Links between Strategy and Human Resources

Through their management strategy, the companies use the human resources as the way to be more competitive. The HR is in parallel with the strategy by the priorities of the company to reach different goals.

The human resources permit to develop flexibility into the organization part of a competitive environment. Besides that, the management of people is very important in order to keep the knowledge and techniques up.

In fact, HRM has a lot to do with the organizational strategy. To reach the goal, a good coordination is needed to be efficient. As we can find in “Johnson and Scholes, 2002: 16, the understanding of a strategic position of an organization is relates to management’s understanding in terms of the impact of the external environment, the organization’s strategic capability and the influence and expectation of its key stakeholders (Strategic human resource management by Mike Millmore, Philip Lewis…).

An evaluation of the company environment has to be done to evaluate the real situation and the one the company want to reach in a long term. The human resources manager needs to have a good knowledge of each sector and the people working in the company. In fact, the way an organization is adapted to its environment will affect its action. I fact, environmental determinism is more important in an evolutionary perspective strategy than in a classical approach (Poole, 1990). It means that environmental factors control the future of an organization and human resources strategy must matched to the organizational strategy determined in order to achieve success.

This is kind of the link between the managers and the first line workers. The strategy is elaborated by the top managers and then the HR has to find out the best way to achieve it by looking and examine what has to be done concerning the staff to do it in the best conditions as possible. The management of knowledge is one of the most important parts of the job of the HR. They have to analyze if every competence is in link and update enough to do the job in a most efficient way. So the HRM job is to look for the best performance in the organization.

For many organizations HRM is not really strategic. The organizational strategy drives the possible and practical HRM style. HR strategies are shaped by the business strategy. As it is said in Purcell, 2001,” HRM will be informed by organizational strategy as well as helping to shape the nature of this strategy”.

In organizations where there is high commitment or involvement, employees can have input on tactical direction and even strategy. In that case, HRM facilitates the employee input, but the HRM model itself is still driven by the top-down requirements.

The practice of HRM needs to be integrated with the overall strategy to ensure effective use of people and provide better results to the organization in terms of ROI (return on investment) for every dollar spent on them. Unless the HRM practice is designed in this way, the firm stands to lose from not utilizing people fully. This doesn’t match well with the success of the organization.

HRM needs an organization to:

Engage in human resource planning

Develop required employee competences

Ensure required role behavior

Promote employee motivation

This is the four task model illustrated by Schuler and Jackson (1987).

In fact, the HR plays a big role in the strategy of a company because it helps motivates people at work. HRM function is to improve workers performances by giving them better working conditions, make them feel belonging to the company, giving them advantages. The goal of organizational strategy is to increase performances to gain more productivity and this is the link.

KEY INITIATIVES FOR STRATEGY

To make predictions regarding human resources, it is not necessary to implement techniques more or less sophisticated, but rather to help managerial staff to outline new directions and support the new strategy set by the board of executive.

HR strategies are management answers to concrete questions. These forecasts provide opportunities and competitiveness through the management of individuals. Prediction in the field of human resources is called “strategic” when it helps the manager to anticipate and to proceed faster, even during periods of frequent change.

The human resources strategy is the mean to match the human resources management and strategic context of business. All strategies have the same characteristics: they allow obtaining an overall direction, involving several programs, several functions of the organization and must be spread over more than a year.

But first the HR department has to think about a whole strategy.

The context of strategic human resources can be divided into three phases:

Evaluation of the Company’s environment

Example of Development and Implementation of a strategy

Controlling if the new strategy can match with employee welfare

The first step in a human resources strategy is to be aware of business priorities, compare the HR strategy and business strategy and address gaps between current and desired situation. To define the context of human resources, the first initiative which is necessary is:

Conduct an Evaluation of the company’s environment

That is to say understand the new business strategy and think about the future HR strategy application with it:

Evaluate and spot the internal and external changes to the company’s business that may affect its future performance

Collect all data that suggest future changes

Make an analysis of changes expected

Evaluate the expected changes,

Identify the context of human resources which can evolve due to external factors

(Social, political, legislative, demographic, economic, technological)

Identify the strengths and weaknesses of the company and its competitors

Compare the HR system with other companies (practicing benchmarking)

Analyze the future

Identify organizational requirements and very long-term competitiveness,

Think about the possible failures to prevent

Analyze all the possible sources of change that is to say:

Internal Environment: Functional efficiency (if possible with numbers), Usual processes, Resources, Organization, Employees and managers

External Environment: Demographic, Legal, Politic, Technologic, International situation, Economic situation (of the country and all others countries related to the company)

All other organizations: Clients, Competitors, Vendors / Suppliers, Economic partners, World of work, Unions

And then we can understand and formulate a strategy for the company.

Example of Development and Implementation of the Strategy

This is the level in which strategic direction is reviewed or defined, programs and activities planned and resources allocated. Then implementation of the strategy in which the managerial levers of change is applied to ensure the desired economic results. There are many ways to act because there are several schools, several ways of thinking. As we can read in Strategic Human Resource Management (by Millmore, Lewis, Saunders, Thornhill and Morrow – Prentice Hall by Pearson Education – 2007 – Page 7), Mintzberg (1998) distinguished 4 approaches to strategy: classical, evolutionary and systemic, and these approaches are more finely detailed in 10 schools. More specifically, in strategy development, Purcell (2001) differentiates 3 schools: the design school, the process school and the configuration school (read in Strategic Human Resource Management: A guide to action by Michael Armstrong – Kogan Page – 3rd Edition 2006 – Page 49-50). Let’s focus on The Process School, which is interested in how strategies are created.

There are 3 ways to develop and implement a strategy in process school:

Integrated Process: According Emery & Gonin (Gérer les ressources humaines, Pages 245-246, PPUR presses Polytechniques, 2009) there are 4 steps to follow this scheme:

First you have to “consider development as a mid-term investment”, that is to say develop skills of employees rather than abusive recruitment.

Then you need an analysis which will anticipate competences needs by creating a sort of database of collective skills of employees, which will be useful to create development pipelines for major staff categories (novices, new staff, experts…)

After you can examine the various services of the organization on future “skill needs”. It will be useful to find out the “priority actions” in which you could conduct trainings

The last step of this process is “implement a cycle of individual development, based on regular analysis of performance and profile of qualifications for the position occupied, a development contract between the employee and his hierarchy, ensuring an ongoing transfer and evaluation. A training plan and an individual training passport will complement these instruments by providing the dimension “professional development”.”

We can see that with this process that the economic strategy is covering the whole areas of the organization, including HR. Indeed it is considered as part of the environment evaluation. The business strategy in covering the whole company orientation and HR will just analyze and implement what is ordered.

Parallel process: This process involves the entire business strategy will be thought with the HR strategy and vice versa. This time HR problems can influence business strategy and overall results.

To implement this type of action you first need to know what performance management is. According Robert Bacal in Performance Management (McGraw-Hill Professional, 1999 – Page 3) it is an “ongoing communication process, undertaken in partnership, between an employee and his or her immediate supervisor that involves establishing clear expectations and understanding about: The essentials job functions the employee is expected to do

How the employee’s job contributes to the goals of the organization

What doing the job well means in concrete terms

How employee and supervisors will work together to sustain, improve, or build on existing employee performance”

The parallel process implies that you must match the organization with all skills and with the performance management.

Separate process: Here the HR strategy is developed as a separate functional plan. The previous economic plans are first analyzed. As Michael Armstrong says in Strategic human resource management: a guide to action (Kogan Page, 1st Edition 2000 – Pages 51-52), the separate process is “the most common approach, [where] a distinct HR plan is developed. It is both prepared and considered separately from the overall business plan. It may be formulated concurrently with strategic planning, before (and an input to), or following (to examine its implications). […] Since the assessment is outside the strategic planning process, consideration of business strategy depends on a review of the current and past business strategies. The value of the HR strategy is therefore governed by the sufficiency (or insufficiency) of the business-related data. This approach perpetuates the notion of HR as a staff-driven, functionally specialist concern.”

There we focus on HR to evaluate the environment (at the staff, company or economic entity level). The executive board delegates its responsibilities. That is why this technique is most often used, particularly in large companies.

Controlling if the new strategy can match with employee welfare

To sum up, the human resources strategies can:

Develop a more flexible, more adaptable in a competitive environment

Gains and sustain competitiveness in the management of individuals.

They start from an economic approach (customers, products, competitors) to progressively achieve specific actions and specified programs in terms of human resources (training, recruitment, compensation, etc. …). The result is a strategy that reflects the priorities needed for action.

But we can’t lose sight of the welfare of employees in these strategies. Aligning employee expectations with the strategy can be possible by keeping in mind some important elements:

Managers influence the expectations of employees

Communicate on strategy to build expectations, or requests for changes

Translate strategies into operational objectives

Change the culture of the organization to strengthen the implementation of the strategy.

For example: If the new strategy is based on a process of total quality management, employees, at all levels, are involved in defined performance requirements, based on analysis of customer needs. The customer may be external or may be other individuals or entities of the company. Through this process, the performance targets are not imposed by management, but shaped by a process of continuous evaluation, feedback, redefinition and continuous improvement. These objectives must be declined at the whole company level, service, and each employee and has to be expressed in terms of results contributing to a higher performance of the company. In this way, everyone see its contribution and can be satisfied with its job. Furthermore it reinforces teamwork and avoids the divisions between hierarchical levels. You can create an entity where everybody works hard for the same goal, with the same spirit and sharing the same culture. Culture is a powerful weapon of competitiveness (q.v. Disney, Apple, Coca-Cola). It can also be an obstacle when it is not in line with the strategy. The management challenge is to shape the culture, strengthen and put into perspective with the necessary strategy.