Also as discussed, the essay can be approached in a number of ways. We discussed two ways in class: a micro (strategic HR functions) and macro (linking with organisation structure and culture) approach; and an internal (organisation focus) and external (e.g. industry context) approach. Another possible way is to focus on the debate between universal approaches to HRM (best practice models) and compare this with the contingency (best fit) approach, which links HR practices specifically to business strategy.
Any of these approaches is acceptable. The key is to focus on developing a consistent overall argument to answer the question and to organise your answer around this argument.
Integrating HR Strategy with the Business Strategy
For human resources management to contribute to the effectiveness of an organization, it has to be strategic. Human resource strategy, on the other hand, needs to be integrated with the business strategy for it to achieve the intended results. A human resource strategy that ignores the broader business strategy is likely to fail. Strategic human resource management refers to an approach towards managing personnel that focuses on achieving the long term goals of the company. It focuses on dealing with long term needs of the people as well as matching the human resources with a company’s future needs. It also seeks to match the people needs with the structure, values and the commitment of the company. Strategic human resources management started being regarded as an important aspect of management in the 1990s. Over time, it has come to be regarded as one of the keys to excellent business performance (Senga, & Keogh, 1999). Executing a business strategy smoothly requires that all departments integrate their strategies to achieve company goals.
A business strategy on the other hand is a lasting action plan meant to achieve certain business goals. It is considered as the game plan of a business to improve its management over a certain period of time (Senga, & Keogh, 1999). A business plan serves as a guide on how the organization as a whole ought to conduct itself to achieve the desired goals. Critics, however, point out that having a business strategy is not an assurance that the business will be successful. Studies show that unforeseen circumstances can cause a business to perform poorly despite having an excellent business plan. A business strategy basically describes how managers and other employees in an organization should allocate resources so as to achieve the company’s set goals. There are those who view a business strategy as a roadmap to what decisions managers can make and which ones they should not make, including what they ought to prioritize so as to achieve the desired goals (Norton, 1991). Human resources strategy, just like all other strategies, has to be in line with the business strategy for the organization to achieve the desired business objectives.
Executing a business strategy smoothly requires that all departments integrate their strategies (Senga, & Keogh, 1999). It requires that all departments work together with the aim to achieve company goals. Each department contributes to the achievement of the overall business goals by achieving its own departmental goals. This sometimes demands that every department has its own strategy. This is because all departmental strategies are supposed to complement the overall business strategy. Strategies on their own cannot lead to success; employees have to implement them for them to bring about the desired success. Their actions can lead to either the success or failure of an organization. This makes human resource a very important component of every business. Hence, when developing a HR strategy, the managers must ensure that the strategy complements the execution of the organization’s business strategy (Norton, 1991). Purcell, (1999) notes that companies which develop HR strategy without harmonizing it with the business end up being unable to implement both the business strategy and the HR strategy.
Achieving a business strategy requires that a business develop metrics and other means to assess how well the business is doing against the set targets. This requires that the human resources department help develop appropriate metrics and analytics as well as practices that will lead employees towards achieving the goals envisioned by the business strategy (Purcell, 1999). The department has to ensure that there is efficient delivery of services in line with the business strategy. Ideally, there should be no clear distinction between HR strategy and a business strategy. This is because the HR strategy is part of the business strategy. Studies show that businesses that the stronger the connection between the two, the more successful the business is likely to be. The development of human capital is an important factor in determining the success of a business as well as how long the business survives (Buller & Napier, 1993). Unlike in the past when the human resources department was majorly about payroll, hence not very crucial to business strategy, these days the role touches on the operations of almost every department.
The human resources strategy affects an organizations bottom line. The business strategy on the other hand is all about ensuring that the business remains profitable. By recruiting the best workforce and ensuring they are highly productive, the human resources department contributes towards the company’s profitability. By ensuring that the employees are well motivated and have job security, the department helps the company move towards achieving its goals. This is confirmed by the widely accepted assertion that human resource is the most important resource in any business. Studies show that as businesses become more technology driven, the importance of people in a business environment is increasing. Corporate governance experts are emphasizing the need to have what they are referring to as individualized businesses (Walker, & MacDonald, 2001).
Notably, businesses are realizing that integrating HR strategy with the business strategy has better results than viewing it as an isolated strategy. In most cases, the business strategy aims to achieve a sustained competitive advantage. This could be achieved by having low cost of production, by differentiating its products in the market, or even by adopting a pricing model that gives it advantage over competition. To have competitive advantage, a business must achieve high efficiency, high quality of goods and services, be innovative and provide excellent customer service (Walker, & MacDonald, 2001). None of these things be achieved without human capital. It’s only by skillful coordination of capabilities that a business can achieve competitive advantage. The capabilities of any organization can be seen in its routines and processes. The human resources department plays a vital role in coordinating capabilities for efficient utilization of resources.
Integrating the human resource strategy with an organization’s business strategy, results in the company developing inimitable capabilities which make it easier to achieve competitive advantage. By hiring result-oriented personnel, a business is able to improve efficiency, quality of products, innovation as well as responsiveness to customer needs (Wright & McMahan, (1992). On the other hand the department ensures that the employees receive monetary compensation and are continuously trying to improve themselves. The success of all businesses depends on teamwork. However, teamwork is difficult to achieve if the people involved are not motivated or feel that their needs are not being taken care of.
Studies show that the performance of a company depends not just on the transfer of best practices within a department but within the whole organization. Hence the management has a role to ensure that innovation and best practices are transferred to all departments in the organization. The department best placed to handle this is the human resources department. By collaborating with all other departments in the company, the human resources department can ensure that the business keeps costs down, meets the demand for its goods, and is responsive to the customers’ concerns (Wright & McMahan, (1992). By developing a HR strategy that links an individual’s earnings to his performance the human resources can motivate employees into working harder hence contribute to achievement of the company’s business strategy. However, studies show that different markets may require different HR strategies. It is possible for a business to use the most employee sensitive HR strategy and still fail even when it has integrated it perfectly with the business strategy. While adopting a cost leadership strategy supported individual motivation may work for a business in America may not work for a branch of the same organization in Europe or Africa. Hence, the choice of the human resource strategy has to take into consideration the cultural factors in both the organization as well as within the community which the business operates. Cultural considerations in the HR strategy have to be supported with similar considerations in the business strategy (Paauwe & Boselie, 2003). Failure to do this will erode the effectiveness of the HR strategy towards assisting in the achievement of company goals.
The complexity of the HR strategy depends on the business strategy being employed by the same organization. Companies that do not employ a cost strategy in their business strategies generally have a more complex human resource strategy than those that employ a cost strategy. For instance, differentiation relies mostly on creating value through research and development which in return results in a better performance in the market. In this case, it is more difficult for the human resources department to measure individual performance, hence, more difficult for the department to come up with a strategy that complements the business strategy (Paauwe & Boselie, 2003). Unlike cost strategy, differentiation makes it more difficult for the HR department to align individual interests with business interests.
Changes in the business strategy affects the even the HR strategy of the same company. In recent years, most companies have adopted cost cutting as part of their business strategy. Hence, most companies, even some reputable f them are offering lower salaries and fewer allowances. This has made it more difficult for them to retain good employees since most employees see them as a bridge to better employers (Shepeck & Millitello, 2000). This has presented a challenge to most HR managers in that they have to factor in the low retention rates when developing and executing the HR strategy. At times, the business strategy may take a confrontational approach to issues while on the other hand, HR would prefer a softer approach.
This question has been answered
Buller, P.F. and Napier, N.K. (1993). Strategy and human resource management integration in fast growth versus other mid-sized firms. British Journal of Management, 4, 78-89.
Purcell, J. (1999) Best Practice or Best Fit: Chimera or cul-de-sac. Human Resource Management Journal, 9(3), 26–41.