The Fit and Strategic Human Resource Management
The importance of human resource for the structuring and development of organizations has gradually been recognized by more and more scholars and practitioners. Most organizations have incorporated Human Resource Management (HRM) in strategic management at the stage of overall organization, business unit and function. When embedding strategic HRM practice in organization strategy, whether HR practice is fitted with other strategic formulation and implementation and supports each other is considered as the most significant challenge for organizations. In real business environment, the better fit between human resource management and strategy shapes the foundation of the formulation and implementation of strategy responding to the external circumstance and internal environment of organizations. Delery (1998) proposed an important issue on the alignment between HR practices and organizational strategy which establishes and maintains a coherent and consistent system for organizations. The lack of coherence and consistence may to a great extent result from the less understanding of ‘fit’ between HR practices and organizational strategy.
This study will discuss the question of fit between HR practices and organizational. The reasonable argument will be given and discussed from theoretical perspective and empirical research. This study agrees to the statement proposed in the assessment.
Argument
This study agrees to the topic, which is that the little understanding of fit results in the lack of coherence and consistence on the formulation and implementation of sets of strategic human resource practices.
Fit in Strategic HRM
Before further discussing this topic, this study will give a full understanding of fit in HRM. Nadler and Tushman (1980) defined fit as the degree to which all characteristics of one are consistent with another. For example, the primary goal of employees is coherently related to the goal designed by organization. However, Ostroff and Schulte (2007) argued that the different research objectives and circumstance frequently produced the confused meanings and understandings of fit. In this study, the fit in the field of strategic HRM will be significantly discussed and interpreted.
Delery and Doty (1996) proposed and distinguished three major views on the relationship between HRM and performance, which contains the universalistic, contingency and configurational perspectives. The universalistic perspective indicates that human resource practices to some extent produce some effect for organizational performance. The contingency and configurational perspectives are considered as fit approaches, which state that the performance of HR practices is based on the fit with the characteristics of the context. The contingency approach argues that there are contingent elements affect the relationship between HR practices and performance. The contingent elements with HR practices can produce some effects, such as innovation, quality improvement and cost reduction (Porter, 1985), cost, quality and flexibility strategies (Youndt, et al. 1996) and the evolution of organizational structure, technology development. The configurational approach stresses that different bundles of HR practices will be effective under various situations. What is considered as the ideal bundle of HR practices is regarded as the primary question of the configurational approach. Guest (1997) proposed five types of fit from the two dimensions consisting of criterion-specific versus criterion-free and internal versus external fit. As Table 1 shown, the five types of fit contain fit as strategic interaction, fit as contingency, fit as an ideal set of practices, fit as gestalt and fit as bundles.
Fit as strategic interaction indicates the relationship between external circumstance and human resource management. In other words, HR practices should fit the strategies and activities responding to the environment. For instance, when a firm considers the development and expansion of foreign market, the department of HR will recruit the employees with cross-cultural and foreign background and foreign market experiences. The link between external context and criterion free is viewed as fit as contingency. Delery and Doty (1996) employed contingency variables to examine the fit between HR practices and competitive strategy. From the perspective of internal context, fit to an ideal set of practices argues that the ideal set of HR practices will be general efficient for different organizations and various strategies and business activities. The fit as gestalt concentrates on the proper combination of various practices from the aspect of criterion free. Another fit as bundles demonstrates that different bundles of HR practices can improve performance of HR and organizations. The distinctive bundles of HR practices establish a coherent and consistent system.
Table 1: Five Types of Fit
Criterion specific
Criterion free
Internal
Fit to an ideal set of practices
Fit as gestalt
Fit as ‘bundles’
External
Fit as strategic interaction
Fit as contingency
Source: Guest (1997).
Wood (1999) recognized the impact of multi-contextual factors on HRM system introduces and gave four distinctive types of fit on strategic HRM.
Strategic fit: the relationship between the HR system and strategy. HR practices can facilitate organization and employees concentrate on the achievement of organizational goals since the implementation of strategy is based on the matching between HR system and strategy.
Internal fit: the relationship between the different HR practices. According to this view, the HR system should be an internally coherent system of HR practices.
Organizational fit: the relationship between the HR system and other relevant systems in the organization. Relevant systems might, for instance, contain technological systems, production systems and control systems.
Environmental fit: the relationship between the HR system and the external environment. According to this logic, the HR system should adapt to the changes in the environment and to the rules and expectations of the institutional context which affect the organization.
These four types of fit represent the view that a broader set of contextual factors may affect the effectiveness of HRM, and they may provide a valuable contribution to the HRM fit approach, as incorporating different contextual elements in the concept of fit enables a more comprehensive description of fit in organizations.
As the previous mentioned, this study will further discuss the different types of fit between HRM and environmental elements. After the emergence of the previous five types of fit, several scholars, such as Paauwe (2004), Kristof-Brown et al. (2005) and Wood (1999), developed strategic fit, internal fit, organizational fit, institutional fit and Person-Environment fit. These types of fit are related to the previous five types of fit in Table 1.
In strategic HRM, some researchers have emphasized the significance of flexibility, which is also important for the effectiveness of the organizational system (Wright and Snell, 1998). When many firms operate in a dynamic environment, achieving a fit at a certain point in time is not sufficient for achieving a competitive advantage in the long run. An organization needs to have the capability to adapt to changes in the environment that affect the organization. In some situations, flexibility is necessary in order to cope with multiple and conflicting goals. Flexibility is defined as a firm’s ability to quickly reconfigure resources and activities in response to environmental demands (Wright and Snell, 1998). According to this definition, fit and flexibility can exist at the same time. Besides achieving a fit between the organizational components, the organization has to be flexible enough to adapt to changes, such that a dynamic fit is achieved. Gerhart (2007) stressed the importance of flexibility in his theoretical model of HR systems and competitive advantage by incorporating flexibility/agility besides horizontal and vertical fit.
Although the idea of fit seems theoretically convincing (Becker and Huselid, 2006), empirical evidence for fit is less compelling (Gerhart, 2007). Several researchers have examined the HRM fit hypotheses, among which were the highly cited works of Arthur (1994), Huselid (1995) and MacDuffie (1995). For example, Arthur (1994) compared the performance effects of control HR systems and commitment HR systems and found commitment oriented HR systems that contained HR practices such as employee participation, training in group problem solving and socialization, to be associated with higher productivity and lower employee turnover. Huselid (1995) investigated the effects of internal and strategic fit on employee turnover, productivity and corporate financial performance, and indicated modest evidence for internal fit, and only little evidence for strategic fir. Moreover, MacDuffie (1995) argued that an internally consistent bundle of innovative HR practices affected performance.
Empirical research on fit has been dominated by quantitative research methods, such as reliability analysis, factor and cluster analysis, pattern analysis or multiple regression for determining HR systems and internal fit, and interaction terms in regression analysis for strategic fit (Verburg, Hartog and Koopman, 2007).
Referring to fit and performance, inherent in the concept of fit is the assumption that achieving a high level of fit is associated with high effectiveness (Wright and Snell, 1998). Furthermore, an important assumption is strategic HRM is that HR practices affect performance through their impact on employee attitudes and behaviors (Ramsey, Scholars and Harley, 2000). However, to date only limited support for the effectiveness of fit exists. Many strategic HRM scholars use financial performance measures as dependent variables in their research (Boselie et al. 2005).
Nevertheless, relying only on financial performance measures does not capture the breadth of the fit concept; regarding performance as a multidimensional concept seems more relevant in order to capture the multidimensionality of the fir concept. For example, Paauwe (2004) presents a multidimensional perspective of performance, looking at performance from the perspective of different stakeholders of the organization. In line with this, Paauwe (2004) distinguishes a strategic dimension, focused on the board of directors, shareholders, financial institutions, and the CEO, a professional dimension, focused on line managers, employees, and the personnel department, and societal dimension, focused on works councils, trade unions, government, and interest groups. Similarly, Boselie et al. (2005) made a distinction between types of performance. Moreover, Boxall and Purcell (2008) emphasized the importance of legitimacy and flexibility besides productive efficiency as performance goals for strategic HRM. Consequently, institutional, strategic, organizational, internal and Person-Environment fit focus on different elements of the organization. For example, institutional fit is expected to be related to fairness and legitimacy, as the link between HRM and the institutional context is expected to impact the view of society on the way employees are managed within an organization, and their probability of survival (Paauwe and Boselie, 2003). On the contrary, as Person-Environment deals with employee perceptions and reactions, it is supposed to influence employee attitudes and behaviors such as organizational commitment and job satisfaction.