The Matching Model Of Hrm Business Essay

As a HR specialist in a multinational company the significant challenges I may face to attract, recruit, manage and develop the talents adapt the related policies to the local institutional environment.

Ultimately, there is a fundamental challenge in a multinational company for HR specialist to achieve a balance between centralized control of international HRM strategy and responsiveness to local circumstances. There are three approaches to achieving this aim: centralization, coordination and decentralization.

Centralization refers to focusing on activities carried out at global level, and decentralization on activities carried out at local subsidiary level. Coordination refers to a middle ground, balancing those activities that would best be undertaken by local subsidiaries with those managed by global or regional centers. This is dependent on the degree of integration or differentiation desired (Ulrich 1997).

Due to social and economical activities HRM has changed mainly in name various times throughout history. Industrial welfare was the first form of HRM in 1833. During the 1st world war personnel development increased due to government initiatives to encourage the best use of people. In 1921 the national institute of psychologists established and published results of studies on selection tests, interviewing techniques and training methods. During 2nd world war the focus was on recruitment and selection and later on training, improving morals and motivation; discipline; health and safety; joint consultations and wage policies. This meant that a personnel department had to be established with trained staffs. Consultation between management and the work force spread during the war, and personnel departments became responsible for its organization and administration. In 1990’s a major trend emerged where employers were seeking increasing flexible arrangements in the hours worked by employees due to an increase in number of part time and temporary contracts and the invention of distance working.

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To many managers and management theorists it is vital to the survival and success of the organizations in the twenty-first century. Why they think so really derives from one single, simple idea “that people-there skills, knowledge and creativity are the key resources for economic and organizational success in what Peter drucker (1993) called “The knowledge based economy” A revolution in the people management occurred in 1980’s which seemly overturned the established paradigm of personnel management in favour of Human resources management.

The debate relating to the nature of HRM continues today although the focus of the debate has changed over time. It started by attempting to delineate the differences between ‘Personnel Management’ and ‘HRM’ (Legge, 1989; Guest, 1991) examining the relationship of HRM strategies, integration of HRM into business strategies and devolvement of HRM to line managers (Lengnick-Hall and Lengnick-Hall, 1989; Brewster and Larson, 1992;) and then the extent to which HRM can act as a key means to achieve competitive advantage in organisations (Barney, 1991).

The ‘universalistic’ perspective posits the ‘best’ of HR practices, implying that business strategies and HRM policies are mutually independent in determining business performance. The ‘contingency’ perspective emphasises the fit between business strategy and HRM policies and strategies, implying that business strategies are followed by HRM policies in determining business performance. The ‘configurational’ perspective posits a simultaneous internal and external fit between a firm’s external environment, business strategy and HR strategy, implying that business strategies and HRM policies interact, according to organisational context in determining business performance.

The above developments in the field of HRM highlight the contribution it can make towards business success and an emphasis on HRM to become an integral part of business strategy (Lengnick-Hall and Lengnick-Hall, 1988; Brewster and Larsen, 1992; Bamberger and Meshoulam, 2000; Schuler and Jackson, 2007). The emergence of the term ‘strategic human resource management’ (SHRM) is an outcome of such efforts. It is largely concerned with

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‘integration’ of HRM into the business strategy and ‘adaptation’ of HRM at all levels of the organisation (Guest, 1987; Schuler, 1992).

The field of strategic HRM is still evolving and there is little agreement among scholars regarding an acceptable definition. Broadly speaking, SHRM is about systematically linking people with the organisation; more specifically, it is about the integration of HRM strategies into corporate strategies. HR strategies are essentially plans and programmes that address and solve fundamental strategic issues related to the management of human resources in an organisation (Schuler, 1992). They focus is on alignment of the organisation’s HR practices, policies and programmes with corporate and strategic business unit plans (Greer, 1995). Strategic HRM thus links corporate strategy and HRM, and emphasises the integration of HR with the business and its environment. It is believed that integration between HRM and business strategy contributes to effective management of human resources, improvement in organisational performance and finally the success of a particular business; Schuler and Jackson, 1999). It can also help organisations achieve competitive advantage by creating unique HRM systems that cannot be imitated by others (Barney, 1991; Huselid et al., 1997). In order for this to happen, HR departments should be forward-thinking (future-oriented) and the HR strategies should operate consistently as an integral part of the overall business plan (Stroh and Caligiuri, 1998).

Two core aspects of SHRM are: the importance given to the integration of HRM into the business and corporate strategy, and the devolvement of HRM to line managers instead of personnel specialists. Brewster and Larsen (1992) define integration as ‘the degree to which the HRM issues are considered as part of the formulation of the business strategy’ and devolvement as ‘the degree to which HRM practices involve and give responsibility to line managers rather than personnel specialists’. Research in the field (Lengnick-Hall and Lengnick-Hall, 1988; Purcell, 1989; Schuler, 1992; Storey, 1992; Truss et al., 1997; Budhwar, 2000a; 2000b) highlights a number of benefits of integration of HRM into the corporate strategy. These include: providing a broader range of solutions for solving complex organisational problems; assuring the successful implementation of corporate strategy; contributing a vital ingredient in achieving and maintaining effective organisational performance; ensuring that all human, technical and financial resources are given equal and

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due consideration in setting goals and assessing implementation capabilities; limiting the subordination and neglect of HR issues to strategic considerations; providing long-term focus to HRM; and helping a firm to achieve competitive advantage.

Despite the highlighted benefits of the devolution of HRM to the line management, it is still not widely practised in organisations. Devolution of responsibility for HRM to line managers is constrained by short-term pressures on businesses (such as minimising costs), the low educational and technical skill base of supervisors and a lack of training and competence among line managers and supervisors.

The level of devolvement of HRM to line managers in an organisation can be evaluated on the basis of measures such as: the extent to which primary responsibility for decision-making regarding HRM (regarding pay and benefits, recruitment and selection, training and development, industrial relations, health and safety, and workforce expansion and reduction) lies with line managers; the change in the responsibility of line managers for HRM functions; the percentage of line managers trained in people management in an organisation; the feedback given to managers/line managers regarding HR related strategies; through consultations and discussions; the extent to which line managers are involved in decision- making; by giving the line managers ownership of HRM; and by ensuring that they have realised / accepted it by getting their acknowledgement ( Budhwar and Sparrow, 1997; 2002; Budhwar, 2000a).

The matching model of HRM has been criticised for a number of reasons. It is thought to be too prescriptive by nature, mainly because its assumptions are strongly unitarist (Budhwar and Debrah, 2001). As the model emphasises a ‘tight fit’ between organisational strategy and HR strategies, it completely ignores the interest of employees, and hence considers HRM as a passive, reactive and implementationist function. However, the opposite trend is also highlighted by research (Storey, 1992). It is asserted that this model fails to perceive the potential for a reciprocal relationship between HR strategy and organisational strategy (Lengnick-Hall and Lengnick-Hall, 1988). Indeed, for some, the very idea of ‘tight fit’ makes the organisation inflexible, incapable of adapting to required changes and hence ‘misfitted’ to today’s dynamic business environment. The matching model also misses the

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‘human’ aspect of human resources and has been called a ‘hard’ model of HRM (Guest, 1987; Storey, 1992; Legge, 1995). The idea of considering and using human resources like any other resource of an organisation seems unpragmatic in the present world.

Despite the many criticisms, however, the matching model deserves credit for providing an initial framework for subsequent theory development in the field of strategic HRM. Researchers need to adopt a comprehensive methodology in order to study the dynamic concept of human resource strategy.

The ‘Harvard model’ of strategic HRM is another analytical framework, which is premised on the view that if general managers develop a viewpoint of ‘how they wish to see employees involved in and developed by the enterprise’ then some of the criticisms of historical personnel management can be overcome. The model was first articulated by Beer et al. (1984). Compared to the matching model, this model is termed ‘soft’ HRM (Storey, 1992; Legge, 1995; Truss et al., 1997). It stresses the ‘human’ aspect of HRM and is more concerned with the employer-employee relationship.

The actual content of HRM, according to this model, is described in relation to four policy areas, namely, human resource flows, reward systems, employee influence, and works systems. Each of the four policy areas is characterised by a series of tasks to which managers must attend. The outcomes that these four HR policies need to achieve are commitment, competence, congruence, and cost effectiveness. The aim of these outcomes is therefore to develop and sustain mutual trust and improve individual / group performance at the minimum cost so as to achieve individual well-being, organisational effectiveness and societal well-being. this model has been criticised for not explaining the complex relationship between strategic management and HRM (Guest, 1991).

Debates in the early 1990s suggested the need to explore the relationship between strategic management and HRM more extensively (Guest, 1991) and the emerging trend in which HRM is becoming an integral part of business strategy (Lengnick-Hall and Lengnick-Hall, 1988; Brewster and Larsen, 1992; Schuler, 1992; Storey, 1992; Budhwar and Sparrow, 1997; 2002). The emergence of SHRM is an outcome of such efforts. As mentioned above, it is largely concerned with ‘integration’ and ‘adaptation’. Its purpose is to ensure that HRM is

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fully integrated with the strategy and strategic needs of the firm; HR policies are coherent both across policy areas and across hierarchies; and HR practices are adjusted, accepted and used by line managers and employees as part of their everyday work (Schuler, 1992).

SHRM therefore has many different components, including HR policies, culture, values and practices. Schuler (1992) developed a ‘5-P model’ of SHRM that melds five HR activities (philosophies, policies, programs, practices and processes) with strategic business needs, and reflects management’s overall plan for survival, growth, adaptability and profitability. The strategic HR activities form the main components of HR strategy. This model to a great extent explains the significance of these five SHRM activities in achieving the organisation’s strategic needs, and shows the interrelatedness of activities that are often treated separately in the literature. This is helpful in understanding the complex interaction between organisational strategy and SHRM activities.

The concept of ‘fit” has emerged as central to many attempts to theorise about strategic HRM. ‘Internal fit’ is the case when the organisation is developing a range of interconnected and mutually reinforcing HRM policies and practices. This implies that there exists a set of ‘best HR practices’ that fit together sufficiently so that one practice reinforces the performance of the other practices. ‘Synergy’ is the key idea behind internal fit. Synergy can be achieved if the combined performance of a set of HRM policies and practices is greater than the sum of their individual performances

‘External fit’ is the case when the organisation is developing a range of HRM policies and practices that fit the business’s strategies outside the area of HRM. This implies that performance will be improved when the right fit, or ‘match’, between business strategy and HRM policies and practices is achieved. As discussed above, specific HRM policies and practices are needed to support generic business strategies.

Over the last decade or so the concept of fit has been further investigated by many scholars (see Delery and Doty, 1996; Guest, 1997). An analysis of such work highlights that there are generally three modes of fit, or approaches to fit: ‘universalistic’, ‘contingency’, and ‘configurational’. The core features of these modes constitute the structure of the so-called strategic HRM / business performance models.

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The ‘universalistic perspective’ or HRM as an ideal set of practices suggests that a specified set of HR practices (the so-called ‘best practices’) will always produce superior results whatever the accompanying circumstances. Proponents of the universalistic model ( Pfeffer 1994; Huselid 1995) emphasise that ‘internal fit’ or ‘horizontal fit’ or ‘alignment of HR practices’ helps to significantly improve an organisation’s performance. Higgs et al. (2000) explain how a large number of HR practices that were previously considered to be distinct activities can all be considered now to belong in a system (bundle) of aligned HR practices.

Considering that internal fit is central to universalistic models, the main question / problem is how to determine an HR system, that is, as a coherent set of synergistic HR practices that blend better in producing higher business performance. The methods used in developing such HR systems depend on the ‘additive relationship’, and on the ‘interactive relationship’. However, in our opinion universalistic models do not explicitly consider the internal integration of HR practices, and consider them merely from an additive point of view (also see Pfeffer 1994; Becker and Gerhart, 1996). Emerging research evidence (see Delery and Doty 1996) reveals the so-called ‘portfolio effect’, that is, how HR practices support and improve one another. However, it is important to remember that there can be countless combinations of practices that will result in identical business outcomes. This contributes to the concept of ‘equifinality’, in which identical outcomes can be achieved by a number of different systems of HR practices.

Support for the universalistic approach to strategic HRM is mixed as there are notable differences across studies as to what constitutes a ‘best HR practice’. Most studies

(Boxall and Purcell 2003) focus on three mechanisms by which universal HR practices impact on business performance: ‘human capital base’ or collection of human resources, ‘motivation’, which is affected by a variety of HR processes including recognition, reward, and work systems; and ‘opportunity to contribute’, which is affected by job design, and involvement/ empowerment strategies. In addition, the best practices approach generally refers to the resource-based theory of firm and competitive advantage, which focuses on the role internal resources such as employees play in developing and maintaining a firm’s competitive capabilities (Wright et al., 1994). For a resource to be a source of competitive

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advantage it must be rare, valuable, inimitable and non-substitutable. Therefore, HR practices of the organisation can lead to competitive advantage through developing a unique and valuable human pool.

The ‘contingency’ or ‘HRM as strategic integration’ model argues that an organisation’s set of HRM policies and practices will be effective if it is consistent with other organisational strategies. ‘External fit’ is then what matters (Schuler and Jackson, 1987; Lengnick-Hall and Lengnick-Hall, 1988; Guest, 1997). As discussed above, in this regard specific HRM policies and practices link with various types of generic business strategies. For example, the work of Schuler and Jackson (1987), mentioned above, suggests that the range of HRM policies and practices an organisation should adopt depend on the competitive product strategies it is following. Considering that external fit is the key concept of contingency models, the contingency approach refers firstly to the theory of the organisational strategy and then to the individual HR practices that interact with organisational strategy in order to result in higher organisational performance. The adoption of a contingency HRM strategy is then associated with optimised organisational performance, where the effectiveness of individual HR practices is contingent on firm strategy. The performance of an organisation that adopts HR practices appropriate for its strategy will be higher

The ‘configurational’ or ‘HRM as bundles’ model argues that to claim a strategy’s success turns on combining internal and external fit. This approach makes use of the so-called ‘bundles’ of HR practices, which implies the existence of specific combinations or configurations of HR practices depending on corresponding organisational contexts, where the key is to determine which are the most effective in terms of leading to higher business performance (Delery and Doty, 1996; Huselid and Becker, 1996).

Considering that both the internal and external fits are the key concepts of configurational models, the configurational approach refers firstly to the theory of the organisational strategy and then to the systems of HR practices that are consistent with organisational strategy in order to result in higher organisational performance.

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The range of MNC subsidiary strategies are described in Perlmutter’s (1969) and Bartlett and Ghoshal’s (1989) well-known classifications:• ‘ethnocentric’, global strategy: control is centralised and subsidiaries resemble the parent company; ‘polycentric’, multi-domestic strategy: control is decentralised and subsidiaries conform to local practices; ‘geocentric’ (or regiocentric as added by Perlmutter & Heenan, 1974), transnational strategy: subsidiaries and headquarters alike adhere to world.

This HRM competence can be considered as context specific or context generalisable, depending on its usefulness outside the location in which it was developed (Taylor, et al., 1996). Based on this usefulness, there is a choice to be made by top management on the approach to the design of the overall international HRM system: ‘adaptive’,’ exportive’ and

‘Integrative’. This choice of HRM strategy is largely dependent on the internationalisation strategy adopted by the firm ‘multi-domestic’, ‘global’ and ‘transnational’.

Earlier research showed that the role of HR departments in multidivisional companies was more ambiguous as a result of increasing decentralization (Purcell & Ahlstrand, 1994). The corporate HR department was often small, with a minor controlling role through a limited

number of high-level employment policies. More recently, a trend towards re-centralisation

has been observed (Arkin, 1999) and global companies operating in a large number of countries have been shown to have a high degree of co-ordination and integration of their

International operations, and have large well-resourced corporate HR departments (Scullion

& Starkey, 2000). However, in research by Kelly (2001), irrespective of a centralization or

Decentralization strategy, all MNC subsidiaries surveyed were found to exercise some degree of autonomy in formulating their own HR policies but may require head office

permission for significant developments involving major expenditure.

There is also the danger that the HR function is not perceived as a full partner in the globalization process due to the burden of bureaucratic central procedures and ethnocentric and parochial HR systems and policies (Evans, et al., 2002: 465). However, the rapid pace of internationalization and globalization is argued to lead to a more strategic and influential role for the HR department (Novicevic & Harvey, 2001; Scullion & Starkey, 2000).

There are a number of activities of the corporate HR department in the international

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MNC context discernable. These focus particularly on high-grade management positions and

high potential staff worldwide, managing issues such as employer branding, talent

development, performance management, project team-working, and rewards and succession planning to develop a cadre of international managers (Kelly, 2001; Novicevic & Harvey, 2001; Scullion & Starkey, 2000; Sparrow, et al., 2003).

In summary, Organizations’ often operate with a centralized policy for top managers and high potentials, but a more decentralized policy for other employees (Scullion & Starkey, 2000). These centralized activities are seen as a major determinant of international business success or failure (Stroh & Caligiuri, 1988) if consistency within the configuration of HR practices and between the HR practices and strategy is achieved, then the organisation will achieve better performance.