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Summary Chapter 2 until 5 : Strategy, HRM, and Performance - HR Seminar

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HR Seminar

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Strategic HRM and Performance

This is a summary of chapter 2 until 5 of the book Strategy, HRM, and Performance by Jaap Paauwe. This summary will help you study for the fast approaching exam of the course HR Seminar. I ended up getting a 7.7 for the exam.

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HR Seminar – Paauwe & Farndale – Strategy, HRM, and Performance
Summary Chapters 2 until 5

Fundamental belief  HRM should support the organizational strategy to achieve
high firm performance.

Chapter 2 HRM and strategy

2.1 Introduction

The question is  does strategy matter, and if so, in what sense does it matter with
respect to the linkage between HRM and performance.

2.2 What is strategy?

Strategy outlines an organisation’s goals, including:
- Different performance indicators (e.g. market share, sales, competitive
positioning, profit, growth and return on investment)
- The means to achieve those goals (e.g. finance, technology, and human
resources)

Distinction between corporate strategy and business strategy:
- Corporate strategy deals with the overarching strategy in large organizations,
which are composed of various business units operating in different markets,
each with their own business strategy.
- The business strategy is most important for achieving competitive advantage
as this is focused on a specific market, which require different goals and
resources in order to achieve competitive positioning.

In this chapter we highlight the concept of (business) strategy and how it relates to
HR / employees.

HRM strategy = the processes, decisions and choices the organization makes
regarding its human resources and how they are organized.

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.

A well known perspective on strategy is the rational planned approach / the
classical approach, which relies heavily on the readiness and capacity of managers
to adopt profit-maximizing strategies through rational long-term planning.
- Example in HR: HRM activities are matched to some explicit strategy; and the
people of the organisation are being seen as a strategic resource for achieving
competitive advantage.

In reality however, the concept of strategy has many guises. Mintzberg distinguished
five meanings of strategy:
1. Strategy as a plan (intended): a direction, a guide, or course of action into the
future, 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: a specific manoeuvre intended to outwit an opponent or
competitor.
4. Strategy as a position: the way in which the organization positions its
products and or services in particular markets in order to achieve 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.

Using this offers a guided tour through the ‘wilds’ of strategic management by
presenting a clear overview of the field in ten ‘schools’

The three most prescriptive schools:
- The design school  sees strategy formation as a deliberate process of
conscious thought. It includes applying a SWOT.
- The planning school  also sees strategy as a formal process, and entails a
stepwise approach to creating an all encompassing strategy. It is a more
formalized and detailed version of the design school.
- The positioning school  perceives strategy mainly from an industrial
economics perspective. The competitive position of an organization is
analysed using economic models and techniques.

The underlying assumption of these three schools is that the environment is more or
less table and can be studied objectively in order to distil changes and opportunities
for strategy. This kind of approach towards strategy and strategy development is
called an outside-in approach: the environment/marketplace is the starting point for
analysis and the subsequent development of appropriate strategic responses in order
to achieve the desired strategic positioning.

The positioning school has especially stimulated researchers in the field of HRM to
link HRM practices to certain strategic positioning in order to achieve the required
(role) behaviours.

The six schools more descriptive in nature:
- The entrepreneurial school  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.
- The cognitive school  considers strategy formulation as 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.

, These inputs are subject to many distorting filters before they are decoded by
cognitive maps. (Bounded rationality)
- The learning school  strategy formulation is seen as a stepwise
incremental process. Change and direction are the result of mutual adjustment
between the different actors involved and between outside events and internal
decisions. Strategy-making is above all a collective learning process over time,
in which it is hard to distinguish between formulation and implementation.
- The power (or political) school  regards the formulation of strategy as a
bargaining process between power blocks both inside the organization and
between organizations. It emphasizes the use of power and politics to
negotiate strategies that favour particular interests.
- The cultural school  considers strategy formulation as a process of social
interaction, based on beliefs and shared understanding of the members of the
organization. This results in a perspective that is reflected in the patterns by
which deeply embedded resources (capabilities) are protected and used for
achieving competitive advantage.
- The environmental school  focuses on the environment as the central
actor to the strategy-making process. The organization must respond to the
forces of the environment, otherwise it will be ‘selected out’. It has its roots in
the contingency theory.

The tenth school: the configurational school  emphasizes that there is no one
best way of organizing and strategy formulation, but the specific circumstances will
make a certain configuration of context, strategy, structure and process effective.

2.3 Implications for HRM and performance

The 10 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 different schools highlight the importance of taking multiple factors into
account:
- The role of the entrepreneur: often the founder/owner of the company.
He/she likely plays an important role in shaping HRM policies and creating a
related culture.
- Cognitive/framing processes: due to bounded rationality, cognitive processes
distort filters and (de)coding processes, resulting in differences in the mental maps of

, the participants involved, which in turn may give rise to divergent opinions on how to
shape HRM strategies, policies and practices.
- Incrementalism/learning: due to the different parties involved (both inside and
outside the organisational boundaries), formulating HRM strategy can be considered
an emergent and stepwise iterative process with feedback loops, making it
increasingly difficult to understand cause and effect linkages, and also difficult to
distinguish formulation and implementation. To understand the shaping of HRM
strategy, the change process should be described longitudinally.
- Power and resources: the power positions of the parties involved is often neglected
in HRM and performance research. This neglect also includes the kind of resources
the parties can mobilize through their network in order to enforce and strengthen their
HRM demands. This is peculiar as power positions are crucial.
- Culture/ideology: the way in which collective perspectives and intentions develop
over time will undoubtedly have an effect upon the shaping of HRM policies. It will
also affect the way in which the effectiveness of both HRM and employees
themselves are perceived by other members in the organization and the degree to
which related values and perceptions are shared.
- Environmental and institutional forces: environmental forces stemming from trade
unions, tripartite (governments, employer’s federations, trade unions and bipartite
consultative bodies at the national level, and subsequent guidelines can have a large
impact on the organization’s HRM strategy and policies. These forces are sources of
societal pressure to which management must react.
2.4 In search of synthesis
Mintzberg, Ahlstrand and Lampel offer the configurational school as an approach to
synthesize the previous nine.
Configuration school: there is no single best way of organizing and formulating strategy, but it
depends on specific circumstances. Collectively, the circumstances combine to produce a
certain effective configuration of context, strategy, structure and process. Periods of stability
will occasionally be interrupted by a transformation process, resulting in a quantum leap to a
new configuration.

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