

extensive rules, procedures and so on; which depends upon people doing

their job right (individual freedom) without constant directives.’ As Hailey

comments: ‘[The] two critical issues of managing performance through

business planning and the “HPWay” are inextricably connected and account

for the success and performance of Hewlett-Packard.’ Middle managers

believe that the culture is ‘supportive’, ‘very, very open’ with a ‘team ethic’.

Strategies for managing culture may therefore concentrate on operationalizing

values as at Hewlett-Packard. But organizations without the

deeply embedded culture of that firm may concentrate first on shaping or

reinforcing appropriate behaviours. These should, however, be developed

against the background of an understanding of what organizational culture

and climate are and how they can be analysed and assessed. This analysis

and assessment process provides the basis for the culture management


The meaning of organizational culture

Organizational culture has been defined by Furnham and Gunter (1993) as

‘the commonly held beliefs, attitudes and values that exist in an organization;

put more simply, culture is “the way we do things around here”’.

This pattern of values, norms, beliefs, attitudes and assumptions may not

have been articulated but will shape the ways in which people behave and

things get done. Values refer to what is believed to be important about how

100 l HR strategies

people and the organizations behave. Norms are the unwritten rules of


The definition emphasizes that organizational culture is concerned with

the subjective aspect of what goes on in organizations. It refers to abstractions

such as values and norms that pervade the whole or part of a business.

These may not be defined, discussed or even noticed. Nevertheless, culture

can have a significant influence on people’s behaviour.

Organizational climate

The term organizational climate is sometimes confused with organizational

culture and there has been much debate on what distinguishes the concept

of climate from that of culture. In his analysis of this issue Denison (1996)

suggested that culture refers to the deep structure of organizations, which is

rooted in the values, beliefs and assumptions held by organizational

members. In contrast, climate refers to those aspects of the environment that

are consciously perceived by organizational members. Rousseau (1988)

stated that climate is a perception and is descriptive. Perceptions are sensations

or realizations experienced by an individual. Descriptions are what a

person reports of these sensations.

The debate about the meanings of these terms can become academic. It is

easiest to regard organizational climate as how people perceive (see and feel

about) the culture existing in their organization. As defined by French et al

(1985) it is ‘the relatively persistent set of perceptions held by organization

members concerning the characteristics and quality of organizational culture’.

They distinguish between the actual situations (ie culture) and the perception

of it (climate).

The significance of culture

As Furnham and Gunter (1993) comment: ‘Culture represents the “social

glue” and generates a “we-feeling”, thus counteracting processes of differentiations

which are an unavoidable part of organizational life.

Organizational culture offers a shared system of meanings which is the

basis for communications and mutual understanding. If these functions are

not fulfilled in a satisfactory way, culture may significantly reduce the efficiency

of an organization.’

Analysing organizational culture

There have been many attempts to classify or categorize organizational

culture as a basis for the analysis of cultures in organizations and for taking

Strategies for improving organizational effectiveness l 101

action to support or change them. Most of these classifications are expressed

in four dimensions and two of the best-known ones are summarized below.


Harrison (1972) categorized what he called ‘organization ideologies’. These


l power-orientated – competitive, responsive to personality rather than


l people-orientated – consensual, management control rejected;

l task-orientated – focus on competency, dynamic;

l role-orientated – focus on legality, legitimacy and bureaucracy.


Handy (1981) based his typology on Harrison’s classification, though

Handy preferred the word ‘culture’ to ‘ideology’ because, in his view,

culture conveyed more of the feeling of a pervasive way of life or set of

norms. His four types of culture are:

1. The power culture, which is one with a central power source that exercises

control. There are few rules or procedures and the atmosphere is

competitive, power-orientated and political.

2. The role culture, in which work is controlled by procedures and rules,

and the role, or job description, is more important than the person who

fills it. Power is associated with positions not people.

3. The task culture, in which the aim is to bring together the right people

and let them get on with it. Influence is based more on expert power

than in-position or personal power. The culture is adaptable and

teamwork is important.

4. The person culture, in which the individual is the central point. The

organization exists only to serve and assist the individuals in it.

Assessing organizational culture

Anumber of instruments exist for assessing organizational culture. This is not

easy because culture is concerned with both subjective beliefs and unconscious

assumptions (which might be difficult to measure), and with observed

phenomena such as behavioural norms and artefacts. One of the best-known

instruments is the Organizational Ideology Questionnaire (Harrison,

1972).This questionnaire deals with the four orientations referred to earlier

102 l HR strategies

(power, role, task, self). The questionnaire is completed by ranking statements

according to views on what is closest to the organization’s actual position.

Statements include:

l ‘A good boss is strong, decisive and firm but fair.’

l ‘A good subordinate is compliant, hard-working and loyal.’

l ‘People who do well in the organization are shrewd and competitive,

with a strong need for power.’

l ‘The basis of task assignment is the personal needs and judgments of

those in authority.’

l ‘Decisions are made by people with the most knowledge and expertise

about the problem.’

Measuring organizational climate

Organizational climate measures attempt to assess organizations in terms of

dimensions that are thought to capture or describe perceptions about the

climate. Perceptions about climate can be measured by questionnaires such as

that developed by Litwin and Stringer (1968), which covers eight categories:

1. structure – feelings about constraints and freedom to act and the degree

of formality or informality in the working atmosphere;

2. responsibility – the feeling of being trusted to carry out important work;

3. risk – the sense of riskiness and challenge in the job and in the organization;

the relative emphasis on taking calculated risks or playing it safe;

4. warmth – the existence of friendly and informal social groups;

5. support – the perceived helpfulness of managers and co-workers; the

emphasis (or lack of emphasis) on mutual support;

6. standards – the perceived importance of implicit and explicit goals and

performance standards; the emphasis on doing a good job; the challenge

represented in personal and team goals;

7. conflict – the feeling that managers and other workers want to hear

different opinions; the emphasis on getting problems out into the open

rather than smoothing them over or ignoring them;

8. identity – the feeling that you belong to a company; that you are a

valuable member of a working team.

Appropriate cultures

It could be argued that a ‘good’ culture exerts a positive influence on organizational

behaviour. It could help to create a ‘high-performance’ culture,

one that will produce a high level of business performance. However, a

Strategies for improving organizational effectiveness l 103

high-performance culture means little more than any culture that will

produce a high level of business performance. The attributes of cultures

vary tremendously by context. The qualities of a high-performance culture

for an established retail chain, a growing service business and a consumer

products company that is losing market share may be very different.

Furthermore, in addition to context differences, all cultures evolve over

time. Cultures that are ‘good’ in one set of circumstances or period of time

may be dysfunctional in different circumstances or different times.

Because culture is developed and manifests itself in different ways in

different organizations it is not possible to say that one culture is better than

another, only that it is dissimilar in certain ways. There is no such thing as

an ideal culture, only an appropriate culture. This means that there can be

no universal prescription for a culture management strategy, although there

are certain approaches that can be helpful, as described in the next section.

Strategies for supporting and changing cultures

While it may not be possible to define an ideal structure or to prescribe how

it can be developed, it can at least be stated with confidence that embedded

cultures exert considerable influence on organizational behaviour and

therefore performance. If there is an appropriate and effective culture, it

would be desirable to develop a strategy for supporting or reinforcing it. If

the culture is inappropriate, attempts should be made to determine what

needs to be changed and to develop and implement plans for change.

Culture analysis

In either case, the first step is to analyse the existing culture. This can be

done through questionnaires, surveys and discussions in focus groups or

workshops. It is often helpful to involve people in analysing the outcome of

surveys, getting them to produce a diagnosis of the cultural issues facing the

organization and to participate in the development and implementation of

plans and programmes to deal with any issues. This could form part of an

organizational development programme as described earlier in this chapter.

Groups can analyse the culture through the use of measurement instruments.

Extra dimensions can be established by the use of group exercises

such as ‘rules of the club’ (participants brainstorm the ‘rules’ or norms that

govern behaviour) or ‘shield’ (participants design a shield, often quartered,

that illustrates major cultural features of the organization). Joint exercises

like this can lead to discussions on appropriate values, which are much

more likely to be ‘owned’ by people if they have helped to create them

rather than having them imposed from above.

104 l HR strategies

While involvement is highly desirable, there will be situations when

management has to carry out the analysis and determine the actions

required without the initial participation of employees. But the latter should

be kept informed and brought into discussion on developments as soon as


Culture support and reinforcement

Culture support and reinforcement programmes aim to preserve and

underpin what is good and functional about the present culture. Schein

(1985) has suggested that the most powerful primary mechanisms for

culture embedding and reinforcement are:

l what leaders pay attention to, measure and control;

l leaders’ reactions to critical incidents and crises;

l deliberate role modelling, teaching and coaching by leaders;

l criteria for allocation of rewards and status;

l criteria for recruitment, selection, promotion and commitment.

Culture change

In theory, culture change programmes start with an analysis of the existing

culture. The desired culture is then defined, which leads to the identification

of a ‘culture gap’ that needs to be filled. This analysis can identify

behavioural expectations so that development and reward processes can be

used to define and reinforce them. In real life, it is not quite as simple as


A comprehensive change programme may be a fundamental part of an

organizational transformation exercise, as described earlier in this chapter.

But culture change programmes can focus on particular aspects of the

culture, for example performance, commitment, quality, customer service,

teamwork or organizational learning. In each case the underpinning values

would need to be defined. It would probably be necessary to prioritize by

deciding which areas need the most urgent attention. There is a limit to how

much can be done at once except in crisis conditions.

Levers for change

Having identified what needs to be done and the priorities, the next step is

to consider what levers for change exist and how they can be used. The

levers could include, as appropriate:

Strategies for improving organizational effectiveness l 105

l performance – performance-related or competence-related pay schemes;

performance management processes; gainsharing; leadership training;

skills development;

l commitment – communication, participation and involvement

programmes; developing a climate of cooperation and trust; clarifying

the psychological contract;

l quality – total quality programmes;

l customer service – customer care programmes;

l teamwork – team building; team performance management; team rewards;

l organizational learning – taking steps to enhance intellectual capital and

the organization’s resource-based capability by developing a learning


l values – gaining understanding, acceptance and commitment through

involvement in defining values, performance management processes and

employee development interventions, although it is often the case that

values are embedded by changing behaviours, not the other way round.


Knowledge management strategies aim to capture an organization’s collective

expertise and distribute it to ‘wherever it can achieve the biggest payoff’

(Blake, 1988). This is in accordance with the resource-based view of the firm,

which, as argued by Grant (1991), suggests that the source of competitive

advantage lies within the firm (ie in its people and their knowledge), not in

how it positions itself in the market. Trussler (1998) comments that ‘the capability

to gather, lever, and use knowledge effectively will become a major

source of competitive advantage in many businesses over the next few years’.

Asuccessful company is a knowledge-creating company.

The process of knowledge management

Knowledge management is ‘any process or practice of creating, acquiring,

capturing, sharing and using knowledge, wherever it resides, to enhance

learning and performance in organizations’ (Scarborough et al 1999). They

suggest that it focuses on the development of firm-specific knowledge and

skills that are the result of organizational learning processes. Knowledge

management is concerned with both stocks and flows of knowledge. Stocks

include expertise and encoded knowledge in computer systems. Flows

represent the ways in which knowledge is transferred from people to people

or from people to a knowledge database.

106 l HR strategies

The purpose of knowledge management is to transfer knowledge from

those who have it to those who need it in order to improve organizational

effectiveness. It is concerned with storing and sharing the wisdom and

understanding accumulated in an organization about its processes, techniques

and operations. It treats knowledge as a key resource. It can be

argued that, in the information age, knowledge rather than physical assets

or financial resources is the key to competitiveness. In essence, as pointed

out by Mecklenberg, Deering and Sharp (1999): ‘Knowledge management

allows companies to capture, apply and generate value from their

employees’ creativity and expertise.’

Knowledge management is as much if not more concerned with people

and how they acquire, exchange and disseminate knowledge as it is about

information technology. That is why it has become an important strategic

HRM area. Scarborough et al (1999) believe that HR specialists should have

‘the ability to analyse the different types of knowledge deployed by the

organization… [and] to relate such knowledge to issues of organizational

design, career patterns and employment security’.

The concept of knowledge management is closely associated with intellectual

capital theory in that it refers to the notions of human, social and

organizational or structural capital. It is also linked to the concepts of

organizational learning and the learning organization as discussed in

Chapter 10.

Knowledge management involves transforming knowledge resources by

identifying relevant information and then disseminating it so that learning

can take place. Knowledge management strategies promote the sharing of

knowledge by linking people with people and by linking them to information

so that they learn from documented experiences.

Sources and types of knowledge

Strategies for knowledge management should be founded on an understanding

of the sources and types of knowledge to be found in organizations.

Knowledge can be stored in databanks and found in presentations,

reports, libraries, policy documents and manuals. It can be moved around

the organization through information systems and by traditional methods

such as meetings, workshops, courses, ‘master classes’, written publications,

CDs or CD-ROMs, videos and tapes. The intranet provides an additional

and very effective medium for communicating knowledge.

As argued by Nonaka (1991) and Nonaka and Takeuchi (1995),

knowledge is either explicit or tacit. Explicit knowledge can be codified – it

is recorded and available and is held in databases, in corporate intranets and

intellectual property portfolios. Tacit knowledge exists in people’s minds. It

Strategies for improving organizational effectiveness l 107

is difficult to articulate in writing and is acquired through personal experience.

Hansen et al (1999) suggest that it includes scientific or technological

expertise, operational know-how, insights about an industry and business

judgement. The main challenge in knowledge management is how to turn

tacit knowledge into explicit knowledge.

Approaches to the development of knowledge management


Two approaches to knowledge management have been identified by

Hansen et al (1999):

1. The codification strategy – knowledge is carefully codified and stored in

databases where it can be accessed and used easily by anyone in the

organization. Knowledge is explicit and is codified using a ‘people-todocument’

approach. This strategy is therefore document driven.

Knowledge is extracted from the person who developed it, made independent

of that person and reused for various purposes. It will be stored

in some form of electronic repository for people to use and allows many

people to search for and retrieve codified knowledge without having to

contact the person who originally developed it. This strategy relies

largely on information technology to manage databases and also on the

use of the intranet.

2. The personalization strategy – knowledge is closely tied to the person who

has developed it and is shared mainly through direct person-to-person

contacts. This is a ‘person-to-person’ approach, which involves sharing

tacit knowledge. The exchange is achieved by creating networks and

encouraging face-to-face communication between individuals and

teams by means of informal conferences, workshops, brainstorming

and one-to-one sessions.

The research conducted by Hansen et al established that companies that use

knowledge effectively pursue one strategy predominantly and use the

second strategy to support the first. Those that try to excel at both strategies

risk failing at both.

Strategic knowledge management issues

The following need to be addressed in developing knowledge management


108 l HR strategies

The pace of change

How can the strategy ensure that knowledge management processes keep

up with the pace of change and identify what knowledge needs to be

captured and shared?

Relating knowledge management strategy to business strategy

Hansen et al (1999) assert that it is not knowledge per se but the way it is

applied to strategic objectives that is the critical ingredient in competitiveness.

They point out that ‘competitive strategy must drive knowledge

management strategy’, and that managements have to answer the question:

‘How does knowledge that resides in the company add value for

customers?’ Mecklenberg et al (1999) argue that organizations should ‘start

with the business value of what they gather. If it doesn’t generate value,

drop it.’

Technology and people

Technology is central to organizations adopting a codification strategy.

But for those following a broader and potentially more productive personalization

strategy, IT assumes more of a supportive role. As Hansen,

Nohria and Tierney (1999) comment: ‘In the codification model, managers

need to implement a system that is much like a traditional library – it must

contain a large cache of documents and include search engines that allow

people to find and use the documents they need. In the personalization

model, it’s more important to have a system that allows people to find

other people.’

Scarborough et al (1999) suggest that ‘technology should be viewed more

as a means of communication and less as a means of storing knowledge’.

Knowledge management is more about people than technology. As research

by Davenport (1999) established, managers get two-thirds of their information

from face-to-face or telephone conversations. There is a limit to how

much tacit knowledge can be codified. In organizations relying more on

tacit than explicit knowledge, a person-to-person approach works best, and

IT can only support this process; it cannot replace it.

The significance of process and social capital and culture

Apreoccupation with technology may mean that too little attention is paid

to the processes (social, technological and organizational) through which

knowledge combines and interacts in different ways (Blackler, 1995). The

Strategies for improving organizational effectiveness l 109

key process is the interactions between people. This constitutes the social

capital of an organization, ie the ‘network of relationships [that] constitute

a valuable resource for the conduct of social affairs’ (Nahpiet and Goshal,

1998). Social networks can be particularly important to ensure that

knowledge is shared. What is also required is another aspect of social

capital, ie trust. People will not be willing to share knowledge with those

whom they do not trust.

The culture of the company may inhibit knowledge sharing. The norm

may be for people to keep knowledge to themselves as much as they can

because ‘knowledge is power’. An open culture will encourage people to

share their ideas and knowledge.

Components of a knowledge management strategy

Aknowledge management strategy could be concerned with organizational

people management processes that help to develop an open culture in which

the values and norms emphasize the importance of sharing knowledge and

facilitate knowledge sharing through networks. It might aim to encourage

the development of communities of practice (defined by Wenger and Snyder

(2000) as ‘groups of people informally bound together by shared expertise

and a passion for joint enterprise’). The strategy could refer to methods of

motivating people to share knowledge and rewarding those who do so. The

development of processes of organizational and individual learning,

including the use of seminars and symposia that will generate and assist in

disseminating knowledge, could also be part of the strategy.


The concept of commitment refers to feelings of attachment and loyalty to

the organization and, as such, plays an important part in HRM philosophy.

The importance of commitment was highlighted by Walton (1985). His

theme was that improved performance would result if the organization

moved away from the traditional control-orientated approach to workforce

management, which relies upon establishing order, exercising control and

‘achieving efficiency in the application of the workforce’. He argued that

this approach should be replaced by a commitment strategy. He suggested

that workers respond best – and most creatively – not when they are tightly

controlled by management, placed in narrowly defined jobs and treated like

an unwelcome necessity, but, instead, when they are given broader responsibilities,

encouraged to contribute and helped to achieve satisfaction in

their work.

110 l HR strategies

A commitment strategy will be concerned with the development of

communication, education and training programmes, initiatives to increase

involvement and ‘ownership’, and the introduction of performance and

reward management processes.

Communication programmes

It seems to be strikingly obvious that commitment will only be gained if

people understand what they are expected to commit to. But managements

too often fail to pay sufficient attention to delivering the message in terms

that recognize that the frame of reference for those who receive it is likely to

be quite different from their own. Management’s expectations will not

necessarily coincide with those of employees. Pluralism prevails. And in

delivering the message, the use of different and complementary channels of

communication such as newsletters, briefing groups, CDs or CD-ROMs,

videos, the intranet, noticeboards, etc is often neglected.


Education is another form of communication. An educational programme is

designed to increase both knowledge and understanding of, for example, total

quality management. The aim will be to influence behaviour and thereby

progressively change attitudes.


Training is designed to develop specific competences. For example, if one of

the values to be supported is flexibility, it will be necessary to extend the

range of skills possessed by members of work teams through multi-skilled

programmes. Commitment is enhanced if managers can gain the confidence

and respect of their teams, and training to improve the quality of

management should form an important part of any programme for

increasing commitment. Management training can also be focused on

increasing the competence of managers in specific areas of their responsibility

for gaining commitment, for example performance management.

Developing ownership

A sense of belonging is enhanced if there is a feeling of ‘ownership’ among

employees, not just in the literal sense of owning shares (although this can

help) but in the sense of believing they are genuinely accepted by

management as a key part of the organization. This concept of ‘ownership’

Strategies for improving organizational effectiveness l 111

extends to participating in decisions on new developments and changes in

working practices that affect the individuals concerned. They should be

involved in making those decisions and feel that their ideas have been

listened to and that they have contributed to the outcome. They will then be

more likely to accept the decision or change because it is owned by them

rather than being imposed by management.

Developing job engagement

Job engagement – interest in and commitment to achieving the purpose of the

job – can be created by concentrating on the intrinsic motivating factors such as

responsibility, achievement and recognition, and using these principles to

govern the way in which jobs are designed. Excitement in the job can be created

by the quality of leadership and the willingness of managers and team leaders

to recognize that they will obtain increased motivation and commitment if they

pay continuous attention to the ways in which they delegate responsibility and

give their staff the scope to use their skills and abilities.

Performance management

Performance management strategies as described in Chapter 11 can help to

cascade corporate objectives and values throughout the organization so

that consistency is achieved at all levels. Expectations of individuals are

defined in terms of their own job, which they can more readily grasp and

act upon than if they were asked to support some remote and, to them,

irrelevant overall objectives. But individual objectives can be described in

ways that support the achievement of those defined for higher levels in the


Reward management

Reward management processes can make it clear that individuals will be

valued in accordance with the extent to which they achieve objectives and

uphold corporate values. This can reinforce the messages delivered through

other channels of communication.


The Chartered Institute of Personnel and Development suggested in its

statement People Make the Difference (1994) that a strategy for building trust is

the only basis upon which commitment can be generated. The CIPD

112 l HR strategies

commented: ‘In too many organizations inconsistency between what is said

and what is done undermines trust, generates employee cynicism and

provides evidence of contradictions in management thinking.’

It has also been suggested by Herriot, Hirsh and Riley (1998) that trust

should be regarded as social capital – the fund of goodwill in any social

group that enables people within it to collaborate with one another.

Thompson (1998) sees trust as a ‘unique human resource capability that

helps the organization fulfill its competitive advantage’ – a core competency

that leads to high business performance. Thus there is a business need to

develop a climate of trust, as there is a business need to introduce effective

pay-for-contribution processes that are built on trust.

Strategies for developing a high-trust organization

As Thompson (1998) comments, a number of writers have generally

concluded that trust is ‘not something that can, or should, be directly

managed’. He cites Sako (1994) who wrote that: ‘Trust is a cultural norm

which can rarely be created intentionally because attempts to create trust in a

calculative manner would destroy the effective basis of trust.’ It may not be

possible to ‘manage’ trust but, as Thompson points out, trust is an outcome of

good management. It is created and maintained by managerial behaviour and

by the development of better mutual understanding of expectations –

employers of employees, and employees of employers. Issues of trust are not

in the end to do with managing people or processes, but are more about relationships

and mutual support through change (Herriot, Hirsh and Riley,


Clearly, the sort of behaviour that is most likely to engender trust is when

management is honest with people, keeps its word (delivers the deal) and

practises what it preaches. Organizations that espouse core values (‘people

are our greatest asset’) and then proceed to ignore them will be low-trust


More specifically, trust will be developed if management acts fairly, equitably

and consistently, if a policy of transparency is implemented, if intentions

and the reasons for proposals or decisions are communicated both to

employees generally and to individuals, if there is full involvement in

developing reward processes and if mutual expectations are agreed through

performance management.

As suggested by Herriot et al (1998), if trust is lost a four-step renewal

strategy is required for its renewal:

1. admission by top management that it has paid insufficient attention in

the past to employees’ diverse needs;

Strategies for improving organizational effectiveness l 113

2. a limited process of contracting whereby a particular transition to a

different way of working for a group of employees is done in a form that

takes individual needs into account;

3. establishing ‘knowledge-based’ trust that is based not on a specific

transactional deal but on a developing perception of trustworthiness;

4. achieving trust based on identification in which each party empathizes

with the other’s needs and therefore takes them on board itself (although

this final state is seldom reached in practice).


Quality management is concerned with all the activities required to ensure

that products and services conform to the standards set by the organization

and meet expectations of customers. These activities include the steps taken

to ensure that high quality is achieved (quality assurance) and the actions

taken to check that defined quality standards are being achieved and maintained

(quality control).

A quality management strategy is essentially a matter of creating and

maintaining a quality-orientated culture. Such a culture will be defined in

terms of values and norms. The core values of the organization should

give prominence to quality. The behavioural norms that characterize

quality performance should be recognized, encouraged and rewarded. It

is not enough just to espouse values. They must become values in use –

accepted by everyone as governing behavioural norms in the realm of


The strategy may be based on the concept of total quality management

(TQM), which is a systematic method of ensuring that all activities within

an organization happen in the way they have been planned in order to meet

the defined needs of customers. Its approach is holistic – quality

management is not a separate function to be treated in isolation, but is an

integral part of all operations. Everyone in the organization is concerned

with quality. Its philosophy is that it is necessary to be ‘right first time’,

ensuring that no defective systems are in use and that no defective units are

made or inadequate services delivered.

An alternative quality strategy is six sigma. This is a statistical approach to

the measurement of variations that has been expanded holistically to cover

all aspects of quality in an organization. The Greek letter sigma (s) is used as

a symbol to denote the standard deviation or the measure of variation in a

process. Statistically, six sigmas represent the range of values of a population

with a normal distribution. Operations can be calibrated in terms of sigma

level, and the greater the number of sigmas, the fewer the defects. The aim is

114 l HR strategies

to achieve a quality level of six sigmas. Businesses that want to impress their

customers label themselves as ‘six sigma organizations’.


A continuous improvement strategy aims to improve the quality and reliability

of products or services and their customer appeal, enhance operational

systems, improve service levels and delivery reliability, and reduce

costs and lead times. Continuous improvement is defined by Bessant et al

(1994) as ‘a company-wide process of focused and continuous incremental

innovation sustained over a period of time’. The key words in this definition


l Focused – continuous improvement addresses specific issues where the

effectiveness of operations and processes needs to be improved, where

higher-quality products or services should be provided and, importantly,

where the levels of customer service and satisfaction need to be


l Continuous – the search for improvement is never-ending; it is not a oneoff

campaign to deal with isolated problems.

l Incremental – continuous improvement is not about making sudden

quantum leaps in response to crisis situations; it is about adopting a

steady, step-by-step approach to improving the ways in which the

organization goes about doing things.

l Innovation – continuous improvement is concerned with developing new

ideas and approaches to deal with new and sometimes old problems and


Although continuous improvement is essentially incremental, it can result

in organizational transformation. This is the process of ensuring that the

organization can develop and implement major change programmes that

will ensure that it responds strategically to new demands and continues to

function in the dynamic atmosphere in which it operates.


A strategic approach to customer service is necessary to ensure that a

longer-term view is developed on what needs to be done to develop

effective, coherent and integrated policies, processes and practices for

Strategies for improving organizational effectiveness l 115

ensuring that high levels of customer service are achieved. A customer

service strategy indicates what the organization intends to do about

customer service in the future and how it proposes to do it.

The aim of the strategy will be to achieve service excellence. As defined

by Johnston (2002): ‘Service excellence is simply about being easy to do

business with, which involves delivering the promise, providing a personal

touch, going the extra mile and resolving problems well.’ He suggests that a

reputation for service excellence can be developed and sustained by ‘having

a strong service culture, a distinct service personality, committed staff and

customer-focused systems’.

The strategy will cover what action will be taken to create a customercentric

culture, how the customer service infrastructure will be developed,

the processes required to identify and meet customer needs and expectations

and measure satisfaction, how the right attitudes, skills and behaviours will

be fostered, and how the various internal systems and processes – the infrastructure

that supports customer service – can be improved. The strategy

will deal with both external and internal customers. It will be concerned with

integrating the programmes for continuous improvement and quality

management that ensure that a quality product or service is delivered to

customers. It will also address issues relating to the recruitment, training and

reward of customer-focused staff.

116 l HR strategies


Resourcing strategy


Resourcing strategy ensures that the organization obtains and retains the

people it needs and employs them efficiently. It is a key part of the human

resource management (HRM) process.

HRM is fundamentally about matching human resources to the strategic

and operational needs of the organization and ensuring the full utilization of

those resources. It is concerned not only with obtaining and keeping the

number and quality of staff required but also with selecting and promoting

people who ‘fit’ the culture and the strategic requirements of the organization.


The objective of HRM resourcing strategies as expressed by Keep (1989) is:

‘To obtain the right basic material in the form of a workforce endowed with

the appropriate qualities, skills, knowledge and potential for future

training. The selection and recruitment of workers best suited to meeting

the needs of the organization ought to form a core activity upon which most

other HRM policies geared towards development and motivation could be



The concept that the strategic capability of a firm depends on its resource

capability in the shape of people (resource-based strategy) provides the

rationale for resourcing strategy. The aim of this strategy is therefore to

ensure that a firm achieves competitive advantage by employing more

capable people than its rivals. These people will have a wider and deeper

range of skills and will behave in ways that will maximize their contribution.

The organization attracts such people by being ‘the employer of

choice’. It retains them by providing better opportunities and rewards than

others and by developing a positive psychological contract that increases

commitment and creates mutual trust. Furthermore, the organization

deploys its people in ways that maximize the added value they supply.


HRM places more emphasis than traditional personnel management on

finding people whose attitudes and behaviour are likely to be congruent

with what management believes to be appropriate and conducive to

success. In the words of Townley (1989), organizations are concentrating

more on ‘the attitudinal and behavioural characteristics of employees’.

This tendency has its dangers. Innovative and adaptive organizations need

non-conformists, even mavericks, who can ‘buck the system’. If managers

recruit people ‘in their own image’ there is the risk of staffing the organization

with conformist clones and of perpetuating a dysfunctional culture

– one that may have been successful in the past but is no longer appropriate

in the face of new challenges (as Pascale (1990) puts it, ‘nothing fails like


The HRM approach to resourcing therefore emphasizes that matching

resources to organizational requirements does not simply mean maintaining

the status quo and perpetuating a moribund culture. It can and often

does mean radical changes in thinking about the skills and behaviours

required in the future to achieve sustainable growth and cultural change.



The philosophy behind the strategic HRM approach to resourcing is that it

is people who implement the strategic plan. As Quinn Mills (1983) has put

it, the process is one of ‘planning with people in mind’.

118 l HR strategies

The integration of business and resourcing strategies is based on an

understanding of the direction in which the organization is going and the

determination of:

l the numbers of people required to meet business needs;

l the skills and behaviour required to support the achievement of business


l the impact of organizational restructuring as a result of rationalization,

decentralization, delayering, mergers, product or market development, or

the introduction of new technology, for example cellular manufacturing;

l plans for changing the culture of the organization in such areas as ability

to deliver, performance standards, quality, customer service, teamworking

and flexibility that indicate the need for people with different

attitudes, beliefs and personal characteristics.

These factors will be strongly influenced by the type of business strategies

adopted by the organization and the sort of business it is in. These may be

expressed in such terms as the Boston Consulting Group’s classification of

businesses as wild cat, star, cash cow or dog, or Miles and Snow’s (1978)

typology of defender, prospector and analyser organizations.

Resourcing strategies exist to provide the people and skills required to

support the business strategy, but they should also contribute to the formulation

of that strategy. HR directors have an obligation to point out to their

colleagues the human resource opportunities and constraints that will affect

the achievement of strategic plans. In mergers or acquisitions, for example,

the ability of management within the company to handle the new situation

and the quality of management in the new business will be important




Employee resourcing is not just about recruitment and selection. It is

concerned with any means available to meet the needs of the firm for certain

skills and behaviours. A strategy to enlarge the skill base may start with

recruitment and selection but would also extend into learning and development

programmes to enhance skill and modify behaviours, and methods

of rewarding people for the acquisition of extra skills. Performance

management processes can be used to identify development needs (skill

and behavioural) and motivate people to make the most effective use of

Resourcing strategy l 119

their skills. Competency frameworks and profiles can be prepared to define

the skills and behaviours required and used in selection, employee development

and employee reward processes. The aim should be to develop a

reinforcing bundle of strategies along these lines.



The components of employee resourcing strategy as considered in this

chapter are:

l Human resource planning – assessing future business needs and deciding

on the numbers and types of people required.

l Resourcing plans – preparing plans for finding people from within the

organization and/or for training programmes to help people learn new

skills. If needs cannot be satisfied from within the organization,

preparing longer-term plans for ensuring that recruitment and selection

processes will satisfy them.

l Retention strategy – preparing plans for retaining the people the organization


l Flexibility strategy – planning for increased flexibility in the use of human

resources to enable the organization to make the best use of people and

adapt swiftly to changing circumstances.

l Talent management strategy – ensuring that the organization has the

talented people it requires to provide for management succession and

meet present and future business needs.



Human resource planning determines the human resources required by the

organization to achieve its strategic goals. As defined by Bulla and Scott

(1994), it is ‘the process for ensuring that the human resource requirements

of an organization are identified and plans are made for satisfying those

requirements’. Human resource planning is based on the belief that people

are an organization’s most important strategic resource. It is generally

concerned with matching resources to business needs in the longer term,

although it will sometimes address shorter-term requirements. It addresses

human resource needs both in quantitative and in qualitative terms. This

120 l HR strategies

means answering two basic questions: 1) How many people? and 2) What

sort of people? Human resource planning also looks at broader issues

relating to the ways in which people are employed and developed in order

to improve organizational effectiveness. It can therefore play an important

part in strategic human resource management.

Link to business planning

Human resource planning should be an integral part of business planning.

The strategic planning process defines projected changes in the types of

activities carried out by the organization and the scale of those activities. It

identifies the core competences the organization needs to achieve its goals

and therefore its skill and behavioural requirements.

Human resource planning interprets these plans in terms of people

requirements. But it may influence the business strategy by drawing

attention to ways in which people could be developed and deployed more

effectively to further the achievement of business goals as well as focusing on

any problems that might have to be resolved in order to ensure that the

people required will be available and will be capable of making the necessary

contribution. As Quinn Mills (1983) indicates, human resource planning is ‘a

decision-making process that combines three important activities: (1) identifying

and acquiring the right number of people with the proper skills, (2)

motivating them to achieve high performance, and (3) creating interactive

links between business objectives and people-planning activities’.

Hard and soft human resource planning

A distinction can be made between ‘hard’ and ‘soft’ human resource

planning. The former is based on quantitative analysis in order to ensure that

the right number of the right sort of people is available when needed. The

latter, as described by Marchington and Wilkinson (1996), ‘is more explicitly

focused on creating and shaping the culture of the organization so that there

is a clear integration between corporate goals and employee values, beliefs

and behaviours’. But, as they point out, the soft version becomes virtually

synonymous with the whole subject of human resource management.

Human resource planning is indeed concerned with broader issues about

the employment of people than the traditional quantitative approach of

‘manpower planning’. But it also addresses those aspects of human resource

management that are primarily about the organization’s requirements for

people from the viewpoint of numbers, skills and how they are deployed.

This is the sense in which human resource planning is discussed in this


Resourcing strategy l 121


However, it must be recognized that although the notion of human resource

planning is well established in the HRM vocabulary, it does not seem to be

embedded as a key HR activity. As Rothwell (1995) suggests: ‘Apart from

isolated examples, there has been little research evidence of increased use or

of its success.’ She explains the gap between theory and practice as arising


l the impact of change and the difficulty of predicting the future – ‘the need

for planning may be in inverse proportion to its feasibility’;

l the ‘shifting kaleidoscope’ of policy priorities and strategies within


l the distrust displayed by many managers of theory or planning – they

often prefer pragmatic adaptation to conceptualization;

l the lack of evidence that human resource planning works.

Research conducted by Cowling and Walters (1990) indicated that the only

formal and regular activities carried out by respondents were the identification

of future training needs, analysis of training costs and analysis of

productivity. Fewer than half produced formal labour supply and demand

forecasts, and less than 20 per cent formally monitored HR planning practices.

Summarizing the problem, Taylor (1998) comments that: ‘It would seem

that employers, quite simply, prefer to wait until their view of the future environment

clears sufficiently for them to see the whole picture before

committing resources in preparation for its arrival. The perception is that the

more complex and turbulent the environment, the more important it is to wait

and see before acting.’ Be that as it may, it is difficult to reject out of hand the

belief that some attempt should be made broadly to determine future human

resource requirements as a basis for strategic planning and action.

Approaches to human resource planning

Resourcing strategies show the way forward through the analysis of

business strategies and demographic trends. They are converted into action

plans based on the outcome of the following interrelated planning activities:

l Demand forecasting – estimating future needs for people and competences

by reference to corporate and functional plans and forecasts of future

activity levels.

l Supply forecasting – estimating the supply of people by reference to

analyses of current resources and future availability, after allowing for

122 l HR strategies

wastage. The forecast will also take account of labour market trends

relating to the availability of skills and to demographics.

l Forecasting requirements – analysing the demand and supply forecasts to

identify future deficits or surpluses with the help of models, where


l Action planning – preparing plans to deal with forecast deficits through

internal promotion, training or external recruitment; if necessary,

preparing plans for unavoidable downsizing so as to avoid any

compulsory redundancies, if that is possible; developing retention and

flexibility strategies.

Although these are described as separate areas, they are closely interrelated

and often overlap. For example, demand forecasts are estimates of future

requirements, and these may be prepared on the basis of assumptions about

the productivity of employees. But the supply forecast will also have to

consider productivity trends and how they might affect the supply of people.

A flow chart of the process of human resource planning is shown in

Figure 9.1.


The analysis of future requirements should indicate what steps need to be

taken to appoint people from within the organization and what learning

and development programmes should be planned. The analysis will also

establish how many people will need to be recruited in the absence of qualified

employees within the organization or the impossibility of training

people in the new skills in time.

Internal resourcing

Ideally, internal resourcing should be based on data already available about

skills and potential. This should have been provided by regular skills audits

and the analysis of the outcomes of performance management reviews. A

‘trawl’ can then be made to locate available talent, which can be accompanied

by an internal advertising campaign.

External resourcing

External resourcing requirements can be met by developing a recruitment

strategy. The aims of this strategy would be first to make the organization

‘the employer of choice’ in its particular field or for the people it wants to

Resourcing strategy l 123

recruit (eg graduates). Secondly, the strategy should plan the best methods

of defining precisely what is needed in terms of skills and competencies.

Finally, the strategy should be concerned with planning the use of the most

effective methods of obtaining the number and type of people required. The

steps required are set out in more detail below:

1. Define skill and competency (behavioural) requirements – ideally this should

be carried out by the use of systematic skill and competence analysis

124 l HR strategies

Business pla n

Forecast of activity levels

Demand forecas t

Supply forecas t

Forecast of future


Action planning:

• recruitment

• training

• downsizing

• increasing flexibility

Analysis of requirements:

numbers, skills and


Figure 9.1 Human resource planning flow chart

techniques. These can form the material upon which focused and structured

interviews can take place and be used as criteria for selection.

They may also indicate where and how psychometric tests could be


2. Analyse the factors affecting decisions to join the organization – these include:

– the pay and total benefits package – this may have a considerable

effect on decisions to join the organization but it is by no means the

only factor, and those set out below can be just as important, even

more significant for some people;

– career opportunities;

– the opportunity to use existing skills or to acquire new skills;

– the opportunity to use the latest technology and equipment with

which the organization is well supplied (of particular interest to

research scientists and engineers);

– opportunities for learning and development and access to high-level


– a responsible and intrinsically rewarding job;

– a belief that what the organization is doing is worthwhile;

– the reputation of the organization as an employer;

– the opportunity the job will provide to further the individual’s career

– for example, the scope to achieve and have achievements recognized,

an increase in employability or a respected company name to

put on a CV.

3. Competitive resourcing – this will start from an analysis of the basis upon

which the organization competes with other firms for employees. The

factors mentioned above should be covered and the aim would be to

seek competitive advantage by exploiting those that are superior to

rivals. One of the factors will be pay, which may not be the only one but

it can be important. There may be other factors but it is necessary to

track market rates and make a policy decision on where the organization

wants to be in relation to the market.

4. Alternative strategies for satisfying human resource requirements – these

consist of:

– outsourcing;

– re-engineering;

– increasing flexibility, as discussed later in this chapter;

– skills training;

– multi-skilling;

– downsizing.

5. Recruitment and selection techniques – the strategy should explore

methods not only of recruiting the number of people required but also

of finding staff who have the necessary skills and experience, who are

Resourcing strategy l 125

likely to deliver the required sort of behaviour and who will fit into the

organization’s culture readily. These processes and techniques will

include the use of:

– skills analysis;

– competency mapping;

– the internet for recruitment;

– biodata;

– structured interviews;

– psychometric testing;

– assessment centres.

The aim of the strategy is to develop the best mix of recruitment and

selection tools. It has been demonstrated that a ‘bundle’ of selection techniques

is likely to be more effective as a method of predicting the likely

success of candidates than relying on a single method such as an interview.


Retention strategies aim to ensure that key people stay with the organization

and that wasteful and expensive levels of employee turnover are

reduced. They will be based on an analysis of why people stay and why

they leave.

Analysis of reasons for staying or leaving

An analysis of why people leave through exit interviews may provide some

information but they are unreliable – people rarely give the full reasons why

they are going. The reasons why people remain with the organization or

may want to leave it can be established through attitude surveys. These

could segment respondents according to their length of service and analyse

the answers of longer-serving employees to establish if there are any

common patterns. The survey results could be supplemented by focus

groups, which would discuss why people stay and identify any problems.

The retention plan should address each of the areas in which lack of

commitment and dissatisfaction can arise. The actions to be considered

under each heading are listed below.


Problems arise because of uncompetitive, inequitable or unfair pay systems.

Possible actions include:

126 l HR strategies

l reviewing pay levels on the basis of market surveys;

l introducing job evaluation or improving an existing scheme to provide

for equitable grading decisions;

l ensuring that employees understand the link between performance and


l reviewing performance-related pay schemes to ensure that they operate


l adapting payment-by-results systems to ensure that employees are not

penalized when they are engaged only on short runs;

l tailoring benefits to individual requirements and preference;

l involving employees in developing and operating job evaluation and

contingent pay systems.

Job design

Dissatisfaction results if jobs are unrewarding in themselves. Jobs should be

designed to maximize skill variety, task significance, autonomy and

feedback, and they should provide opportunities for learning and growth.


Employees can be demotivated if they are unclear about their responsibilities

or performance standards, are uninformed about how well they are

doing, or feel that their performance assessments are unfair. The following

actions can be taken:

l Express performance requirements in terms of hard but attainable goals.

l Get employees and managers to agree on those goals and the steps

required to achieve them.

l Encourage managers to praise employees for good performance but also

get them to provide regular, informative and easily interpreted feedback

– performance problems should be discussed as they happen in order that

immediate corrective action can be taken.

l Train managers in performance review techniques such as counselling;

brief employees on how the performance management system works

and obtain feedback from them on how it has been applied.

Learning and development

Resignations and turnover can increase if people are not given adequate

opportunities for learning and development, or feel that demands are being

made upon them that they cannot reasonably be expected to fulfil without

Resourcing strategy l 127

proper training. New employees can go through an ‘induction crisis’ if they

are not given adequate training when they join the organization. Learning

programmes and training schemes should be developed and introduced


l give employees the competence and confidence to achieve expected

performance standards;

l enhance existing skills and competences;

l help people to acquire new skills and competences so that they can make

better use of their abilities, take on greater responsibilities, undertake a

greater variety of tasks and earn more under skill- and competencebased

pay schemes;

l ensure that new employees quickly acquire and learn the basic skills and

knowledge needed to make a good start in their jobs;

l increase employability, inside and outside the organization.

Career development

Dissatisfaction with career prospects is a major cause of turnover. To a

certain extent, this has to be accepted. More and more people recognize that

to develop their careers they need to move on, and there is little their

employers can do about it, especially in today’s flatter organizations where

promotion prospects are more limited. These are the individuals who

acquire a ‘portfolio’ of skills and may consciously change direction several

times during their careers. To a certain degree, employers should welcome

this tendency. The idea of providing ‘cradle-to-grave’ careers is no longer as

relevant in the more changeable job markets of today, and this self-planned,

multi-skilling process provides for the availability of a greater number of

qualified people. But there is still everything to be said in most organizations

for maintaining a stable core workforce and in this situation employers

should still plan to provide career opportunities by:

l providing employees with wider experience;

l introducing more systematic procedures for identifying potential such

as assessment or development centres;

l encouraging promotion from within;

l developing more equitable promotion procedures;

l providing advice and guidance on career paths.


This can be increased by:

128 l HR strategies

l explaining the organization’s mission, values and strategies and encouraging

employees to discuss and comment on them;

l communicating with employees in a timely and candid way, with the

emphasis on face-to-face communications through such means as

briefing groups;

l constantly seeking and taking into account the views of people at work;

l providing opportunities for employees to contribute their ideas on

improving work systems;

l introducing organization and job changes only after consultation and


Lack of group cohesion

Employees can feel isolated and unhappy if they are not part of a cohesive

team or if they are bedevilled by disruptive power politics. Steps can be

taken to tackle this problem through:

l teamwork – setting up self-managing or autonomous work groups or

project teams;

l team building – emphasizing the importance of teamwork as a key

value, rewarding people for working effectively as members of teams

and developing teamwork skills.

Dissatisfaction and conflict with managers and supervision

A common reason for resignations is the feeling that management in

general, or individual managers and team leaders in particular, are not

providing the leadership they should, or are treating people unfairly or are

bullying their staff (not an uncommon situation). This problem should be

remedied by:

l selecting managers and team leaders with well-developed leadership


l training them in leadership skills and in methods of resolving conflict

and dealing with grievances;

l introducing better procedures for handling grievances and disciplinary

problems, and training everyone in how to use them.

Recruitment, selection and promotion

Rapid turnover can result simply from poor selection or promotion decisions.

It is essential to ensure that selection and promotion procedures

Resourcing strategy l 129

match the capacities of individuals to the demands of the work they have

to do.


Creating unrealistic expectations about career development opportunities,

tailored training programmes, increasing employability and varied and

interesting work can, if not matched with reality, lead directly to dissatisfaction

and early resignation. Care should be taken not to oversell the firm’s

employee development policies.


The aims of the flexibility strategy should be to develop a ‘flexible firm’

(Atkinson, 1984) by providing for greater operational and role flexibility.

The steps to be considered when formulating flexibility strategy are as


l taking a radical look at traditional employment patterns to find alternatives

to full-time, permanent staff – this may take the form of segregating

the workforce into a ‘core group’ and one or more peripheral groups;

l outsourcing – getting work done by external firms or individuals;

l multi-skilling, to increase the ability of people to switch jobs or carry out

any of the tasks that have to be undertaken by their team.


Talent management strategies deal with the processes required to ensure

that the organization attracts, retains, motivates and develops the talented

people it needs.

It is sometimes assumed that talent management is only concerned with

key people – the high flyers. But everyone in an organization has talent, and

talent management processes should not be limited to the favoured few,

although they are likely to focus most on those with scarce skills and high


As a concept, talent management came to the fore when the phrase ‘the

war for talent’ emerged in the 1990s. There is nothing new about the various

processes that add up to talent management. What is different is the development

of a more coherent view as to how these processes should mesh

130 l HR strategies

together with an overall objective – to acquire and nurture talent wherever it

is and wherever it is needed by using a number of interdependent policies

and practices. Talent management is the notion of ‘bundling’ in action.

The components of talent management strategy

The components of talent management strategy are:

l developing the organization as an ‘employer of choice’ – a ‘great place to


l using selection and recruitment procedures that ensure that goodquality

people are recruited who are likely to thrive in the organization

and stay with it for a reasonable length of time (but not necessarily for


l designing jobs and developing roles that give people opportunities to

apply and grow their skills and provide them with autonomy, interest

and challenge;

l providing talented staff with opportunities for career development and


l creating a working environment in which work processes and facilities

enable rewarding (in the broadest sense) jobs and roles to be designed

and developed;

l providing scope for achieving a reasonable balance between working in

the organization and life outside work;

l developing a positive psychological contract;

l developing the leadership qualities of line managers;

l recognizing those with talent by rewarding excellence, enterprise and


l conducting talent audits that identify those with potential and those

who might leave the organization;

l introducing management succession planning procedures that identify

the talent available to meet future requirements and indicate what

management development activities are required.

Resourcing strategy l 131


Learning and development


Learning and development strategies ensure that the organization has the

talented and skilled people it needs and that individuals are given the

opportunity to enhance their knowledge and skills and levels of competence.

They are the active components of an overall approach to strategic

human resources development (strategic HRD), as described below.

Learning strategies are concerned with developing a learning culture,

promoting organizational learning, establishing a learning organization

and providing for individual learning, as also described in this chapter.


Strategic HRD is defined by Walton (1999) as follows: ‘Strategic human

resource development involves introducing, eliminating, modifying,

directing, and guiding processes in such a way that all individuals and

teams are equipped with the skills, knowledge and competences they

require to undertake current and future tasks required by the organization.’

As described by Harrison (2000), strategic HRD is ‘development that

arises from a clear vision about people’s abilities and potential and operates


within the overall strategic framework of the business’. Strategic HRD takes

a broad and long-term view about how HRD policies and practices can

support the achievement of business strategies. It is business led, and the

learning and development strategies that are established as part of the

overall strategic human resource development approach flow from

business strategies, although they have a positive role in helping to ensure

that the business attains its goals.

Strategic HRD aims

Strategic HRD aims to produce a coherent and comprehensive framework for

developing people through the creation of a learning culture and the formulation

of organizational and individual learning strategies. Its objective is to

enhance resource capability in accordance with the belief that a firm’s human

resources are a major source of competitive advantage. It is therefore about

developing the intellectual capital required by the organization as well as

ensuring that the right quality of people are available to meet present and

future needs. The main thrust of strategic HRD is to provide an environment

in which people are encouraged to learn and develop. Although it is business

led, its specific strategies have to take into account individual aspirations and

needs. The importance of increasing employability outside as well as within

the organization should be one of the concerns of strategic HRD.

Strategic HRD policies are closely associated with that aspect of strategic

HRM that is concerned with investing in people and developing the organization’s

human capital. As Keep (1989) says:

One of the primary objectives of HRM is the creation of conditions whereby

the latent potential of employees will be realized and their commitment to the

causes of the organization secured. This latent potential is taken to include, not

merely the capacity to acquire and utilize new skills and knowledge, but also a

hitherto untapped wealth of ideas about how the organization’s operations

might be better ordered.

Human resource development philosophy

The philosophy underpinning strategic HRD is as follows:

l Human resource development makes a major contribution to the

successful attainment of the organization’s objectives, and investment in

it benefits all the stakeholders of the organization.

l Human resource development plans and programmes should be integrated

with and support the achievement of business and human

resource strategies.

134 l HR strategies

l Human resource development should always be performance related –

designed to achieve specified improvements in corporate, functional,

team and individual performance and make a major contribution to

bottom-line results.

l Everyone in the organization should be encouraged and given the

opportunity to learn – to develop their skills and knowledge to the

maximum of their capacity.

l The framework for individual learning is provided by personal development

plans that focus on self-managed learning and are supported by

coaching, mentoring and formal training.

l The organization needs to invest in learning and development by

providing appropriate learning opportunities and facilities, but the

prime responsibility for learning and development rests with individuals,

who will be given the guidance and support of their managers

and, as necessary, members of the HR department.

Elements of human resource development

The key elements of human resource development are:

l Learning – defined by Bass and Vaughan (1966) as ‘a relatively

permanent change in behaviour that occurs as a result of practice or

experience’. As Kolb (1984) describes it, ‘Learning is the major process of

human adaptation.’

l Training – the planned and systematic modification of behaviour

through learning events, programmes and instruction that enable individuals

to achieve the levels of knowledge, skill and competence needed

to carry out their work effectively.

l Development – the growth or realization of a person’s ability and

potential through the provision of learning and educational experiences.

l Education – the development of the knowledge, values and understanding

required in all aspects of life rather than the knowledge and

skills relating to particular areas of activity.

Learning should be distinguished from training. ‘Learning is the process by

which a person constructs new knowledge, skills and capabilities, whereas

training is one of several responses an organization can undertake to promote

learning’ (Reynolds et al 2002).

Learning and development strategy l 135


A learning culture is one in which learning is recognized by top

management, line managers and employees generally as an essential organizational

process to which they are committed and in which they engage

continuously. It is described by Reynolds (2004) as a ‘growth medium’ that

will ‘encourage employees to commit to a range of positive discretionary

behaviours, including learning’ and that has the following characteristics:

empowerment not supervision, self-managed learning not instruction, and

long-term capacity building not short-term fixes. Discretionary learning

according to Sloman (2003) happens when individuals actively seek to

acquire the knowledge and skills that promote the organization’s objectives.

It is suggested by Reynolds (2004) that to create a learning culture that

acts as a growth medium it is necessary to develop organizational practices

that raise commitment amongst employees and ‘give employees a sense of

purpose in the workplace, grant employees opportunities to act upon their

commitment, and offer practical support to learning’. He proposes the

following steps:

1. Develop and share the vision – belief in a desired and emerging future.

2. Empower employees – provide ‘supported autonomy’: freedom for

employees to manage their work within certain boundaries (policies and

expected behaviours) but with support available as required. Adopt a

facilitative style of management in which responsibility for decision

making is ceded as far as possible to employees.

3. Provide employees with a supportive learning environment where

learning capabilities can be discovered and applied, eg peer networks,

supportive policies and systems, protected time for learning.

4. Use coaching techniques to draw out the talents of others by encouraging

employees to identify options and seek their own solutions to


5. Guide employees through their work challenges and provide them with

time, resources and, crucially, feedback.

6. Recognize the importance of managers acting as role models: ‘The new

way of thinking and behaving may be so different that you must see

what it looks like before you can imagine yourself doing it. You must see

the new behaviour and attitudes in others with whom you can identify’

(Schein, 1999).

7. Encourage networks – communities of practice.

8. Align systems to vision – get rid of bureaucratic systems that produce

problems rather than facilitate work.

136 l HR strategies


Organizations can be described (Harrison, 2000) as continuous learning

systems, and organizational learning has been defined by Marsick (1994) as

a process of: ‘Co-ordinated systems change, with mechanisms built in for

individuals and groups to access, build and use organizational memory,

structure and culture to develop long-term organizational capacity.’

Organizational learning strategy aims to develop a firm’s resource-based

capability. This is in accordance with one of the basic principles of human

resource management, namely that it is necessary to invest in people in

order to develop the human capital required by the organization and to

increase its stock of knowledge and skills. As stated by Ehrenberg and Smith

(1994), human capital theory indicates that: ‘The knowledge and skills a

worker has – which comes from education and training, including the

training that experience brings – generate a certain stock of productive


Harrison (1997) has defined five principles of organizational learning:

1. The need for a powerful and cohering vision of the organization to be

communicated and maintained across the workforce in order to

promote awareness of the need for strategic thinking at all levels.

2. The need to develop strategy in the context of a vision that is not only

powerful but also open-ended and unambiguous. This will encourage a

search for a wide rather than a narrow range of strategic options, will

promote lateral thinking and will orient the knowledge-creating activities

of employees.

3. Within the framework of vision and goals, frequent dialogue, communication

and conversations are major facilitators of organizational


4. It is essential continuously to challenge people to re-examine what they

take for granted.

5. It is essential to develop a conducive learning and innovation climate.

Single- and double-loop learning

Argyris (1992) suggests that organizational learning occurs under two

conditions: first, when an organization achieves what is intended and,

second, when a mismatch between intentions and outcomes is identified

and corrected. But organizations do not perform the actions that produce

the learning; it is individual members of the business who behave in ways

that lead to it, although organizations can create conditions that facilitate

such learning.

Learning and development strategy l 137

Argyris distinguishes between single-loop and double-loop learning.

Single-loop learning organizations define the ‘governing variables’, ie what

they expect to achieve in terms of targets and standards. They then monitor

and review achievements, and take corrective action as necessary, thus

completing the loop. Double-loop learning occurs when the monitoring

process initiates action to redefine the ‘governing variables’ to meet the new

situation, which may be imposed by the external environment. The organization

has learnt something new about what has to be achieved in the light of

changed circumstances and can then decide how this should be achieved.


The process of organizational learning is the basis for the concept of a

learning organization. It has been described by Pedler, Boydell and

Burgoyne (1989) as ‘an organization which facilitates the learning of all its

members and continually transforms itself’. Senge (1990) calls the learning

organization: ‘An organization that is continually expanding to create its

future’. As Burgoyne (1994) has pointed out, learning organizations have to

be able to adapt to their context and develop their people to match the

context. Wick and Leon (1995) have defined a learning organization as one

that ‘continually improves by rapidly creating and refining the capabilities

required for future success’.

Garvin (1993) defines a learning organization as one that is ‘skilled at

creating, acquiring, and transferring knowledge, and at modifying its

behaviour to reflect new knowledge and insights’. He has suggested that

learning organizations are good at doing five things:

1. Systematic problem solving, which rests heavily on the philosophy and

methods of the quality movement. Its underlying ideas include relying on

scientific method, rather than guesswork, for diagnosing problems –

what Deming (1986) calls the ‘plan–do–check–act’ cycle and others refer

to as ‘hypothesis-generating, hypothesis-testing’ techniques. Data rather

than assumptions are required as the background to decision making –

what quality practitioners call ‘fact-based management’ – and simple

statistical tools such as histograms, Pareto charts and cause-and-effect

diagrams are used to organize data and draw inferences.

2. Experimentation – this activity involves the systematic search for and

testing of new knowledge. Continuous improvement programmes –

‘kaizen’ – are an important feature in a learning organization.

3. Learning from past experience – learning organizations review their

successes and failures, assess them systematically and record the

138 l HR strategies

lessons learnt in a way that employees find open and accessible. This

process has been called the ‘Santayana principle’, quoting the

philosopher George Santayana who coined the phrase: ‘Those who

cannot remember the past are condemned to repeat it.’

4. Learning from others – sometimes the most powerful insights come from

looking outside one’s immediate environment to gain a new

perspective. This process has been called SIS for ‘steal ideas shamelessly’.

Another, more acceptable word for it is ‘benchmarking’ – a disciplined

process of identifying best practice organizations and analysing

the extent to which what they are doing can be transferred, with suitable

modifications, to one’s own environment.

5. Transferring knowledge quickly and efficiently throughout the organization by

seconding people with new expertise, or by education and training programmes,

as long as the latter are linked explicitly with implementation.

One approach, as advocated by Senge (1990), is to focus on collective

problem-solving within an organization. This is achieved using team

learning and a ‘soft systems’ methodology whereby all the possible causes

of a problem are considered in order to define more clearly those that can be

dealt with and those that are insoluble.

A learning organization strategy will be based on the belief that learning

is a continuous process rather than a set of discrete training activities

(Sloman, 1999). It will incorporate strategies for organizational learning as

described above and individual learning as discussed below.


The individual learning strategies of an organization are driven by its

human resource requirements, the latter being expressed in terms of the sort

of skills and behaviours that are required to achieve business goals. The

starting point is the approach adopted to the provision of learning and

development opportunities, bearing in mind the distinction between

learning and development made by Pedler et al (1989), who see learning as

being concerned with an increase in knowledge or a higher degree of an

existing skill, whereas development is more towards a different state of

being or functioning. Sloman (2003) contends that:

Interventions and activities which are intended to improve knowledge and

skills will increasingly focus on the learner. Emphasis will shift to the individual

learner (or team). And he or she will be encouraged to take more responsibility

for his or her learning. Efforts will be made to develop a climate which

Learning and development strategy l 139

supports effective and appropriate learning. Such interventions and activities

will form part of an integrated approach to creating competitive advantage

through people in the organization.

The learning strategy should cover:

l how learning needs will be identified;

l the role of personal development planning and self-managed learning;

l the support that should be provided for individual learning in the form

of guidance, coaching, learning resource centres, mentoring, external

courses designed to meet the particular needs of individuals, internal or

external training programmes, and courses designed to meet the needs

of groups of employees.

140 l HR strategies


Strategies for managing


Strategies for managing performance exist to develop a high-performance

culture and achieve increased organizational effectiveness, better results for

individuals and teams, and higher levels of skill, competence, commitment

and motivation. Managing performance is a continuing responsibility for

managers and team leaders. It is not achieved by a once-a-year performance

appraisal meeting. Individual employees are responsible for managing their

own performance but may need guidance and support in doing so.

Managing performance strategies need to recognize in the words of

Purcell (1999) that, in circumstances of lean production, employees increasingly

come to possess knowledge and skills that management lacks:

‘Employees need to be motivated to apply these skills through discretionary

effort. And it is often the case that the firm’s business or production strategy

can only be achieved when this discretionary effort is contributed.’

Strategies for managing performance are concerned with how the

business should be managed to achieve its goals. They will refer to

performance measures such as the balanced scorecard (Kaplan and Norton,

1992) that direct attention to four related questions: 1) How do customers

see us?, 2) What must we excel at?, 3) Can we continue to improve? and

4) How do we look to shareholders? But performance comes from people,


and performance management processes as described in this chapter focus

on how the performance of individuals and teams can be improved through

performance and personal development planning.


Performance management processes have come to the fore in recent years as

means of providing a more integrated and continuous approach to the

management of performance than was provided by previous isolated and

often inadequate merit rating or performance appraisal schemes.

Performance management is based on the principle of management by

agreement or contract rather than management by command. It emphasizes

the integration of individual and corporate objectives as well as the initiation

of self-managed learning development plans. It can play a major role

in providing for an integrated and coherent range of human resource

management processes that are mutually supportive and contribute as a

whole to improving organizational effectiveness.


Performance management can be defined as a strategic and integrated

approach to delivering sustained success to organizations by improving the

performance of the people who work in them and by developing the capabilities

of teams and individual contributors.

Performance management is strategic in the sense that it is concerned with

the broader issues facing the business if it is to function effectively in its environment,

and with the general direction in which it intends to go to achieve

longer-term goals. It is integrated in four senses: 1) vertical integration –

linking or aligning business, team and individual objectives; 2) functional

integration – linking functional strategies in different parts of the business;

3) HR integration – linking different aspects of human resource management,

especially organizational development, human resource development and

reward, to achieve a coherent approach to the management and development

of people; and 4) the integration of individual needs with those of the

organization, as far as this is possible.

142 l HR strategies


Performance management strategy aims to provide the means through which

better results can be obtained from the organization, teams and individuals by

understanding and managing performance within an agreed framework of

planned goals, standards and competence requirements. It involves the

development of processes for establishing shared understanding about what

is to be achieved, and an approach to managing and developing people in a

way that increases the probability that it will be achieved in the short and

longer term. It is owned and driven by line management.


Performance management strategy is basically concerned with performance

improvement in order to achieve organizational, team and individual effectiveness.

Organizations, as stated by Lawson (1995), have ‘to get the right

things done successfully’.

Secondly, performance management strategy is concerned with employee

development. Performance improvement is not achievable unless there are

effective processes of continuous development. This addresses the core

competences of the organization and the capabilities of individuals and

teams. Performance management should really be called performance and

development management.

Thirdly, performance management strategy is concerned with satisfying

the needs and expectations of all the organization’s stakeholders – owners,

management, employees, customers, suppliers and the general public. In

particular, employees are treated as partners in the enterprise whose interests

are respected and who have a voice on matters that concern them, whose

opinions are sought and listened to. Performance management should

respect the needs of individuals and teams as well as those of the organization,

although it must be recognized that they will not always coincide.

Finally, performance management strategy is concerned with communication

and involvement. It aims to create a climate in which a continuing

dialogue between managers and the members of their teams takes place to

define expectations and share information on the organization’s mission,

values and objectives. Performance management can contribute to the development

of a high-involvement organization by getting teams and individuals

to participate in defining their objectives and the means to achieve them.

Performance management strategy aims to provide the means through which

better results can be obtained from the organization, teams and individuals by

Strategies for managing performance l 143

understanding and managing performance within an agreed framework of

planned goals, standards and competence requirements.



Performance management strategy focuses on what is involved in

managing the organization. It is a natural process of management, not a

system or a technique (Fowler, 1990). It is also about managing within the

context of the business (its internal and external environment). This will

affect how performance management processes are developed, what they

set out to do and how they operate. The context is important, and Jones

(1995) goes as far as to say ‘manage context not performance’.

Performance management strategy concerns everyone in the business –

not just managers. It rejects the cultural assumption that only managers are

accountable for the performance of their teams and replaces it with the

belief that responsibility is shared between managers and team members. In

a sense, managers should regard the people who report to them as

customers for the managerial contribution and services they can provide.

Managers and their teams are jointly accountable for results and are jointly

involved in agreeing what they need to do and how they need to do it, in

monitoring performance and in taking action.

Performance management processes are part of a holistic approach to

managing for performance that is the concern of everyone in the organization.

The holistic approach to performance management

Holistic means being all-embracing, covering every aspect of a subject. In the

case of performance management strategy, this means being concerned with

the whole organization. Acomprehensive view is taken of the constituents of

performance, how these contribute to desired outcomes at the organizational,

departmental, team and individual levels, and what needs to be done to

improve these outcomes. Performance management in its fullest sense is based

on the belief that everything that people do at work at any level contributes to

achieving the overall purpose of the organization. It is therefore concerned

with what people do (their work), how they do it (their behaviour) and what

they achieve (their results). It embraces all formal and informal measures

adopted by an organization to increase corporate, team and individual effectiveness

and continuously to develop knowledge, skill and competence. It is

certainly not an isolated system run by the HR department that functions once

144 l HR strategies

a year (the annual appraisal) and is then forgotten. The combined impact of a

number of related aspects of performance management may be expected to

achieve more to improve organizational effectiveness than the various parts if

they functioned separately. When designing and operating performance

management it is necessary to consider the interrelationships of each process.

The concept of performance management as an integrating force

As stated by Hartle (1995), performance management ‘should be integrated

into the way the performance of the business is managed and it should link

with other key processes such as business strategy, employee development,

and total quality management’.

Vertical integration

Integration is achieved vertically with the business strategy and business plans

and goals. Team and individual objectives are agreed that support the

achievement of corporate goals. These take the form of interlocking objectives

from the corporate level to the functional or business unit level and down to

teams and the individual level. Steps need to be taken to ensure that these

goals are in alignment. This can be a cascading process so that objectives flow

down from the top and at each level team or individual objectives are defined

in the light of higher-level goals. But it should also be a bottom-up process,

individuals and teams being given the opportunity to formulate their own

goals within the framework provided by the overall purpose and values of the

organization. Objectives should be agreed, not set, and this agreement should

be reached through the open dialogues that take place between managers and

individuals throughout the year. In other words, this needs to be seen as a partnership

in which responsibility is shared and mutual expectations are defined.

Horizontal integration

Horizontal integration means aligning performance management strategies

with other HR strategies concerned with valuing, paying, involving and

developing people as modelled in Figure 11.1. It can act as a powerful force

in integrating these activities.


Performance management strategy has to focus on developing a continuous

and flexible process that involves managers and those whom they manage

Strategies for managing performance l 145

acting as partners within a framework. This should set out how they can best

work together to achieve the required results. It focuses on future

performance planning and improvement rather than on retrospective

performance appraisal. It provides the basis for regular and frequent

dialogues between managers and individuals or teams about performance

and development needs. Performance management is mainly concerned with

individual performance and development but it can also be applied to teams.

Performance management reviews (individual and 360-degree feedback)

provide the inputs required to create personal or team development plans,

and to many people performance management is essentially a developmental

process. Performance reviews can, however, produce data in the form of individual

ratings, which may be used as the basis for performance-related pay

decisions. However, the danger of linking performance management with

performance-related pay is that the performance management process tends

to concentrate on financial rewards rather than personal development.

Performance management measures outputs in the shape of delivered

performance compared with expectations expressed as objectives. In this

respect, it is concerned with targets, standards and performance measures

or indicators. But it also deals with inputs – the knowledge, skills and

146 l HR strategies

Figure 11.1 Performance management as a focal point for the integration of

HR activities











competencies required to produce the expected results. It is by defining

these input requirements and assessing the extent to which the expected

levels of performance have been achieved by using skills and competencies

effectively that developmental needs are identified.


In conclusion, it must be emphasized that performance management

strategy is not about establishing a top-down, backward-looking form of

appraising people. Neither is it just a method of generating information for

pay decisions. Performance management is a strategic process because it is

forward-looking and developmental. It provides a framework in which

managers can support their team members rather than dictate to them, and

its impact on results will be much more significant if it is regarded as a transformational

rather than as an appraisal process.

Strategies for managing performance l 147


Reward strategy


Reward strategy is a declaration of intent that defines what the organization

wants to do in the longer term to develop and implement reward

policies, practices and processes that will further the achievement of its

business goals and meet the needs of its stakeholders.

Reward strategy provides a sense of purpose and direction and a

framework for developing reward policies, practices and processes. It is

based on an understanding of the needs of the organization and its employees

and how they can best be satisfied. It is also concerned with developing the

values of the organization on how people should be rewarded and formulating

guiding principles that will ensure that these values are enacted.

Reward strategy is underpinned by a reward philosophy that expresses

what the organization believes should be the basis upon which people are

valued and rewarded. Reward philosophies are often articulated as guiding



Overall, in the words of Duncan Brown (2001): ‘Reward strategy is ultimately

a way of thinking that you can apply to any reward issue arising in


your organization, to see how you can create value from it.’ More specifically,

there are four arguments for developing reward strategies:

1. You must have some idea where you are going, or how do you know how

to get there, and how do you know that you have arrived (if you ever do)?

2. Pay costs in most organizations are by far the largest item of expense –

they can be 60 per cent and often much more in labour-intensive organizations

– so doesn’t it make sense to think about how they should be

managed and invested in the longer term?

3. There can be a positive relationship between rewards, in the broadest

sense, and performance, so shouldn’t we think about how we can

strengthen that link?

4. As Cox and Purcell (1998) write, ‘the real benefit in reward strategies lies

in complex linkages with other human resource management policies

and practices’. Isn’t this a good reason for developing a reward strategic

framework that indicates how reward processes will be linked to HR

processes so that they are coherent and mutually supportive?


As Murlis (1996) points out: ‘Reward strategy will be characterised by diversity

and conditioned both by the legacy of the past and the realities of the future.’

All reward strategies are different, just as all organizations are different. Of

course, similar aspects of reward will be covered in the strategies of different

organizations but they will be treated differently in accordance with variations

between organizations in their contexts, strategies and cultures.

Reward strategists may have a clear idea of what needs to be done but they

have to take account of the views of top management and be prepared to

persuade them with convincing arguments that action needs to be taken.

They have to take particular account of financial considerations – the concept

of ‘affordability’ looms large in the minds of chief executives and financial

directors, who will need to be convinced that an investment in rewards will

pay off. They also have to convince employees and their representatives that

the reward strategy will meet their needs as well as business needs.


Reward strategy should be based on a detailed analysis of the present

arrangements for reward, which would include a statement of their

strengths and weaknesses. This, as suggested by the Chartered Institute of

150 l HR strategies

Personnel and Development (2004), could take the form of a ‘gap analysis’,

which compares what is believed should be happening with what is

happening and indicates which ‘gaps’ need to be filled. A format for the

analysis is shown in Figure 12.1.

A diagnosis should be made of the reasons for any gaps or problems so

that decisions can be made on what needs to be done to overcome them. It

can then be structured under the headings set out below:

1. A statement of intentions – the reward initiatives that it is proposed

should be taken.

2. A rationale – the reasons why the proposals are being made. The

rationale should make out the business case for the proposals, indicating

how they will meet business needs and setting out the costs and

the benefits. It should also refer to any people issues that need to be

addressed and how the strategy will deal with them.

3. A plan – how, when and by whom the reward initiatives will be implemented.

The plan should indicate what steps will need to be taken and

should take account of resource constraints and the need for communications,

involvement and training. The priorities attached to each

element of the strategy should be indicated and a timetable for implementation

should be drawn up. The plan should state who will be

responsible for the development and implementation of the strategy.

4. A definition of guiding principles – the values that it is believed should be

adopted in formulating and implementing the strategy.


Reward strategy may be a broad-brush affair simply indicating the general

direction in which it is thought reward management should go. In addition

or alternatively, reward strategy may set out a list of specific intentions

dealing with particular aspects of reward management.

Broad-brush reward strategy

Abroad-brush reward strategy may commit the organization to the pursuit

of a total rewards policy. The basic aim might be to achieve an appropriate

balance between financial and non-financial rewards. A further aim could

be to use other approaches to the development of the employment relationship

and the work environment that will enhance commitment and

engagement and provide more opportunities for the contribution of people

to be valued and recognized.

Reward strategy l 151

152 l HR strategies

What should be happening What is


What needs to

be done

1. A total reward approach is adopted that

emphasizes the significance of both financial

and non-financial rewards.

2. Reward policies and practices are developed

within the framework of a well-articulated

strategy that is designed to support the

achievement of business objectives and meet

the needs of stakeholders.

3. A job evaluation scheme is used that properly

reflects the values of the organization, is up to

date with regard to the jobs it covers and is


4. Equal pay issues are given serious attention.

This includes the conduct of equal pay

reviews that lead to action.

5. Market rates are tracked carefully so that a

competitive pay structure exists that

contributes to the attraction and retention of

high-quality people.

6. Grade and pay structures are based on job

evaluation and market rate analysis

appropriate to the characteristics and needs

of the organization and its employees,

facilitate the management of relativities,

provide scope for rewarding contribution,

clarify reward and career opportunities, are

constructed logically, operate transparently

and are easy to manage and maintain.

7. Contingent pay schemes reward contribution

fairly and consistently, support the motivation

of staff and the development of a performance

culture, deliver the right messages about the

values of the organization, contain a clear ‘line

of sight’ between contribution and reward,

and are cost-effective.

8. Performance management processes

contribute to performance improvement,

people development and the management of

expectations, operate effectively throughout

the organization and are supported by line

managers and staff.

Figure 12.1 Areward gap analysis

Reward strategy l 153

What should be happening What is


What needs to

be done

9. Employee benefits and pension schemes

meet the needs of stakeholders and are


10. A flexible benefits approach is adopted.

11. Reward management procedures exist that

ensure that reward processes are managed

effectively and that costs are controlled.

12. Appropriate use is made of computers

(software and spreadsheets) to assist in the

process of reward management.

13. Reward management aims and

arrangements are transparent and

communicated well to staff.

14. Surveys are used to assess the opinions of

staff about reward, and action is taken on

the outcomes.

15. An appropriate amount of responsibility for

reward is devolved to line managers.

16. Line managers are capable of carrying out

their devolved responsibilities well.

17. Steps are taken to train line managers and

provide them with support and guidance as


18. HR has the knowledge and skills to provide

the required reward management advice

and services and to guide and support line


19. Overall, reward management developments

are conscious of the need to achieve

affordability and to demonstrate that they

are cost-effective.

20. Steps are taken to evaluate the effectiveness

of reward management processes and to

ensure that they reflect changing needs.

Figure 12.1 continued

Examples of other broad strategic aims include: 1) introducing a more

integrated approach to reward management – encouraging continuous

personal development and spelling out career opportunities; 2) developing

a more flexible approach to reward that includes the reduction of artificial

barriers as a result of overemphasis on grading and promotion;

3) rewarding people according to their contribution; 4) supporting the

development of a performance culture and building levels of competence;

and 5) clarifying what behaviours will be rewarded and why.

Specific reward initiatives

The selection of reward initiatives and the priorities attached to them will be

based on an analysis of the present circumstances of the organization and an

assessment of the needs of the business and its employees. The following

are examples of possible specific reward initiatives, one or more of which

might feature in a reward strategy:

l the replacement of present methods of contingent pay with a pay-forcontribution


l the introduction of a new grade and pay structure, eg a broad-graded or

career family structure;

l the replacement of an existing decayed job evaluation scheme with a

computerized scheme that more clearly reflects organizational values;

l the improvement of performance management processes so that they

provide better support for the development of a performance culture

and more clearly identify development needs;

l the introduction of a formal recognition scheme;

l the development of a flexible benefits system;

l the conduct of equal pay reviews, with the objective of ensuring that

work of equal value is paid equally;

l communication programmes designed to inform everyone of the reward

policies and practices of the organization;

l training, coaching and guidance programmes designed to increase line

management capability (see also the last section of this chapter).


Guiding principles define the approach an organization takes to dealing

with reward. They are the basis for reward policies and provide guidelines

for the actions contained in the reward strategy. They express the reward

154 l HR strategies

philosophy of the organization – its values and beliefs about how people

should be rewarded.

Members of the organization should be involved in the definition of

guiding principles, which can then be communicated to everyone to

increase understanding of what underpins reward policies and practices.

However, employees will suspend their judgement of the principles until

they experience how they are applied. What matters to them is not the

philosophies themselves but the pay practices emanating from them and

the messages about the employment ‘deal’ that they get as a consequence. It

is the reality that is important, not the rhetoric.

Guiding principles should incorporate or be influenced by general beliefs

about fairness, equity, consistency and transparency. They may be

concerned with such specific matters as:

l developing reward policies and practices that support the achievement

of business goals;

l providing rewards that attract, retain and motivate staff and help to

develop a high-performance culture;

l maintaining competitive rates of pay;

l rewarding people according to their contribution;

l recognizing the value of all staff who are making an effective contribution,

not just the exceptional performers;

l allowing a reasonable degree of flexibility in the operation of reward

processes and in the choice of benefits by employees;

l devolving more responsibility for reward decisions to line managers.


The formulation of corporate strategy can be described as a process for

developing and defining a sense of direction. The Chartered Institute of

Personnel and Development (2004) suggests the following key development


1. the diagnosis phase, when reward goals are agreed, current policies and

practices assessed against them, options for improvement considered

and any changes agreed;

2. the detailed design phase, when improvements and changes are detailed

and any changes tested (pilot testing is important);

3. the final testing and preparation phase;

4. the implementation phase, followed by ongoing review and modification.

Reward strategy l 155

A logical step-by-step model for doing this is illustrated in Figure 12.2. This

incorporates ample provision for consultation, involvement and communication

with stakeholders, who include senior managers as the ultimate

decision makers as well as employees and line managers.

In practice, however, the formulation of reward strategy is seldom as

logical and linear a process as this. Reward strategies evolve; they have to

respond to changes in organizational requirements, which are happening all

the time. Reward strategists need to track emerging trends in reward

management and may modify their views accordingly, as long as they do

not leap too hastily on the latest bandwagon.

It may be helpful to set out reward strategies on paper for the record and

as a basis for planning and communication. But this should be regarded as

156 l HR strategies

Analyse bus iness

strategy and

business needs

Develop HR strategy

Develop and justify

reward strategy and

define guiding


Assess needs of

stakeholders – line

managers and

other employees

Analyse present HR

and reward policies

and practices

Consult, involve

and communicate

with employees

Consult and

involve senior


Prepare and test plan

Brief and train Final


Review and modify as


Implement plan

Figure 12.2 Amodel of the reward strategy development process

no more than a piece of paper that can be torn up when needs change – as

they will – not a tablet of stone.


Components of an effective reward strategy

Duncan Brown (2001) has suggested that effective reward strategies have

three components:

1. They have to have clearly defined goals and a well-defined link to

business objectives.

2. There have to be well-designed pay and reward programmes, tailored

to the needs of the organization and its people, and consistent and integrated

with one another.

3. Perhaps most important and most neglected, there need to be effective

and supportive HR and reward processes in place.

Criteria for effectiveness

The questions to be answered when assessing the effectiveness of a reward

strategy are:

1. Does it support the achievement of the organization’s business and HR


2. Will it reinforce organizational values?

3. Is there a convincing statement of how the business needs of the organization

will be met and how the needs of stakeholders will be catered


4. Is it based on a thorough analysis and diagnosis of the reward situation

in the organization?

5. Has a realistic assessment been made of the resources required to

implement the strategy and the costs involved?

6. Is it affordable in the sense that the benefits will exceed any costs?

7. Have steps been taken to ensure that supporting processes such as

performance management, communication and training are in place?

8. Is the programme for implementation realistic?

9. Have steps been taken to ensure that it is supported and understood by

line managers and staff?

10. Will HR and line managers be capable of implementing and managing

the strategy in practice?

Reward strategy l 157



HR can initiate new reward policies and practices but it is the line that has

the main responsibility for implementing them. The trend is, rightly, to

devolve more responsibility for managing reward to line managers. Some

will have the ability to respond to the challenge and opportunity; others will

be incapable of carrying out this responsibility without close guidance from

HR; some may never be able to cope. Managers may not always do what HR

expects them to do, and if compelled to, they may be half-hearted about it.

This puts a tremendous onus on HR and reward specialists to develop line

management capability, to initiate processes that can readily be implemented

by line managers, to promote understanding by communicating

what is happening, why it is happening and how it will affect everyone, to

provide guidance and help where required, and to provide formal training

as necessary.

158 l HR strategies


Employee relations strategy


Employee relations strategies define the intentions of the organization about

what needs to be done and what needs to be changed in the ways in which the

organization manages its relationships with employees and their trade

unions. Like all other aspects of HR strategy, employee relations strategies

will flow from the business strategy but will also aim to support it. For

example, if the business strategy is to concentrate on achieving competitive

edge through innovation and the delivery of quality to its customers, the

employee relations strategy may emphasize processes of involvement and

participation, including the implementation of programmes for continuous

improvement and total quality management. If, however, the strategy for

competitive advantage, or even survival, is cost reduction, the employee relations

strategy may concentrate on how this can be achieved by maximizing

cooperation with the unions and employees and by minimizing detrimental

effects on those employees and disruption to the organization.

Employee relations strategies should be distinguished from employee relations

policies. Strategies are dynamic. They provide a sense of direction and

give an answer to the question ‘How are we going to get from here to there?’

Employee relations policies are more about the here and now. They express

‘the way things are done around here’ as far as dealing with unions and an

employee is concerned. Of course they will evolve but this may not be a result


of a strategic choice. It is when a deliberate decision is made to change policies

that a strategy for achieving this change has to be formulated. Thus if the

policy is to increase commitment, the strategy could consider how this might

be achieved by involvement and participation processes.


Employee relations strategy will be concerned with how to:

l build stable and cooperative relationships with employees that minimize


l achieve commitment through employee involvement and communications


l develop mutuality – a common interest in achieving the organization’s

goals through the development of organizational cultures based on

shared values between management and employees.


The intentions expressed by employee relations strategies may direct the

organization towards any of the following:

l changing forms of recognition, including single union recognition, or derecognition;

l changes in the form and content of procedural agreements;

l new bargaining structures, including decentralization or single-table


l the achievement of increased levels of commitment through involvement

or participation – giving employees a voice;

l deliberately bypassing trade union representatives to communicate

directly with employees;

l increasing the extent to which management controls operations in such

areas as flexibility;

l generally improving the employee relations climate in order to produce

more harmonious and cooperative relationships;

l developing a ‘partnership’ with trade unions, as described at the end of

this chapter, recognizing that employees are stakeholders and that it is to

the advantage of both parties to work together (this could be described

as a unitarist strategy aiming at increasing mutual commitment).

160 l HR strategies



Four approaches to employee relations have been identified by Industrial

Relations Services (IRS, 1993):

1. Adversarial: the organization decides what it wants to do, and

employees are expected to fit in. Employees only exercise power by

refusing to cooperate.

2. Traditional: a good day-to-day working relationship but management

proposes and the workforce reacts through its elected representatives.

3. Partnership: the organization involves employees in the drawing up and

execution of organization policies, but retains the right to manage.

4. Power sharing: employees are involved in both day-to-day and strategic

decision making.

Adversarial approaches are much less common than in the 1960s and 1970s.

The traditional approach is still the most typical, but more interest is being

expressed in partnership, as discussed later in this chapter. Power sharing is


Against the background of a preference for one of the four approaches

listed above, employee relations strategy will be based on the philosophy of

the organization on what sort of relationships between management and

employees and their unions are wanted, and how they should be handled. A

partnership strategy will aim to develop and maintain a positive,

productive, cooperative and trusting climate of employee relations.


The philosophy of HRM has been translated into the following prescriptions,

which constitute the HRM model for employee relations:

l a drive for commitment – winning the ‘hearts and minds’ of employees

to get them to identify with the organization, to exert themselves more

on its behalf and to remain with the organization, thus ensuring a return

on their training and development;

l an emphasis on mutuality – getting the message across that ‘we are all in

this together’ and that the interests of management and employees

coincide (ie a unitarist approach);

l the organization of complementary forms of communication, such as

team briefing, alongside traditional collective bargaining, ie approaching

Employee relations strategy l 161

employees directly as individuals or in groups rather than through their


l a shift from collective bargaining to individual contracts;

l the use of employee involvement techniques such as quality circles or

improvement groups;

l continuous pressure on quality – total quality management;

l increased flexibility in working arrangements, including multi-skilling,

to provide for the more effective use of human resources, sometimes

accompanied by an agreement to provide secure employment for the

‘core’ workers;

l emphasis on teamwork;

l harmonization of terms and conditions for all employees.

The key contrasting dimensions of traditional industrial relations and HRM

have been presented by Guest (1995) as shown in Table 13.1.

Guest notes that this model aims to support the achievement of the three

main sources of competitive advantage identified by Porter (1985), namely

innovation, quality and cost leadership. Innovation and quality strategies

require employee commitment, while cost leadership strategies are believed

by many managements to be only achievable without a union. ‘The logic of

a market-driven HRM strategy is that where high organizational

commitment is sought, unions are irrelevant. Where cost advantage is the

goal, unions and industrial relations systems appear to carry higher costs.’

An HRM approach is still possible if trade unions are recognized by the

organization. In this case, the strategy might be to marginalize or at least

162 l HR strategies

Table 13.1 Key contrasting dimensions of traditional industrial

relations and HRM (from Guest, 1995)

Dimension Industrial relations HRM

Psychological contract

Behaviour references


Organization design


norms, custom and


low trust, pluralist,


formal roles, hierarchy,

division of labour,

managerial control



high trust, unitarist,


flexible roles, flat

structure, teamwork/

autonomy, self-control

side-step them by dealing direct with employees through involvement and

communications processes.


There are a number of policy options that need to be considered when

developing employee relations strategy. The following four options have

been described by Guest (1995):

1. The new realism – a high emphasis on HRM and industrial relations. The aim

is to integrate HRM and industrial relations. This is the policy of such

organizations as Nissan and Toshiba. A review of new collaborative

arrangements in the shape of single-table bargaining (IRS, 1993) found

that they were almost always the result of employer initiatives, but that

both employers and unions seem satisfied with them. They have facilitated

greater flexibility, more multi-skilling, the removal of demarcations

and improvements in quality. They can also extend consultation

processes and accelerate moves towards single status.

2. Traditional collectivism – priority to industrial relations without HRM. This

involves retaining the traditional pluralist industrial relations arrangements

within an eventually unchanged industrial relations system.

Management may take the view in these circumstances that it is easier to

continue to operate with a union, since it provides a useful, well-established

channel for communication and for the handling of grievance,

discipline and safety issues.

3. Individualized HRM – high priority to HRM with no industrial relations.

According to Guest, this approach is not very common, excepting North

American-owned firms. It is, he believes, ‘essentially piecemeal and


4. The black hole – no industrial relations. This option is becoming more

prevalent in organizations in which HRM is not a policy priority for

management but where they do not see that there is a compelling reason

to operate within a traditional industrial relations system. When such

organizations are facing a decision on whether or not to recognize a

union, they are increasingly deciding not to do so.


Like other business and HR strategies, those concerned with employee relations

can, in Mintzberg’s (1987) words, ‘emerge in response to an evolving

Employee relations strategy l 163

situation’. But it is still useful to spend time deliberately formulating

strategies and the aim should be to create a shared agenda that will communicate

a common perspective on what needs to be done. This can be

expressed in writing but it can also be clarified through involvement and

communication processes. A partnership agreement may well be the best

way of getting employee relations strategies into action.



In industrial relations a partnership arrangement can be described as one in

which both parties (management and the trade union) agree to work

together to their mutual advantage and to achieve a climate of more cooperative

and therefore less adversarial industrial relations. A partnership

agreement may include undertakings from both sides; for example,

management may offer job security linked to productivity and the union

may agree to new forms of work organization that might require more flexibility

on the part of employees.

Key values

Five key values for partnership have been set down by Roscow and Casner-

Lotto (1998):

1. mutual trust and respect;

2. a joint vision for the future and the means to achieve it;

3. continuous exchange of information;

4. recognition of the central role of collective bargaining;

5. devolved decision making.

Their research in the United States indicated that, if these matters were

addressed successfully by management and unions, then companies could

expect productivity gains, quality improvements, a better-motivated and

committed workforce, and lower absenteeism and turnover rates.

The impact of partnership

The Department of Trade and Industry and Department for Education and

Employment report on Partnerships at Work (1997) concludes that partnership

is central to the strategy of successful organizations. A growing

164 l HR strategies

understanding that organizations must focus on customer needs has

brought with it the desire to engage the attitudes and commitment of all

employees in order to meet those needs effectively, says the report.

The report was based on interviews with managers and employees in 67

private and public sector organizations identified as ‘innovative and

successful’. It reveals how such organizations achieve significantly

enhanced business performance through developing a partnership with

their employees.

There are five main themes or ‘paths’ that the organizations identified as

producing a balanced environment in which employees thrived and sought

success for themselves and their organizations:

1. Shared goals – ‘understanding the business we are in’. All employees should

be involved in developing the organization’s vision, resulting in a

shared direction and enabling people to see how they fit into the organization

and the contribution they are making. Senior managers in turn

receive ideas from those who really understand the problems – and the


2. Shared culture – ‘agreed values binding us together’. In the research, ‘organization

after organization acknowledged that a culture has to build up

over time… it cannot be imposed by senior executives but must rather

be developed in an atmosphere of fairness, trust and respect until it

permeates every activity of the organization’. Once achieved, a shared

culture means that employees feel respected and so give of their best.

3. Shared learning – ‘continuously improving ourselves’. Key business benefits

of shared learning include an increasing receptiveness to change, and

the benefits of increased organization loyalty brought by career and

personal development plans.

4. Shared effort – ‘one business driven by flexible teams’. Change has become

such an important part of our daily lives that organizations have learnt

that they cannot deal with it in an unstructured way, says the report. The

response to change cannot be purely reactive, as business opportunities

may be missed. While team working ‘leads to essential co-operation

across the whole organization’, care must be taken to ensure that teams

do not compete with each other in a counterproductive way. It is

essential that the organization develops an effective communication

system to ensure that the flow of information from and to teams

enhances their effectiveness.

5. Shared information – ‘effective communication throughout the enterprise’.

While most organizations work hard at downward communication, the

most effective communication of all ‘runs up, down and across the

business in a mixture of formal systems and informal processes’. Many

Employee relations strategy l 165

organizations with unions have built successful relationships with

them, developing key partnership roles in the effective dissemination of

information, communication and facilitation of change, while others

have found representative works councils useful in consulting

employees and providing information.

Moving on

An important point that emerged from the research is that there are three

levels, or stages, within each of these five paths. These are the levels ‘at

which certain elements of good practice must be established before the

organization moves forward to break new ground’.


As defined by Boxall and Purcell (2003), ‘Employee voice is the term

increasingly used to cover a whole variety of processes and structures

which enable, and sometimes empower employees, directly and indirectly,

to contribute to decision-making in the firm.’ Employee voice can

be seen as ‘the ability of employees to influence the actions of the

employer’ (Millward, Bryson and Forth, 2000). The concept covers the

provision of opportunities for employees to register discontent and

modify the power of management. It embraces involvement and, more

significantly, participation.

The framework for employee voice

The framework for employee voice strategies has been modelled by

Marchington et al (2001) as shown in Figure 13.1.

This framework identifies two dimensions of voice: 1) individual

employees; and 2) collective – union and other representation. The shared

agenda of involvement and partnership is a form of upward problem

solving. This is on the same axis as the contested agenda of grievances and

collective bargaining. But these are not absolutes. Organizations will have

tendencies towards shared or contested agendas just as there will be varying

degrees of direct and indirect involvement, although they are unlikely to

have partnership and traditional collective bargaining at the same time. As

Kochan, Katz and McKenzie (1986) point out, amongst the strongest factors

affecting the choice of employee voice strategy are the values of management

towards unions.

166 l HR strategies

Planning for voice

The employee voice strategy appropriate for an organization depends upon

the values and attitudes of management and, if they exist, trade unions, and

the current climate of employee relations. Strategic planning should be

based on a review of the existing forms of voice, which would include

discussions with stakeholders (line managers, employees and trade union

representatives) on the effectiveness of existing arrangements and any

improvements required. In the light of these discussions, new or revised

approaches can be developed but it is necessary to brief and train those

involved in the part they should play.

Employee relations strategy l 167

Shared agenda





Contested agenda










Figure 13.1 Aframework for employee voice (from Marchington et al, 2001)


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184 l Further reading

Author index


Ahlstrand, B 50–51

Albanese, A 34–35

Argyris, L 137–138

Armstrong, M 11, 16, 17, 38, 48, 51,


Arthur, J B 73

Atkinson, J 130

Bandura, A 94

Barnett, S 80

Barney, J 22, 23, 32

Baron, A 11, 38

Bass, B M 135

Becker, B E 7, 55, 73

Beckhard, R 96

Beer, M 5, 11, 34, 57

Bell, C H 91

Bessant, J 115

Blackler, F 109

Blake, P 107

Bontis, N 7

Bower, J L 26

Boxall, P 5, 9, 23, 30, 32, 38, 41–42, 49

Brown, D 149–150, 157

Bulla, D N 120

Burgoyne, J 138

Burns, B 24

Burns, J M 97

Campbell, A 27

Cappelli, P 6, 51, 53

Chandler, AD 19

Child, J 20

Conway, N 14, 15

Cooke, R 59, 60

Cowling, A 122

Crocker-Hefter, A 6., 53

Currie, G 80

Davenport, T O 109

Delery, J E 53, 56

Deming, W 138

Denison, D R 101

Dess, G G 23

Digman, LA 27

Doty, H D 53, 56

Drucker, D 83

Dyer, L 31, 38, 53–54, 56

Ehrenberg, R G 137

Faulkner, D 20, 26

Floyd, S 80

Fombrun, C J 4

Furnham, A 101

Fowler, A 11

French, W L 91, 101

Garvin, D A 138

Gennard, J 11

Goold, M 27

Goshal, S 110

Grant, R M 32, 50, 106

Gratton, L 8, 13, 35, 49, 60, 69–70, 91,


Guest, D E 9, 10, 11, 12, 13, 14, 15, 53,

54, 57, 74, 75, 162, 163

Gunter, B 101

Hailey, V H 99, 100

Hamel, G 21, 22, 32

Handy, C 102

Hansen, M T108, 109

Harrison, R 102

Harrison, Rosemary 133–134, 137

Hartle, F 145

Heller, R 26

Hendry, C 9, 17, 30, 48, 57

Herriot, P 113–114

Holder, G W 31, 53–54

Hope-Hailey, V 16

Huselid, M A 73

Johnson, G 20, 26, 84

Johnston, R 116

Judge, G 11

Kamoche, K 32

Kanter, R M 23, 90

Kaplan, R S 141

Kay, J 21, 28

Keenoy, T 15, 16

Keep, E 117, 134

Kolb, D A 135

Kotter, J 97–98

Lafferty, J 59

Lawson, P 143

Legge, K 10, 11, 12–13, 15, 55

Lengnick-Hall, C A 31

Lengnick-Hall, M 31

Leon, L S 138

Litwin, G H 103

Long, P 38, 48, 51

Mabey, C 13, 15

MacDuffie, J P 56, 57

Marchington, M 83, 121

Marsick, V J 137

Mecklenberg, S 107

Miles, R E 119

Miller, A 23

Mintzberg, H 26–27, 35, 48, 49, 163

Moore, J 48

Murlis, H 150

Nahpiet, J 110

Nonaka, I 107

Noon, M 13

Norton, D P 141

Pascale, R 91, 96, 119

Patterson, M G 54, 73

Pearce, J A 23–24

Pedler, M 138, 139

Pettigrew, A 9, 17, 27, 30, 48, 57

Pfeffer, J 54

Porter, M 20–21, 61

Prahalad, C K 21, 22 , 32

Proctor, S 80

Purcell, J 7, 11, 12, 20, 30, 38, 41–42, 49,

50–51, 53, 56, 72, 74, 77, 80–81, 141

Quinn, J B 21, 27, 28, 48

Quinn-Mills D 31, 118, 121

Reeves, T 38, 56

Reynolds, J 135, 136

Richardson, R 20, 53, 56

Robinson, R B 23–24

Rothwell, S 122

Rouseau, D M 101

Sako, M 113

Scarborough, H 7, 106, 107, 108

186 l Author index

Schein, E H 105, 136

Scholes, K 20, 84

Scott, PM 120

Senge, P 139

Sisson, K 10, 12, 16

Sloman, M 136, 139–140

Smith, R S 137

Snow, C C 119

Snyder, W N 110

Storey, J 3–4, 9, 10, 16, 31

Stringer, R A 103

Takeuchi, H 107

Taylor, S 122

Thompson, M 20, 53, 56, 73, 113

Torrington, D P 16

Townley, B 118

Truss, C 72

Trussler, S 106

Tyson, S 28

Ulrich, D 32, 72, 81, 82

Vaughan, J A 135

Walters, M 122

Walton, J 133

Walton, R E 10–11, 34, 75, 110

Wenger, E 110

Whipp, R 27

Whittington, R 28

Wick, C W 138

Wickens, P 22

Wilkinson, A 121

Willmott, H 15

Wood, S 34–35

Woolridge, R 80

Author index l 187

Subject index


academics 14

action research 93

AEGON 38–39

affordability 150

benchmarking 139

best fit 55–56

best practice 53–54, 139

big idea 74, 77

Boston Consulting Group 119

B&Q 39

bundling 56–57, 63–64,119–120

business performance 71

business partner role of HR specialists


business strategy

and HR strategies 48

knowledge management 108

fit 59

and resource strategy 118–119

business values 11–12

career development

and turnover 128

change agent 96

Chartered Institute of Personnel and

Development (CIPD) 14, 112, 151

Children’s Society 41

coherence 57


and HRM 10, 161

and organization development 106

strategy 75, 110–112

and turnover 128–129

communication 111, 161–162

competency framework 120

competency profile 120

competitive advantage 20–21, 33, 118

configurational approach to strategy

formulation 56–57

conflict 129

continuous improvement 115

control strategy 75

culture integration 58–59

culture change 105–106

culture management 99–100

customer service 115–116

demand forecasting 122

development 135

Diageo 41

discretionary effort 141

distinctive capabilities 21–22

double loop learning 137–138

education 135

Egg 39

employee relations and HRM 161–163

employee relations strategy

aims 8

background to 161

concerns of 160

defined 159–160

directions 160

formulation of 163–164

options 163

employee voice strategies 166–167

fit 59, 60

flexibility 120, 130

front line management

strategic role of 79–80

GlaxoSmithKline 39

great place to work 77

group cohesion 129

guiding coalition 97

hearts and minds 10, 161

high-commitment management

34–35, 57

high-involvement management 35,


high-performance culture 103–104

high-performance management

33–34, 75

horizontal integration or fit 33, 56, 61,

142, 145

HR director, strategic role of 81

HR specialists, strategic role of 81–86

human capital

defined 7

and HRM 11

human relations 9

human resource cycle 4

human resource development

elements 135

philosophy 135–136

human resource management (HRM)

aims 6–8

and business values 11–12

characteristics 8–9

commitment-orientated nature of


defined 3

diversity of 9

hard model 10

and human capital 11

Harvard framework

and employee relations 161–163

matching model 4

models of 4–6

morality of 15

and organizational performance


and personnel management 16–18

philosophy of 14

reservations about 13

soft version of 9–10

strategic nature of 10

as a theory 13

unitarist philosophy 11–12

human resource planning

approaches to 122–123

defined 120–121

hard human resource planning 121

limitations 122

soft human resource planning 121

human resource (HR) strategies

achieving integration or fit 59–64

best practice approach to

development 53–55

business issues affecting 59

criteria for 42–43

defined 37–38

developing 52

examples of 39–42

formulation 48–50, 52–53

headings 64–65

impact of 75–78

implementation of 69–70

options 51

process considerations 49–49

190 l Subject index

specific 40–41

strategic review 65–69

innovation role of HR specialists 83

interventions 93–94

intellectual capital 33

inter-group conflict 94

job design 77, 127

job engagement 112

knowledge management

and business strategy 109

defined 7

issues 108–110

process 106

purpose 107

sources 107–108

strategies 106, 108, 110

and technology 109

types 107–108

Lands’ End 39

learning 135, 139–140

learning culture 136

learning and development

strategies 133, 138–140

and turnover 127–128

line managers 5, 158

learning organization 106, 138–139

mission 24

mutuality 10, 75, 161

organizational climate 101, 103

organizational culture

analysing 101–102, 104–105

change 105–106

and HRM 10

inventory 59–60

meaning of 100–101

significance of 101

organizational development 91–95

organizational effectiveness 6–7,


organizational learning

defined 106

strategies 137–138

organizational transformation 95–96

ownership 111–112

partnership agreements 164–166

people as assets 5


strategies for managing 141–142

performance management

and commitment 112

concerns 143–144

defined 142

holistic approach to 144–145

as an integrating force 63, 145

process of 145–147

purpose of 143

strategy 143–144

personnel management and HRM


Pilkington Optronics 39

practitioners 14

process consulting 94

quality management 114

recruitment strategy 123–126

resource-based approach 32–33, 106,


resourcing plans 123–124

resourcing strategy

bundling of 119–120

defined 117

objective 117

rationale 118

strategy 117–118

retention strategy 126

reward management

aims 8

and commitment 112

guiding principles 154–155

initiatives 154

reward strategy

characteristics of 150

content of 151–156

defined 149

development of 155–157

effectiveness of 157

and line manager capability 157

Subject index l 191

reason for 145–146

structure of 150–151

shared values 98

single loop learning 137–138

six sigma 114–115

social learning theory 94

strategic capability 23

strategic fit 22, 33

strategic human resource development


aims 134

defined 133–134

philosophy 134–135

strategic human resource management


aims 30–31

approaches to 31–35

and business performance 71

concerns 71

defined 29–30, 37

hard strategic HRM 32

limitations to the concept 35

meaning of 30

model of 36

process considerations 49–49

resource-based approach 32–33

soft strategic HRM 32

strategic intent 22–23

strategic management 23–24

strategic review 65–69


concept of 20–24

defined 19–20

formulation of 24–28

resource-based 23, 32–33

supply forecasting 122–123

survey feedback 93

SWOT analysis 25

talent management strategy 77, 120,


technology and knowledge

management 109

team building 94

top management

strategic role of 79

total quality management 114


and commitment 111

defined 135

transactional change 96

transformational change 96, 98

transition management 97

trust 112–114

unitarist philosophy 11–12

United States Department of Labor

33–34, 54

values 106

vertical fit 60–61

vertical integration 33, 58, 142, 145

vision 98

work design 77

working environment 77

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