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Strategic human resource management a balanced approach summaryChapter 1 introduction: strategic human resource management in the 21 st century
Employees are considered ‘the organization’s most valuable assets’. It is in times of major change
that the management of employees is essential not only to achieve organizational goals but also to
pay attention to the induvial employee’s well-being as well. Organizational change almost
automatically affects the employees. Successful change highly depends on changing people in their
attitudes, behaviour and cognition.
The old economy goes back to traditional industries such as the steel, construction and motor
industries. Work was characterized by physical tasks, job design and work design based on mass
production, many relatively low-skilled workers and high degrees of unionization. The new economy
is dominated by emerging branches of industry, including the information technology (IT) sector,
telecommunication and financial institutions. Work can be characterized by high knowledge
intensity, web-based organizing, contacts through intranet or Internet connections, centres on the
other side of the world and the integration of work design, technology and services delivered.
Organizational change has become a common practice in the new economy with major implications
for employees. The old economy does still exists, places with cheap labour, and is frequently used by
outsourcing or offshoring.
The relevance of optimal coping with change is embedded in the concept of competitive advantage.
It represents an organization’s position in comparison to its direct competitors. It tells us something
about how well the organization is doing in comparisons to others in the same branch of industry or
in the same region. It reflects a relative outcome: an organization with competitive advantage is
doing better than its competitors irrespective of the actual firm performance (negative or positive).
In the case of losses, the organization is still doing better than its competitors, in case of profit it
makes more profit than others.
Technology has created opportunities for alternative work design; for example, enabling employees
to work at home and still have access to organizational resources and networks. This opportunity
can be a source for a better work-life balance and/or family-friendly employment.
HRM involves management decisions related to policies and practices that together shape the
employment relationship and are aimed at achieving individual, organizational and societal goals. It
acknowledge the relevance of different stakeholders. However within HRM there are three subfields:
1. MHRM micro HRM. It covers the sub-functions of human resource (HR) policies and
practice.
2. IHRM international HRM. Is concerned with HRM in MNC and across boarders
3. SHRM pays extra attention to organizational context, focused on the business strategy
and HRM, the alignment of the institutional context and HRM, the linkage between business
systems and HRM and the fit between HRM practices.
The multidimensional strategic HR model includes the following key characteristics;
1. A multi-actor perspective
2. A broad societal view
3. Multi-level perspective
This is in line with Paauwe (2004) see notes. HR are people with feelings, emotions, interest, norms,
and values.
,HRM focuses on the exchange relationship between employee and the organization. It refers to the
bargain between the employee, on the one hand, and the employer on the other, particularly with
regard to efforts of the worker and rewards given by the employee. This is seen in the employment
relationship. The relationship concerns:
1. legal aspects mostly written down in a contract
2. Economic contract
3. Psychological contract concerning all the things not written down but are expected from
both actors.
4. Sociological contract
HRM has to deal with tensions between added value (economic side of organizing work) and moral
value (employees as human beings). There is a distinction made between ‘hard’ HRM mainly
economics and ‘soft’ HRM human side of the organization. HRM should not only focus on the
valuable employees but also to the peripheral workers.
The focus of HRM is not solely on the basic HRM practices such as recruitment and selection, training
and development, appraisal, rewards, promotion and participation. But also includes work design
reflected in choices with regard to job autonomy, whether or not using teams, degree of job rotation,
the job enlargement (how many tasks) and job enrichment (responsibility). It is involved in managing
issues on multiple levels. It is also embedded in industries and societies.
There is a distinction made between Anglo-Saxon / Anglo-American models and Rhineland models.
The Anglo-American approaches in IR and HRM mainly focus on creating stakeholder value in terms
of profit and market value with little or no attention to other stakeholders. The Rhineland models
acknowledge multiple stakeholders and their interest explicitly taking into account employee interest
in terms of well-being and social interest. The Rhineland model and the British IR have a much richer
tradition in stakeholder acknowledgement than the Anglo-American model, mainly because of
differences in institutional context. Coercive mechanisms (legislation, trade union etc) are stronger
and more deeply embedded in Europe than in the USA.
In the strategic balance model, organizational success can only be achieved when financial
performance and societal performance of an organization are above average in the particular
population in which the organization is operating.
Bolman and Deal (2008) determined Four different perspectives or frames for studying organizations
1. Structural frame gain an understanding of the various parts of an organization. Central
concepts are rules, roles, goals, policies, technology, and environment.
2. HR frame employment relationships. It represents a specific way of looking at
organizaiotns mainly focused on concepts such as needs, skills, and relationship ot hose
involved. Strong psychological background.
3. Political frame issues of power. Heavy emphasis on different parties
4. Symbolic frame meaning and identity. Central concepts are culture, meaning, metaphor,
ritual, ceremony, stories and heroes.
A balanced approach in SHRM implies the explicit inclusion of the 4 frames. These frames are
different lenses that can help to define the multidimensional aspect of HRM taking into account all
relevant stakeholders, contextual factors and outcomes. Mainstream SHRM is studied from structural
frame making use of Mintzberg-like and Porter-like approaches for defining HRM and/or HR-frame
blending organizational behaviour insights with organizational level insights
,Chapter 2 strategic human resource management and context
The notion of fit or alignment are important features of SHRM. Two things that go well together
represent fit; two magnets attracting each other. HR practices can fit together and HRM can fit with
other factors including the strategy and production system. A misfit represents two things that
oppose each other. ‘To fit or not to fit’ is one of the key points of attention in SHRM. The theoretical
debate linked to this issue can be seen as ‘best fit’ and ‘best practice’.
Best fit argues that HRM is more effective when aligned with its internal and external context. It
stresses the contextual embeddedness. Success can be achieved through the appropriate fit between
HRM and its context. Context represents the set of facts or circumstances that surrounds the
organization. A distinction can be made between internal context and external context . Internal
context represents the organizations unique history, the administrative heritage and organization
culture. The external context reflects pressure on an organization and forces it to adapt its strategy
and decision making. There are two general mechanisms that determine the external context:
market mechanism and institutional mechanism.
Best practice advocates a universalistic perspective, all firms will be better off if they identify and
adopt ‘best practice’ in the way they manage people. Pfeffers (2008) seven practices are a good
example of the best practice, however it is criticized for its lack of attention to contextual factors,
including national differences regarding labour legislation, sector difference, the nature of business,
the size of the firm and different employee groups. The strength of the best practice model is its
simplicity and clarity.
The business model is the way an organization manages its business to make money. An optimal fit
between HRM and the context can positively affects the business model and the organization’s
success. A better fit can be achieved through strategic decision making. Strategy is generally defined
by an organization’s intention to achieve certain goals through planned alignment (or fit) between
the organization and its environment. The concept of a strategic plan is used as an indicator for the
strategy. You can find them places such as the annual report and president’s letter. Contemporary
development stress the importance of strategy in practice and the implementation strategy as crucial
parts of the overall organization strategy. It is also about the embeddedness and implementation of
plans at lower levels of the organization and with involvement of multiple actors. Another important
concept in strategy is goal. The goal can be defined both in narrow or broader terms. The Anglo-
American approach tends to use a narrow definition of goals, whereas the continental European
approach tens to apply a much broader definition including multiple stakeholders and interest.
Alignment and its fit refer to the principal of matching elements, the organization and its
context(environment). The organization refers to the social, legal and economic entity that exist for
a certain purpose, whereas the context refers to its internal and external constitutions. SHRM is
focused on the alignment between the strategy of an organization and the HR strategy of that
organization. Business strategy can be defined as the system of the firms important choices, a
system that could be well integrated around common concerns or which might have various links and
foul-ups. HR strategy is one of the functional silos and the linkage between the business strategy.
Market mechanism include the degree of competition between organizations in terms of products,
services, technology, and people in the same market. Paauwe (2004) defines it as PMT products,
markets and technology. Institutional mechanism represents several pressures that stem form
legislation, protocols and procedures, routines, habits, norms and values, and social-cultural issues.
Paauwe calls this SCL social cultural legal. Deephouse (1999) makes a valuable contribution,
making further distinction between general environment (all market and institutional mechanisms)
, and population environment (community of organizations that partakes of a common meaning
system and whose participants interact more frequently or fatefully with one another than with
actors outside the field). The population is mainly the sector with its competitors, but it may also
include suppliers and other organizations.
The early best fit models were grounded on strategic contingency approaches from the 1960s and
1970s that emphasize the impact of internal contingencies (e.g. firm size, history and capital
intensity) and external contingencies (e.g. degree of unionization and legislation) on the shaping and
structuring of organizations. Strategic contingency approaches showed that certain contextual
factors affect the shaping of an organization. Cost leader strategies can be translated in HRM
characteristics by few and simple tasks, few skill required job, narrow career paths, training few
employees, evaluation on short-term criteria and individual incentives. In contrast, organizations
with ah differentiation strategy translate their strategy in HRM characterized by many and complex
tasks, many skills required to do the job, broad career paths, training all employees, evaluation on
long-term criteria and group incentives.
The two most common form sof fit in these HRM approaches are strategic or vertical and internal or
horizontal. Strategic or vertical fit refers to the part of the ‘best fit’ that assumes a necessary
alignment between the overall business strategy and the HR strategy. It has many faces and its
modelled in different ways, including Golden and Ramanujam (1985) in which a distinction is made
between four linkages: 1. Administrative lowest level of linkage, 2. One-way linkage HR
strategy derived from overall business strategy, 3. Two-way linkage. 3 integrative linkage full
alignment of strategy and HRM. Internal or horizontal fit reflects the link between individual HR
practices and its thought to be crucial for gaining success as well as the strategic fit. An HR system is
defined as a coherent and consistent set of HR practices that combined together results in higher
organizational performance than the sum of the effects using HR practices and strategy separate. The
underlying idea is that linking HR practices strengthens the HR strategy and philosophy of an
organization, signalling the organizations intentions and aims through the different elements of
people management.
Next to these two fits, Wood (1999) stresses the importance of two other types of its. Organizational
fit refers to the necessary fit between HR strategy, policies and practice, on the one hand, and the
other organizational systems on the other hand. It includes the production system, the
communication and information system, technological system, marketing system, financial system
and legal system. The organizational systems can have a big impact on the work design in terms of
how employment is shaped in an organization. Alignment between HR practices and other
organizational systems is the essence of organizational fit. Environmental fit is focused on the link
between HR strategy and the institutional environment of an organization. Firms operate in different
institutional context. Strategic contingency approaches tend to neglect the institutional
organizational environment. An alternative theoretical framework is required for the environmental
fit: new institutionalism. The socio-economic theory has become popular around 1980/1990s in
strategic management, in contrast to the Porter-like strategies that mainly have an economic
perspective. Organizations are confronted both with market and institutional mechanisms.
Microeconomics claims that competition creates more homogeneity among the competing
organizations, because successful practices will be copied and implemented resulting in a new
equilibrium. New institutionalism claims that there are other reasons for homogeneity among
organizaitons thamn competition: institutional mechanism. There are three types:
1. Coercive mechanisms that stem from legislation and procedures
2. Normative mechanisms that have their origins in the profession of employees
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