STRATEGIC HRM

D R . N AV R E E T
 HUMAN CAPITAL
The term capital refers to wealth, money or
property. Capital is used to generate more
wealth for the organization. When employees
are referred to as capital, it means they are
resources that generate more. They are
resources because they create value and are
of utility. Human capital refers to the
collective skills and knowledge of the total
workforce of an organization. It must be
managed efficiently and effectively.
MAINTAINING COMPETITIVE
ADVANTAGE IN THE KNOWLEDGE
ECONOMY
Today, it is possible for any organization to buy
machinery and equipment comparable to its
competitors. So economic and material resources no
longer differentiate one organization from the other.
It is the ability to use these tangible resources that
serves as a distinguishing factor. An organization
that loses its workforce but holds on to its tangible
resources has little hope of recovering. Strategy
formulation, implementation and success depends
on company leadership and the quality of the
workforce.
CENTRALITY OF HUMAN
RESOURCES
Financial
capital
People
Utilizatio
n Organizational
Processes
People goals

Technology
 MAIN FEATURES OF HUMAN
RESOURCE ASSETS
Value of HR assets Can walk over to other
may decline if: organizations taking
An individual is with them their
placed in a job that accumulated knowledge,
does not fit with his skills and experience
skills and/or
If he performs below HR Assets:
his potential because Sum total of
of reduced an individual’s
Value grows with
motivation knowledge,
time as
skills and
Human resources are individual gains
competencies
not owned by the experience
firm

Cannot be
duplicated

set is something that is owned and has an exchange value

 VRIO FRAMEWORK

Four criteria of human

resources as a source of
competitive advantage

Imitabilit Organizatio
Value Rareness
y n

What type of human resources provide

sustainable competitive advantage to an
organization ?
RBV Resource Based View--Barney (1991)
VALUE This is created either by decreasing the
cost of the product/service or by providing a
unique product/service to the customer or
both. Human resources can create value by
either decreasing the cost or increasing the
revenue or both

RARENESS If the skills, knowledge n abilities

of employees are the same as those of
competing organizations, this will only provide
competitive parity and the organization will not
be at a competitive disadvantage. Rare skills in
the work force a must.
IMITABILITY The organization
must possess work force skills that
cannot be imitated by competitors

ORGANIZATION For people to

provide competitive edge to the
organization, its systems and
practices must be in place so that
its human capital is exploited fully

Skill Mobility: The ease with which a particular

skill can move from one organization to the next
without change in position or pay. Rare skills are
highly mobile, transferable and marketable
 INVESTMENT ORIENTATION OF AN
ORGANIZATION
5 factors determine how investment
oriented an organization is in the
management of human resources:
1. Management Values
2. Attitude Towards Risk
3. Nature of Skills Needed by Employees
4. Utilitarian or Bottom-Line Perspective
5. Availability of Outsourcing

Mello, 2003
MANAGEMENT VALUES reflected in the
mission statement, extensive communication
with employees when changes in strategy are
planned, the manner in which treated post-
merger, for example.

ATTITUDE TOWARDS RISKS Investment is

accompanied by risks as well as returns.
Investments with higher risks generally result
in greater potential return. Investment in
human assets is considered more risky than in
physical assets. If management philosophy
risk- aversive , the organization will not invest
heavily in people. Risk taking organizations
will, alongside, develop strategies to minimize
the potential risks (Employment contracts,
Stock ownership programmes, Developmental
NATURE OF SKILLS required determines the
willingness of an organization to invest. If the skills
are not applicable or transferable to other
organizations, the investment in people is less risky.
If skills marketable then investment risky. The high
risk employee investment requires an organization
to develop a strong retention strategy (ESOP in
Infosys n HCL Technologies along with variable
compensation packages n cutting edge training
programs)

UTILITARIAN/BOTTOMLINE PERSPECTIVE
Organizations that adopt this perspective evaluate
all investments through a cost-benefits analysis to
determine whether they are profitable. All costs n
benefits are quantified. E.g. Before delivering a
training program, organization will consider not only
The problem with such an analysis in reference to
people is that the benefits of HR programs are
difficult to quantify.

AVAILABILITY OF OUTSOURCING Organizations

can determine whether employee investment can
produce sustained competitive advantage over time.
Little investment is done if specialists are available
outside. Also when investment in human assets is not
expected to give higher returns, more attention will
be paid to other processes.
E.g. Fast food industry---skill set required can be
developed easily, minimal experience required, little
training---high turnover of workers---hence industry
invests more in advertising, physical expansion n less
in employees.
GLOBAL BUSINESS
ENVIRONMENT AND CHANGE
MANAGEMENT

Economic Mission & Strategy Cultural

Forces Forces
Organizational
Structure

HRM

Political Forces
SHRM??
Central to the concept of SHRM is the idea of
strategic fit. To ensure that the HR strategies
facilitate the achievement of business
strategies, a strategic integration of the two is
necessary. A key factor that influences the
linkage between the business strategy and HR
strategy is the organization’s quest to attain
competitive advantage. An organization may
pursue several different strategies to achieve
its goals

Traditional HRM versus SHRM

STRATEGY ??

Alice in Wonderland
BUSINESS STRATEGY VERSUS
CORPORATE STRATEGY
 TYPES OF STRATEGIC CHANGES
IN ORGANIZATIONS

Restructuring:
Changing organizational structures
and reporting lines
Re-engineering:
Changing processes i.e. the
way work is done
Mergers & Acquisitions:
Changing the identities of organizations

+ =
Cultural Change:
Changing values, attitudes, mind set
and behaviour
Strategic Change (Change in
business strategy)
Changing priorities, ultimate
direction and purposes
 LINKING BUSINESS STRATEGY
AND HR STRATEGY
HRM practices lead to the development of employee role
behaviour that should be supportive of the competitive
strategy the organization adopts. This will result in the
optimum utilization of human resources

Manufacturing and Service Sector. Besides strategy, other

contingencies also affect HR strategies
 TYPES OF BUSINESS STRATEGY

1. Cost Leadership
2. Differentiation
3. Focus
(Porter, 1985; Fundamental or
Generic Strategies)

Classification 1
a. Focus strategy (Accumulation)
The focus strategy emphasises the importance of
serving a specific target very well. This is achieved
by focusing on a particular buyer group, or a
segment of a product line, or geographic market.
b. Cost-reduction strategy (Utilisation)
Firms following this strategy seek to gain
competitive advantage by being the lowest cost
producer. In doing so they are able to obtain a larger
profit margin and are more able to face a price war.
c. Differentiation strategy (Facilitation)
Firms following this strategy seek to develop
products or services different from those of the
competitors. The main concern of firms following
this strategy is to offer products or services that
have attributes that are perceived by consumers to
be superior to those offered by other firms.
 THREE PHILOSOPHIES

The accumulation philosophy of HRM emphasises

careful selection of good candidates based on
personality rather than technical fit. The main
rationale is that the organisation expects the skill
requirement for its work-force to change quickly.
Thus, recruiting employees who are flexible and
highly trainable is important.
Organisations practicing this HRM philosophy place a
lot of emphasis on training, pay egalitarianism and
lifetime employment. Given the high investment in
training, these organisations will seek to ensure that
their employees remain in the organisation as long as
possible. This is achieved by adopting practices such
as promotion from within and offering job security.
Organisations practicing the utilisation
philosophy of HRM select individuals mainly
on the basis of technical ability. In this
approach, the organisation places little
emphasis on training and seeks to utilise
new employees quickly. These organisations
take a short term view of HRM and
emphasise cost minimisation. Minimal
training is undertaken. New skill
requirements in the organisation are met by
recruiting new workers.
Organisations practising the facilitation philosophy
engage in HRM practices that emphasise the ability
of their employees to work together in a reciprocal
relationship. The nature of work in these
organisations requires a high level of creativity and
collaborative work situations. Cross-functional and
cross-departmental work teams are extensively
used. In these organisations employees are
expected to have a broad range of skills. The use of
job rotation and broad career paths helps to foster a
collaborative work climate and the development of
multiple skills among employees. These
organisations also place a lot of emphasis on
employee development and enhancement.
However, instead of providing employees with
training to impart new knowledge and abilities
these organisations merely facilitate the
development of their employees. This is achieved
Using Porter’s (1980) model of
competitive strategy,
Schuler(1989) proposes that each
competitive strategy requires
specific employee role behaviour.
The emphasis in each strategy is
distinct and therefore it requires
different type of employee role
behaviour
 Package of Competitive Strategies and HRM Practices

High participation
Implicit job analysis
External recruitment source
Broad career path
Process and results appraisal criteria
Long-term appraisal criteria
1. Differentiation Strategy:
Same group criteria
Some employment security
Many incentives
Egalitarian pay
Extensive training
Cooperative labour-management relation

High participation
Explicit job analysis
Some external recruitment sources
Narrow (not so broad) career paths
Mostly results appraisal criteria
Mostly short-term appraisal criteria
2. Focus Strategy:
Same group criteria
Some employment security
Some incentives
Egalitarian pay
Extensive training
Cooperative labour-management relation

Low participation
Explicit job analysis
Mostly internal recruitment sources
Narrow career paths
Results criteria
Short-term criteria
3. Cost-reduction Strategy:
Mostly individual criteria
Little employment security
Few incentives
Hierarchical pay
Little training
Traditional labour-management relations
1. Defenders
2. Prospectors
3. Analyzers
(Miles and Snow, 1984)

Classification 2
HR PRACTICES
CORRESPONDING TO THE
STAGES OF AN
ORGANIZATION’S LIFE CYCLE
CLASSIFICATION 3
BE STRATEGIC WITH YOUR
WORKFORCE
INTERNATIONAL HRM: CROSS
CULTURAL ISSUES
 IBM-LENOVO: THE IMPORTANCE OF CULTURE IN GLOBAL MANAGEMENT
(2005)

A Chinese company buys (acquisition) a division of a

reputed US multinational
Lenovo: Chinese personal computer manufacturer
bought IBM’s ThinkPad (Laptops n Tablets) computer
business

Founder chairman of Lenovo: Yang Yuanqing realized

global managers to be hired. English declared as the
official language

Turmoil. Performance not stable due to cross cultural

differences .....
First 2 CEOs of Lenovo were Americans --- Stephan
Ward worked for IBM left coz of organizational
problems
Chinese employees would say Yes all the time
Americans talk all the time interpreted as domination
by the Chinese
Chinese need for harmony interpreted as lack of
engagement
A popular Chinese executive heading the supply
chain division fired. Interpreted as Chinese executives
not valued. Some of the others left in protest. Another
reason: in China, employees are often more loyal to
the boss than the organization

Lenovo reported losses in 2008. Bill Amelio forced to

leave. Yang came back
Corporate culture of Lenovo different from a Western-
run enterprise
Number Six Broadcast Exercises (a common set of
stretching exercises practised in communal China)
twice a day.
Cross cultural management
initiatives:
Silk worms
Chinese to speak more in meetings
The Chinese CEO moves to Us to
understand US culture

Cross-cultural awareness is itself

inherently morally desirable in that
it can lead to mutual
understanding.

--- Ray French

 DOING BUSINESS IN CHINA
The People’s Republic of China as a nation
Chinese Communist Party (CCP)
After Mao’s death in 1976, Deng Xiaoping introduces
economic reforms
China’s leaders want economic liberalization n
sustainable growth but want to keep political control.
CCP dominates the government

Culture n Etiquette:
i. Greetings n address (hand shake, name)
ii. Appointments n punctuality (time conscious,
fixing meetings through intermediaries)
iii. Negotiations (toughest negotiators, Apollo
International, the Indian tyre manufacturing
company)
Business Etiquette:

1. Guanxi
2. Face
3. Confucianism
4. Patience
5. High-context culture
6. Gift giving
7. Table manners
 SPECIAL CHALLENGES FOR INDIANS WORKING IN CHINA

Food
Eating communally
Style of eating
Food presents a major barrier to
developing very close relationships.
Food is very central to the Chinese
culture.
CROSS-CULTURAL MANAGEMENT

•Describes organisational behaviour

within countries and cultures

•Compares organisational behaviour

across countries and cultures

•Improves the interaction of actors

within a cross-cultural setting
THANK YOU