Strategic approach to HRM
Human resource management was long approached as administrative function (Delery & Doty 1996). HR professionals were seen as experts who designed and delivered HR systems. Thus, HR was a kind of link between employers and employees. HRM is not, however, and isolated function from other organization, nor from external environment.
The external trends affecting HRM strategy
Several global trends affect HRM almost everywhere in the world. For example, the financial conditions contribute to organizations’ future prospects and decisions to invest or employ workforce. The unemployment rates, on the other hand, follow the economic conditions. Other global trend is migration but its affects to HRM strategy are often more local than global.
The local supply of skilled workforce may have influence on organizations’ decisions to establish business enterprises in the area. Thus, human resource departments have to bring knowledge about the general level of education and the number of graduates into the strategic decision-making processes in the firm.
In Europe we have a problem that is sometimes called as the Aging of Europe or the Greying of Europe. It is caused by decrease in fertility and mortality rate, and high life expectancy in the Europe. This means that in few years there are more retired people than those who are on duty. The figure below illustrates the population growth and decline in European countries.
The aging population phenomenon influences on the demografical structure of workforce in the future. The generational shift is caused by the estimate of two experienced workers retiring for every one who enters the workforce, and the fact that small Generations X and Y become the primary workforce in the next few years.
From HRM perspective this means that organizations will face a shortage of talents. For example in Germany the number of 55-64 -years-old exeeded the number of 15-24-years-old in 1993. In Finland we saw this ten years later in 2003. Because the birth rates declined in couple of decades a go and the life expectancy gets higher and higher, the smaller and smaller generations will take care of the elder population. (see John L. Bennett in BrightTALK webinar).
According to Tulgan (2003) the Generations X and Y will change dramatically values and norms at the workplace. These changes have already happened partially. For example, employer-employee relationships have become less hierarchical and employments shorter and more flexible.
Organizational factors affecting HRM strategy
Corporate strategy and culture are very important in analyzing the future needs for workforce and skills. The competitive environment where the organization operates in as well as organization’s current financial situation define the available resources. Thus, they also define the financial resources for attracting current and future workforce. As Mathis and Jackson (2003) put it, future needs and available resources are then evaluated and matched in human resouce planning.
One of the most important organizational decisions for HRM are decisions to establish or shut down business units. These all have great influence on HR planning and management. As Steen et al. (2009, 14) claim, changes often cause confusion or even anger or fear. Then HR departments with experts in human behaviour are in key position to manage the change process.
Other strategical issues that affect HRM are improvement goals in productivity, expanding new markets, employing foreign workforce, technology implementation, and mergers and acquisitions. And there are so much other issues as well!
Theoretical foundation
Delery and Doty (1996) claimed that there was a shift from micro analytic research towards strategic perspectives of HRM in 1990′s. At that time the strategic HRM (also SHRM) research expanded but still the research was criticized for highlighting operational issues and for lacking theoretical foundation. Hence, Delery and Doty (1996) published an article about theorizing in strategic human resource management where they tested performance predictions of three common SHRM perspectives. These were universalistic, contingency, and configurational perspective.
The universalistic perspective highlighs the best practices. Some HR practices are seen better than the others and universalistic approach encourages companies to adopt these practices. For example Pfeffer (1998) identified seven best practices for an organization to succeed. These were: employment security, selective hiring, extensive training, information sharing, self-managed teams, high pay based on company performance and the reduction of status differentials. Other researchers have identified e.g. total quality management and job rotation as ‘best practices’. Delery and Doty (1996, 805) call best practices approach as universalistic because they imply that
the relationship between a given independent variable and a dependent variable is universal across the population of organizations.
In contingency perspective the HR policies must be consistent with other functions and policies of the organization. Thus, contingency perspective stresses ‘best fit’ where HR policies are aligned with company strategy. It supposes that some policies fit better with certain strategic positions or in company’s state on its lifecycle.
According to Mathis and Jackson (2003) for example longer HR planning horizon, skill developing among existing employees and promotion within the company work better in cost leadership strategy; and shorter planning horizon and external staffing in differentiation strategy.
The third theoretical basis for strategic HRM that Delery and Doty (1996) identified was configurational perspective. This holistic view emphasises the structure and pattern of HR practices. It is concerned about how this pattern of independent practices may be used to enhance organizational performance. As contingency approach, the configurational perspective seeks to match organization’s policies, processes and structure with strategical issues. Sometimes this approach is called bundling (Armstrong 2009, 37). It means that organization develops and implements several HR practices together so that they complement each other. For example, employees are motivated and trained at the same time to boost productivity. The main idea of bundling is to maintain coherence between practices when tried to achieve goals (Armstrong 2009,38). Because bundles are unique for each organization, companies reach a variable performance levels.
Slides for the second lecture
