Strategy, HRM, and performance – Jaap Pauwe & Elaine Farndale
– Lisanne Vreugdenhil
This book is mainly focused on macro level, which is organizational-level perspective of strategy,
HRM, and performance.
Chapter 2: HRM and strategy
2.1 Introduction
Does strategy matter? And if so, in what sense does it matter with respect to the linkage between
HRM and performance?
To answer these questions, the structure of the chapter is as follows:
- 2.2 What is strategy?
- 2.3 Implications for HRM and performance
- 2.4 In search of synthesis
- 2.5 Classical strategic approaches in HRM
- 2.6 Practical strategic HRM tools
- 2.7 HRM and strategy: Lessons learned
2.2 What is strategy?
Strategy outlines an organization’s goals, including different performance indicators (market share,
sales, profit, growth etc.) and the means to achieve those goals (finance, technology, hr etc.).
Strategy can be divided into:
- Corporate strategy: deals with overarching strategy in large organizations (business units
operating in different markets -> multinational corporations etc.)
- Business strategy: important for achieving competitive advantage, focused on a specific
market
The focus will mainly be on the concept of (business) strategy and how it relates to HR/employees,
HRM as a policy area, and the HR function. HRM strategy can be defined as ‘the processes, decisions
and choices the organization makes regarding its human resources and how they are organized’
(Cascio & Boudreau, 2012: 18-19).
Generally speaking, strategy is about achieving a fit between an organization and its environment, or
developing a course of action for achieving an organization’s purpose (De Wit & Meyer, 2010).
Different perspectives have been developed, the most well-known is the rational planned approach
(classical approach). The main characteristics come from the military background, which is where
strategy finds its start: a controlled and conscious process of thought directly derived from the notion
of rational economic man, for which the prime responsibility rests with the ceo, who is in charge of a
fully-formulated, explicit, and articulated decision-making process, in which there is a strict
distinction between formulation and implementation.
The classical approach relies heavily on the readiness and capacity of managers to adopt profit-
maximizing strategies through rational long-term planning. Early HRM resembles to this classical
approach (p. 10).
In reality, strategy has many guises. Mintzberg (1987) distinguished five meanings:
1. Strategy as a plan (intended): a direction/a guide focused on looking ahead;
2. Strategy as a pattern (realized): consistency in behaviour over time, focused on looking at the
past;
3. Strategy as a ploy (truc/tactische zet): specific manoeuvre intended to outwit an opponent or
competitor;
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, 4. Strategy as a position: the way in which the organization positions its products and or
services in particular markets in order to achieve a competitive advantage;
5. Strategy as a perspective: an organization’s fundamental way of doing things, including the
way in which the members of the organization perceive their environment and their
customers.
Thus: an enormous variety of approaches, including incrementalism, entrepreneurialism,
bounded rationality, learning and coevolution.
Table 2.1 and 2.2 (p. 11 and p. 12) present 9 schools. The first three (table 2.1) are more prescriptive
in nature:
1. Design: strategy is a deliberate process of conscious thought (including SWOT)
2. Planning: strategy is a formal process with a stepwise approach to creating an all-
encompassing strategy. More formalized and detailed version of the design school.
3. Positioning: perceives strategy mainly from an industrial economics perspective (analysing
the competitive position of an organization using economic models and techniques).
Important contributions were done by Porter (1980, 1985) including:
a. Five forces model for competitive analysis;
b. The value chain;
c. Generic strategies (cost leadership, differentiation, and focus).
Moreover, the Boston Consulting Group developed a growth-share matrix and experience
curve. -> The positioning school especially has stimulated researchers to HRM policies and
practices to a certain strategic positioning in order to achieve the required (role) behaviours
(examples on page 12).
Underlying assumption of the first three schools: the environment is more or less stable and can be
studied objectively in order to distil changes and opportunities for strategy. This kind of approach has
been labelled as an outside-in approach, the environment is the starting point for analysis.
The following 6 schools are more descriptive in nature (table 2.2):
4. Entrepreneurial: emphasizes the important role of a visionary leader who is actively engaged
in a search for new opportunities in order to speed up the company’s growth;
5. Cognitive: strategy formulation is a cognitive process that takes place in the mind of the
strategist, strategies thus emerge as perspectives that shape how people deal with inputs
from the environment. -> important contribution by Simon with his notion of ‘bounded
rationality’ (March & Simon, 1958).
6. Learning: disjointed incrementalism, aka ‘muddling through’ (Lindblom, 1959). Strategy
formulation is seen as a stepwise incremental process and above all a collective learning
process over time. Formulation and implementation are hard to distinguish.
7. Power (political): regards the formation of strategy as a bargaining process between power
blocks both inside the organization and between organizations. Emphasizes the use of power
and politics.
8. Cultural: considers strategy formulation as a process of social interaction, based on the
beliefs and shared understandings of the members of the organization -> deeply embedded
resources are protected and used for achieving competitive advantage.
9. Environmental: environment is the central actor to the strategy-making process, organization
must respond to the forces of the environment, otherwise it will be ‘selected out’.
There is one more school which will be elaborated in section 2.4:
10. Configurational: there is no best way of organizing strategy formulation, but specific
circumstances will make a certain configuration of context, strategy, structure, and process
effective.
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, 2.3 Implications for HRM and performance
The ten schools tell us that there is no universally agreed best way of strategy formulation and
subsequent organizing, including with regard to the shaping of HRM policies. The schools highlight
the importance of taking multiple factors into account which will be explored.
2.3.1 The role of entrepreneur
Very often the owner of the company, who usually plays an important role in shaping HRM policies.
The owner might dislike specialist staff departments and thus there might not be a specialist HR
department at all, which might lead to a lack of HR knowledge.
2.3.2 Cognitive/framing processes
Cognitive processes distort filters and (de)coding processes, which may result in differences in the
mental maps of the participants involved and thus different opinions on how to shape HRM
strategies, policies, and practices.
2.3.3 Incrementalism/learning
Different parties will be involved and therefore formulating HRM strategy can be considered an
emergent and stepwise iterative process with feedback loops, making it difficult to understand cause
and effect linkages and to distinguish formulation and implementation. Research can best be aimed
at describing change processes longitudinally.
2.3.4 Power and resources
Power position is often neglected in HRM and performance research, which is a shame because
power and resources can be mobilized to enforce and strengthen HRM demands.
2.3.5 Culture/ideology
Collective perspectives and intentions develop over time and effect HRM policies and the way in
which the effectiveness is perceived.
2.3.6 Environmental and institutional forces
Environmental forces (government, trade unions, employers’ federations) can have a large impact
upon an organization’s HRM strategy and policies. These forces are sources of societal pressure.
2.4 In search of synthesis
The ten schools provide inspiration and demonstrate the different perspectives in the field of
strategic management and thus the ongoing diversity in the sub-disciplines.
The configurational school (the 10th school by Mintzberg, Ahlstrand and Lampel (2009)) can be an
approach to synthesize (samenvoegen) the previous nine. It says that there is no single best way of
organizing and formulating strategy, but it depends on the specific circumstances. All those
circumstances produce an effective configuration of context, strategy, structure, and process. A
configuration can be destabilized by a transformation process whereafter a new configuration will be
formed.
Volberda and Elfring (2001: 11-12) discuss the causes of fragmentation, presenting a synthesis
distinguishing three schools, including configurational, with a set of theories, challenges etc. -> Table
2.3, p. 17.
Mainardi and Kleiner (2010) present a useful synthesis based on influential authors and publications.
They summarize the different schools of thought regarding how to achieve competitive advantage
through corporate strategy (Figure 2.1, p.18). They suggest four options based on a matrix which
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