To be effective, HR strategies must fit with overall organisational strategies, the environment in which the firm is operating, unique organisational characteristics, and organisational capabilities. HR strategies should also be mutually consistent and reinforce one another.
An HR strategy’s effect on firm performance is always dependent on how well it fits with other factors.
This fact leads to a simple yet powerful prediction for HR strategies that has been widely supported by research:
Fit leads to better performance, and lack of fit creates inconsistencies that reduce performance.
Fit refers to the compatibility between HR strategies and other important aspects of the organisation.
The figure below: Effective HR Strategy formulation & Implementation, depicts the key factors that firms should consider in determining which HR strategies will have a positive impact on firm performance: organisational strategies, environment, organisational characteristics, and organisational capabilities.
As is shown, the relative contribution of an HR strategy to firm performance increases:
■ The better the match between the HR strategy and the firm’s overall organisational strategies
■ The more the HR strategy is attuned to the environment in which the firm is operating
■ The more closely the HR strategy is molded to unique organisational features
Fit with Organisational Strategies
A corporation may have multiple businesses that are very similar to or completely different from one another.
Corporate strategy refers to the mix of businesses a corporation decides to hold and the flow of resources among those businesses. The main strategic business decisions at the corporate level concern acquisition, divestment, diversification, and growth.
Business unit strategies refer to the formulation and implementation of strategies by firms that are relatively autonomous, even if they are part of a larger corporation. For instance, until fairly recently, AT&T as a corporate entity owned hundreds of largely independent firms, including perfume makers and Hostess Twinkies, each with its own business strategy. Similarly, diversified giant DuPont combines businesses such as drugs, agriculture, and chemicals under one roof. For companies that have distinct corporate and business unit strategies, it is important to examine each in terms of its fit with HR strategies.
Fit with the Environment
In addition to reinforcing overall organisational strategies, HR strategies should help the organisation better exploit environmental opportunities or cope with the unique environmental forces that affect it.
■ Degree of uncertainty & Volatility
■ Magnitude of change
Fit with Organisational Characteristics
To be effective, HR strategies must be tailored to the organisation’s personality. The features of an organisation’s personality can be broken down into five major categories.
- The Production Process For Converting Inputs Into Output
- The Firm’s Market Posture
- The Firm’s Overall Managerial Philosophy
- The Firm’s Organisational Structure
- The Firm’s Organisational Culture
Fit with Organisational Capabilities
A firm’s organisational capabilities include its distinctive competencies ,those characteristics (such as technical ability, management systems, and reputation) that give the firm a competitive edge. For instance, Mercedes-Benz automobiles are widely regarded as superior because of the quality of their design and engineering. Wal-Mart’s phenomenal success has been due, at least in part, to its ability to track products from supplier to customer better than its competitors can.
The characteristics that give a firm a competitive edge.
HR strategies make a greater contribution to firm performance the greater the extent to which
– they help the company exploit its specific advantages or strengths while avoiding weaknesses and
– they assist the firm in better utilising its own unique blend of human resource skills and assets.
The following examples illustrate how one type of HR strategy— compensation strategy—may be aligned with organisational capabilities.
- Define the competencies that employees should have in order to be effective, recognising that your organisation will need to revisit and modify this list as your business and industry change.
- Decide to whom the competencies should apply. Perhaps it is to all employees, or perhaps it is to some core subset of personnel who wield the greatest influence over your corporate culture.
- Communicate the competencies well throughout the organisation, integrating them into your array of talent management components, including recruitment, succession planning, learning and development, performance management, and the like.
- Design your talent management competencies system so that there is some decision-making individual or group. Decide whether it’s wise, given the context of your organisation, to allow individual functions or business units to adjust these competencies to meet their own needs.
Based on Managing Human Resources, by Luis R. Gómez-Mejía, David B. Balkin, Robert L. Cardy. Publisher: PH Professional Business