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STRATEGIC HUMAN RESOURCE MANAGEMENT

 

‘Would you tell me, please, which way I ought to go from here?’
‘That depends a good deal on where you want to get to,’ said the Cat.
‘I don't much care where—’ said Alice.
‘Then it doesn't matter which way you go,’ said the Cat.

 

—Lewis Carroll, Chapter 6, Alice's Adventures in Wonderland

Read this conversation carefully—only replace Alice with the HR manager and the cat with an HR guru. Does it make sense? Until some years ago, human resources followed the oft-treaded path, not being mindful whether it would lead the way for people to perform in a way that the organization wanted them to. Contemporary HR literature is replete with examples of organizations innovating their HR practices and processes. But then, there is no standard prescription. It is, therefore, important that human resource management has a clear understanding of the way the organization has to go in order to define a way for itself. But prior to defining and understanding HR strategy, it becomes important to understand what is business strategy.

2.1 STRATEGY DEFINED

‘Looking for a Way’ and ‘The Strategy for HR to Become Strategic’. Such are the headings of many articles in scores of HR magazines. The generous use of the words ‘strategy’ and ‘strategic’ has become commonplace in management literature. Starting a discussion about strategic human resource management runs the risk of not taking strategy seriously! It is therefore imperative that we understand the meaning and relevance of strategy in the current business context before we get into discussing strategic human resource management.

 

The Oxford Dictionary defines ‘strategy’ as ‘a plan of action designed to achieve a long-term or overall aim’. Peter Drucker, in his 1955 work The Practice of Management, defined ‘strategic decisions’ as ‘all decisions on business objectives and on the means to reach them’. After Drucker, many have built on the concept of strategy; chief among these pioneers are Kenneth Andrews, Igor Ansoff and Alfred Chandler. More recently, Porter (1985), Henry Mintzberg (1994) and Hamel and Prahlad (1989) are known for having brought the word strategy to the fore.

Whoever might be the proponent, there are two fundamental concepts contained in the word. First, strategy is always forward looking—it is about deciding where to go and how to go in the future. It would usually follow the outline ‘This is what we want to do and this is how we intend to do it’. Second, strategy is always about fitment with the external environment. When the leadership team of an organization is strategizing, it is essentially matching the organizational competencies with the opportunities and risks created in the environment. This is evident in some of the definitions of strategy given by management experts as given in the box below.

On reading these definitions about strategy, one question which might crop up is ‘Is strategy just a glamorous word for what was planning in olden times?’ The answer would be ‘yes’ and ‘no’. ‘Yes’ because strategy is definitely the plan for the future, and ‘no’ because it is just not that. The differences in strategy and tactics as outlined in management literature as well as observed at the workplace are given in Table 2.1.

 

Table 2.1 Differences between strategy and tactics

	Strategy	Tactics
Scale of the Objective	■ Strategy is grand by definition. It is complex and is about a multidimensional response to a business challenge (e.g., an organization ought to have a strategy about becoming the market leader)	■ Tactics are limited to a tangible business challenge at hand with a shorter time horizon for action (e.g., tactics will involve understanding the strategy for becoming the market leader and then take action to achieve these objectives)
Scope of the Action	■ The scope for strategy is broad and general to include a wider canvass	■ Tactics are narrowly focused to achieve tangible results for each of the various areas impacted by strategy
Guidance Provided	■ Strategy is more general in its guidance to the way ahead for an organization and is responsive and ongoing	■ Tactics are specific and pertain to a situation. The objectives are narrowly defined
Degree of Flexibility	■ Strategy has to be adaptable but not hastily changed	■ Fluid, quick to adjust and adapt in minor or major ways
Timing	■ Strategy is defined and described before any tactical action can be taken	■ Tactical planning is done for action to be taken and can be changed when the action is on, to achieve results
Resource Focus	■ Strategy looks at the deployment of resources	■ Tactical action employs the resources to achieve the end

2.2 STRATEGIC MANAGEMENT PROCESS

Strategic management is an ongoing process to devise and revise future-oriented strategies that allow an organization to achieve its objectives, considering its capabilities, constraints and the environment in which it operates. Strategy formulation is an essential part of this process and it consists of three basic phases, as shown in Table 2.2.

 

2.2.1 Phase 1: Diagnosis

Diagnosis includes defining the mission of the organization, weighing and analysing its performance against the mission and objectives and identifying the gap areas. Performing a situation analysis would mean doing an analysis of the internal environment of the organization, including identification and evaluation of the current mission, strategic objectives, strategies and results and an analysis of the external environment. To do this, there are many popular tools available such as SWOT Analysis or Scenario Planning (see the Field Guide for a better understanding of these tools). The gap between the mission and the analysis of the current situation shall provide the ‘Gap’ in terms of what requires to be done to meet the objectives. Analysing the gap will establish the extent to which environmental factors might lead to gaps between what could be achieved if no changes were made and what needs to be achieved. The analysis will answer the question ‘Do we have sufficient and appropriate resources which will enable us to achieve our objectives?’

2.2.2 Phase 2: Formulation of Strategy

Formulation is the second phase in the strategic management process. Based on the situation and the gap analysis done as a part of the ‘Diagnosis’, it produces a clear set of recommendations, with supporting justification, that revise, as necessary, the mission and objectives of the organization and also dwell on the strategies for accomplishing them. The modification of the objectives is done to ensure that the organization is more successful. During the formulation, it is important to consider ‘fits’ between the resources in addition to the competencies with opportunities, and also fits between risks and expectations. This phase of the strategic management process can be seen as a sum of four primary steps:

1. Reviewing the current key objectives and strategies of the organization.
2. Identifying a rich range of strategic alternatives.
3. Doing a balanced evaluation of advantages and disadvantages of the alternatives relative to their feasibility in addition to the expected effects on the issues and contributions to the success of the organization.
4. Deciding on the alternatives that should be implemented or recommended.

Table 2.2 Strategy management process

Phase 1 Diagnosis	Phase 2 Formulation	Phase 3 Implementation
Define mission Situation analysis Gap analysis	Formulating a new business statement Translate mission into strategic goals	Implement strategies Monitor implementation and revise strategies regularly

2.2.3 Phase 3: Implementation of the Strategy

The implementation of the strategy involves the execution of tactical plans in line with the strategic goals that have been decided upon in the formulation phase. No implementation can be successful without monitoring—hence monitoring is also an integral part of this phase. As a result of monitoring, the feedback is used to modify the process and this is what makes the strategy management process a continuous one. This process of assessing progress towards strategic goals and taking the correct action is known as strategic control.

Though the strategic management process looks and sounds very rational, one thing which needs to be understood by any practicing manager is that there is no deterministic method of managing strategy—this means that there is no ‘correct’ way to do it nor is there one way to do it. Strategy often manifests itself as an informed judgement of the top management (e.g., foraying into new markets) or emerges as a response to the changing situations. In his 1994 article in Harvard Business Review on ‘The rise and fall of strategic planning’, Mintzberg contends that, ‘Far from providing strategies, planning could not proceed with their prior existence … real strategists get their hands dirty digging for ideas, and real strategies are built from the nuggets they discover.’ He emphasized that strategic management is a learning process as managers of organizations find out what works well in practice for them.

2.3 LEVELS OF STRATEGY

Strategy (as summarized in Figure 2.1) can be formulated at different levels of the organization:

• Corporate
• Competitive
• Functional

 

2.3.1 Corporate Strategy

This level of strategy is concerned with broad decisions about the organization's scope and direction. It considers the growth aspirations of the organization, the different lines of businesses or products it ought to pursue and how these should fit together to deliver results to the organization. It is useful to think of three components of corporate-level strategy.

1. Growth or directional strategy
2. Portfolio strategy
3. Parenting strategy

 

Figure 2.1 Levels of strategy

 

 

Growth or Directional Strategy

This would help the firm to decide what kind of growth trajectory the organization would follow. These could be growth (steep or slow), stability or retrenchment. In keeping with the scope of the subject, let us look at the growth strategies only and understand this by discussing what each of these growth strategies mean to different organizations.

 

Growth strategies fall into two categories: concentration within existing industries and diversification into other lines of business or industries. A firm can concentrate within the same industry through vertical integration or horizontal integration and can diversify into either related businesses or unrelated businesses. The petrochemical giant Reliance Industries is an excellent example of vertical integration. It started from textiles and did backward integration into polyester fibres. Then it entered petrochemicals from where it entered oil and gas. Now the group's product portfolio ranges from the exploration of oil and gas to oil and gas production, refining, petrochemicals, synthetic garments and retail outlets. An example of horizontal integration could be a chain of hospitals diversifying into a chain of diagnostic centres too. ITC is a model example of growth through diversification in unrelated businesses. Each of these four growth strategy categories can be carried out internally or externally, through mergers, and acquisitions and strategic alliances or a combination of both.

Portfolio Strategy

This strategy would help the firm to decide on the mix of businesses. This would mean what extent of concentration or diversification the business would opt for. If the company has decided to pursue vertical integration, then portfolio strategy decides to what extent it would follow it. Would a pharmaceutical company in the business of formulating prescription drugs foraying into bulk drugs be just enough for its own requirement or would it also target at becoming suppliers for other pharmaceutical formulation majors?

 

Parenting Strategy

This strategy decides how the organization should allocate the resources and manages the capabilities and activities across the portfolio, i.e., the lines of businesses, where should it put more emphasis and where less. For obvious reasons, this is applicable to organizations that have multiple lines of business.

 

2.3.2 Competitive Strategy

Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value.

 

—Michael E. Porter

The essence of strategy lies in creating tomorrow's competitive advantages faster than competitors mimic the ones you possess today.

 

—Gary Hamel and C. K. Prahlad

For those organizations having multiple lines of business, each business has to possess a separate strategy to deal with its set of internal strengths and weaknesses and external opportunities and threats. These are known as the competitive strategy for the business. Consider Reliance Industries Limited—the Group's activities span the exploration and production of oil and gas, petroleum refining and marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals), textiles, retail and special economic zones. Evidently, each of these businesses has to have a separate competitive strategy to create and maintain a competitive position in the marketplace and each business would be vastly different from the other. Michael Porter (1980) propounded a generic model for competitive strategies. The model is called generic because it can be used for any industry. His model is based on the assumption that a firm's competitiveness depends on the attractiveness of the industry it operates in and the position of the firm in that industry. He argued that a firm's strengths ultimately fall into two categories: cost advantage and differentiation. Depending on how a firm uses it broadly or narrowly (focused group), three strategies emerge. Cost advantage would mean the company provides the optimum service at the lowest price available in the market. Differentiation would mean that the firm has a uniqueness which it can offer to its customers that would be otherwise unavailable to them. When the firm concentrates on a niche segment and develops a cost-based proposition or a uniqueness-based proposition to the customer depending on what would work, it is called focused strategy.

 

2.3.3 Functional Strategy

Strategic priorities at times need functions to have their own functional strategy. Functional strategies have shorter time horizon, greater specificity and primary involvement of the managers. The focus of these strategies is to improve the organization's ability to attain superior efficiency, quality, innovation and customer responsiveness.

 

HR functional strategies should have two kinds of alignments. First, they should be aligned with the overall corporate strategy, which means that if an organization's strategy is working towards low cost then the HR policies and practices should be such that they elicit suitable behaviour from the employees to achieve the low-cost objective. Second, all HR policies should also be aligned with one another. Let us understand this through an example. Suppose an organization wants to reinforce a culture whose hallmark is teamwork and now if the organization decides to design its incentive policy to reward individuals, can this culture of teamwork be achieved?

2.4 DEFINING STRATEGIC HUMAN RESOURCE MANAGEMENT

Strategic HRM is an approach that defines how HR strategies and integrated HR policies and practices can facilitate the achievement of an organization's goals.

The following three propositions are the basis of SHRM:

1. Human resources of an organization are the cornerstone for the success of an organization and hence are a source of competitive advantage to the organization.
2. HR strategies should be in line with business strategy. BPOs in India started their businesses with a cost leadership strategy. In line with this, companies (such as ICICI Onesource) started hiring undergraduates (people who did not have a university degree, who were either pursuing graduation or doing some diploma) for the job being done by graduates till then to overcome pressures of understaffing as well as shooting salaries.
3. Individual HR strategies should work as a whole by being linked to one another to give mutual support. This means that the hiring strategy should be linked with the compensation strategy or vice versa. Take the example of Aravind Eyecare, which offers two-third of its eye care services free of cost. In order to keep its costs low for its mid-level ophthalmic personnel (MLOPs), who are about 70 per cent of its workforce, they hire young women in the age group of 17–19 hailing from humble rural backgrounds. But imagine what would happen if these girls did not receive adequate or proper training—would the business strategy work? Obviously no. hence, the organization has a robust training and coaching process embedded in its way of working so that these girls become an asset and not a liability to the organization.

2.5 PERSPECTIVES ON SHRM

Based on the three propositions propounded above, there are three perspectives to SHRM.

 

2.5.1 Universalistic Perspective or the Best Practice Approach

This approach believes that there is a universal relationship between HR practices and performance irrespective of the situation. Therefore, adopting best practices would ensure superior performance too. There are various lists of best practices propounded by different experts and some of them are given below. It is now increasingly felt that the notion of a single set of best practices does not hold good for all businesses in all situations. But if it is known as to why a particular practice should be regarded as a best practice and what needs to be done to ensure that it will work in the context of the organization, then the knowledge of best practices can be used to fit the needs of the organization.

2.5.2 Contingency Perspective or the Best-fit Approach

In order to be effective, the HR strategy of an organization should be in line with the business or the competitive strategy. This approach believes that the HR strategies of an organization should be contingent on the context, circumstances of the organization and its type. In this approach, there is a choice of models, such as the life cycle and the competitive strategy.

The life cycle model believes that SHRM's effectiveness depends on its suitability with the organization's stage of development. As the organization grows and develops, HR practices, policies and procedures must be modified to meet the requirement of the organization from being loosely held and informal to being formal and complex.

There are five level/stages in any organization's life cycle—birth, growth, maturity, decline and death and each of these stages will be marked by a different HR imperative.

• Birth: The HR function will be loose and informal; in fact, the line managers might themselves perform the functions of HR.
• Growth: The demand for new employees increases and a formal structure for the HR organization is conceived and more functional specialists are added to the team. The HR function will have to be innovative in designing various systems as per the requirements of the business such as performance management system (PMS), talent management system and reward and recognition system.
• Maturity: The focus would be less on being innovative, but more on consolidating and developing existing policies and practices.
• Decline: The focus will be on the costs and optimization of resources in line with the declining business.
• Death: The focus will be on a planned exit from the employment market; outplacement and separation would be the focus during this time.

Competitive strategy believes in HR having a functional strategy in line with the competitive strategy and this should have four blocks—innovation, quality, efficiency and responsiveness to the internal customers.

2.5.3 Bundling Approach

The inescapable conclusion is that what is best depends.

 

—Dyer and Holder (1988)

The management practitioners believe that none of the above approaches are enough in their own individual right. There are a couple of concepts that can be adopted as approaches to strategic human resource management.

The first approach is the vertical and horizontal integration of HR practices. Vertical integration is the link between the strategic HR processes with the business (competitive) strategy and horizontal integration the coherence between the individual HR processes and practices for the SHRM process to move in tandem with the business.

The second approach is the approach towards people which says that the performance of an organization is a function of the ability and motivation of its people. Therefore, all HR practices should be designed to achieve both.

2.6 HR STRATEGIES

The HR strategies articulate the organizations’ intention about its HRM policies, about how they would fit in with the business strategy and how the policies would reinforce one another to achieve the business objectives. The HR strategies articulate the beliefs and the philosophy of the organization about people practices, policies and procedures. The philosophy might advocate a broad framework of HR practices (usually when initiating a transformational change) or depending on the requirement of the business it may dwell on some aspects of human resource management. Hence, HR strategies could be classified into two categories—overall strategies and specific strategies.

2.6.1 Overall Strategies

The overall strategies articulate the approach to people management in a broad manner. These would cover the organization's strategy on how to attract and retain the best, how to keep them engaged and committed etc. These are usually a set of HR practices which reinforce one another to create a coherent HR system. Three kinds of overall strategies are designed. These are:

1. High-performance management
2. High-involvement management
3. High-commitment management

The critics of these three separate approaches are of the view that one approach cannot be implemented without the other. Let us try to understand what a high-performance strategy is all about.

A high-performance strategy articulates the people practices that the organization would adopt to achieve competitive advantage through the improved performance of its people for the ultimate purpose of achievement of business objectives. This aim can be put into effect by means of a high-performance work system (HPWS).

High-performance Work Systems

HPWS means an ecosystem of HR policies, procedures and practices which helps the organization in creating a performance culture in it. This would mean that all policies, procedures and practices work with one another to improve and enhance the performance of individuals, teams and, in turn, the entire organization (See Figure 2.2).

 

Figure 2.2 Development of an HPWS

 

Here is a universal list of the practices which are used in various studies on HPWS:

1. Targeted selections and recruitment
2. Formal training as the indicator of employers’ commitment to invest in human capital
3. Internal promotions or selections to fill vacant positions
4. Employees’ participation programmes
5. Teams as a fundamental unit of organization
6. Formal performance appraisal
7. Development appraisal
8. Performance-based pay systems
9. Merit-based promotions
10. Formal communication programs to keep employees informed about the firm
11. Reduced differential status between the managers and the employees (egalitarian)
12. Formal grievance or complaint resolution systems
13. Employee job security policies such as no compulsory redundancies
14. Formal job analysis (job description), job design and safety

2.6.2 Specific HR Strategies

The specific HR strategies work on a particular identified area of attention for the organization. The specific HR strategies can be around each of the sub-functions of HR:

1. Human capital management strategy
2. High-performance management strategy
3. Corporate social responsibility (CSR) strategy
4. Organizational development strategy
5. Employee engagement strategy
6. Knowledge management strategy
7. Resourcing strategy
8. Talent management strategy
9. Learning and development (L&D) strategy
10. Reward and recognition (R&R) strategy

Human Capital Management Strategy

This approach to people management involves the systematic analysis, the measurement and evaluation of how people policies and practices create value. The underpinning concept of a strategy around the human capital management is the use of metrics to guide an approach to managing people. The belief is that by developing strategies to generate better and more accurate information on human capital and communicating this information both internally and externally, organizations will not only improve their business decision making but also enable stakeholders to make more accurate assessments about the long-term performance of the organization. A few measures, their use and possible action that could be taken as a result are given in Table 2.3.

High-performance Management Strategy

The high-performance management strategy means an ecosystem of HR policies, procedures and practices which help in creating a performance culture in the organization. This would mean that all policies, procedures and practices work with one another to improve and enhance the performance of individuals, teams and, in turn, the entire organization.

 

Table 2.3 Illustration: metrics leading to action

Possible Metrics

Possible Use—Analysis Leading to Action

Attrition—employee turnover rates for different categories of management and employees Internal promotion rate Workforce composition (age, gender, race etc Percentage of employees under the variable pay scheme

Attrition analysis will show which 20% reasons contribute to 80% of voluntary regrettable turnover (e.g., if it is team management). The analysis of involuntary turnover may show up concerns in the recruitment policy. Indicates extent to which talent management programmes are successful. Shows the extent of diversity. It can also help with analysing the implications of the composition of people. Demonstrate the extent to which pay for performance has become a part of the work culture in the organization.

CSR Strategy

CSR is no longer looked as a virtue but as an important business imperative and hence the CSR strategy should be integrated with the business strategy. It is also important that it is integrated with the HR strategy of the organization because it is concerned with ethical behaviour of the organization and the HR function is also the conscience keeper of the organization. The ethical behaviour of the organization has two aspects—one outside the organization and one inside. Ethical behaviour outside the organization can be classified into three areas—community, environment and the marketplace. Ethical behaviour inside the organization would mean creating a working environment where personal and employment rights are upheld and HR policies and practices provide for the ethical and fair treatment of employees.

Organizational Development Strategy

Organizational development, according to Cumming and Worley (1997), is ‘a system wide application and transfer of behavioral science knowledge to the planned development, improvement, and reinforcement of the strategies, structures, and processes that lead to organizational effectiveness.’

The organizational development approach to strategy has two clear parts. The first part would include doing a diagnosis of the current scheme of things within the organization and ascertaining the gap between where the organization is and where it plans to be. The gap analysis would then help in deciding what interventions (HR strategies) would help achieve the strategic objectives. The diagnosis ought to be done at the organizational level, group level and individual level. The different elements of enquiry in each of these levels are enlisted in the Field Guide ‘Diagnosis and Intervention Design for OD Interventions’.

The interventions or HR strategies that could be formulated can be classified under four categories:

1. Human process interventions: HR programmes that are aimed at people within the organizations and their interactional processes. Such strategies would focus on employee communication, the interaction at the individual, group and organizational level.
2. Techno-structural interventions: Methods are directed at organizational technology and structures for linking the people and the technology. Interventions in this category would be about restructuring the organization, reengineering processes or job design and enhancing employee involvement.
3. Human resources management interventions: HRM interventions are focused at integrating the people into the organization successfully. These would be largely around developing new HRM processes or improving current HR processes such as performance management, talent management or human resource planning etc.
4. Strategic interventions: Programmes are targeted at how the organization uses its resources to gain a competitive edge in the larger environment. These can be any domain area—what would set them apart from the other interventions is that they would be closely tied with the business strategies and would generally be of a transformational nature.

The transformation programme as summed up by John P. Kotter of Kotter International and as stated on his Web site recommends the following steps:

1. Increase urgency: Inspire people to move, make objectives real and relevant.
2. Build the guiding team: Get the right people in place with the right emotional commitment and the right mix of skills and levels.
3. Get the vision right: Get the team to establish a simple vision and strategy focus on emotional and creative aspects necessary to drive service and efficiency.
4. Communicate for buy-in: Involve as many people as possible, communicate the essentials simply, and appeal and respond to people's needs. De-clutter communications—make technology work for you rather than the reverse.
5. Empower actions: Remove obstacles, enable constructive feedback and lots of support from leaders—reward and recognize progress and achievements.
6. Create short-term wins: Set aims that are easy to achieve—in bite-size chunks and manageable numbers of initiatives. Finish the current stages before starting new ones.
7. Don't let up: Foster and encourage determination and persistence—ongoing change—encourage ongoing progress reporting—highlight achieved and future milestones.
8. Make change stick: Reinforce the value of successful change via recruitment, promotion and new change leaders. Weave change into the culture.

Employee Engagement Strategy

The significance of engagement is that it is at the heart of the employee relationship. A lot has been said and written about what keeps an employee engaged but if one were to separate grain from the chaff what clearly emerges is that there are two elements to this engagement as perceived by the employee. The first is the rational aspect, which relates to issues such as the employees’ understanding of their role, where it fits in the wider organization, how it aligns with the business objectives, whether their compensation is in line with the industry and whether the job is building their resume. The second is the emotional aspect, which has to do with how people feel about the organization, whether their work gives them a sense of personal accomplishment and how they relate to their manager. These two aspects can then be analysed to decide on a number of factors which influence each of these. These could then become the areas around which HR should do an analysis of the alignment of processes with the strategy of the organization and then formulate a strategy to bridge the gap.

Knowledge Management Strategy

The knowledge management (KM) strategy seeks to create, acquire, capture, share and use knowledge to enhance knowledge and performance. KM is a framework to institutionalize the processes to fully leverage the ‘collective knowledge’ in an organization. Knowledge is of two types—explicit (documented knowledge such as patents, policy manuals, databases) and tacit (knowledge that cannot be codified and lies in the experiences and wisdom of people's minds). It is estimated that this tacit knowledge constitutes between 70 and 80 per cent of all knowledge in an organization. And for this reason, KM also falls in the domain of the people function in an organization. Collective knowledge gets generated by working in collaborative teams and creating a learning culture where people capture, develop and share ‘best practices’, quickly replicate innovations and create an environment that is comfortable with the idea of openness, knowledge sharing, risk of failure as well as rewards for success.

The two areas of thrust for the KM-based HR strategy are culture and learning. The desirable culture in the organization can be built with well-designed HR processes. Consider this example: Xerox includes knowledge sharing as a dimension for its prestigious president's award. At HUL (Hindustan Unilever Ltd), ‘developing knowledge and sharing it’ is an identified competency. The same applies to learning too—initiatives have to be designed to reinforce learning in a variety of ways. E-learning should make the classroom reach the student rather that the other way to save costs and encourage flexibility of learning. Affinity groups to share team learning will enhance learning from one another. HRM in Action above gives an example of KM initiatives facilitated by HR processes.

Resourcing Strategy

In the knowledge economy, much of the success of corporates lies in their ability to attract high-quality talent to work for them. These are strategies to devise ways of attracting and retain high-quality people in the organization. An important element of the resourcing strategy going ahead will be the complexity that it will embody. In the future, organizations, especially in India, will not have a ready pool of people to tap from. First, resourcing would be about building talent pools in the society at large to cater to the industry. Second, the forms of engagement of people are going to change. There is an increasing trend of complicated work arrangement that people are having with the organization. Part-time, temps, is becoming more like a rule than an exception in the Indian workforce. Those organizations whose successes lie in the deployment of the right resource would be adopting a resourcing strategy.

Talent Management Strategy

These are strategies to ensure that the organization has talented people to meet its needs to achieve its objectives. In fact, talent management strategy in a way encompasses all other strategies to deliver the right talent to the organization at the right time and also keep the talent ready to deliver in the future too.

Learning and Development Strategy

This strategy is all about providing a learning environment to employees within the organization to develop and grow the organization too. In the knowledge economy, especially for those organizations who are in the knowledge business, the competence of its people is the edge that one company has over the other company. In such a situation, the best initiative for HR to contribute to the business strategy is by building the capability of its people through L&D initiatives. Take, for example, EMC India which has identified that its leaders are its competitive edge in the market. Therefore, they have crafted an L&D strategy to be their HR strategy. Among other things, they have designed a 15-month programme called EDGE (educate, develop, grow, empower) in association with IIM Bangalore to build its leaders in a structured manner. Today joining a CSC, Intel, Adobe, Marico, RMSI or a Google is like enrolling in a university. Learning and professional development is a core part of their employee value proposition. Which university offers 9,100 separate courses? It is Intel University, Intel's worldwide training organization! All these organizations have developed an edge in the employment market with their L&D strategy.

Reward and Recognition Strategy

This strategy is about defining the posture that the organization wants to take in the corporate marketplace in terms of compensation and rewards. This deals with developing sound reward and recognition practices within the organization to sustain and drive the growth of the organization in line with the competitive strategy of the organization. In the article ‘HR 2020: Will HR be a bottleneck?’ in the magazine Human Capital, while writing on what the employee in 2020 is going to need from his workplace, two of the four needs were compensation and reward and recognition. Given this fact, many organizations that are especially facing challenges of attrition would have a reward and recognition strategy as their HR strategy.

2.7 DEVELOPING HR STRATEGY

Once the business strategy is in place, the development of HR strategy is possible. Given below is a generic method to design an HR strategy to make it a strategic business asset (also see Figure 2.3).

 

1. Clarify and articulate the business strategy: The organization should articulate the business strategy in a way that the HR and the employees understand it. Since the new paradigm is that people create value for an organization, it is important to measure and manage this value creation by the employees. The HR needs to create and maintain an HR architecture which is able to do this. HR structure of an organization has three components:

1. HR function: While earlier the HR function was about doing disparate HR functions such as staffing and compensation benefits, now the focus is on how the HR strategies could be aligned with the business strategy to deliver value to the business.
2. HR management system: This is about how the system enhances the value of the employees through appropriate policies and practices in place.
3. Strategic employee behaviours: These behaviours of employees, which are productive and work towards achievement of the organization's goals, can be termed as strategic employee behaviours. HR's contribution lies in motivating the appropriate behaviour from the employees.

2. Develop the business case for HR as a strategic asset: The business case for HR as a strategic asset will emerge from answering only one question, namely, ‘How can HR support the business strategy?’ Recall the discussion on Functional Strategy (Section 2.3). The focus of these strategies is to improve the organization's ability to attain superior efficiency, quality, innovation and customer responsiveness.

3. Create a strategy map for the firm: This is an idea derived from the balanced scorecard method propounded by Robert Kaplan and David Norton. The idea is to articulate how the organization will create value in a way which is understandable to all. The four perspectives of the balanced scorecard, i.e., learning and growth, internal business processes, customers and financial, are used to do this. An example of this would be the strategy map for HR which can be made by asking questions, some of which could be:

1. What are the goals critical for the organization to achieve?
2. In what areas will the organization's performance ensure achievement of these objectives?
3. How can we measure our progress towards each of these goals?
4. What kind of employee behaviour will drive the organization towards the goal?
5. What should the HR architecture look like for achievement of these goals?

   These questions clarify and help in articulating contribution that the HR can make to the achievement of goals.

4. Identify HR deliverables within the strategy map: The strategy map (Figure 2.4) is a visual presentation of an organization's critical success factors and of the cause-and-effect relations between them (e.g., employee skills enhanced lead to improved process quality). The HR managers should identify all the HR performance enablers or deliverables which exist within the strategy map. By identifying these, HR would be able to develop these factors. One important point to consider here is that developing each of these factors has its associated costs and benefits. It would be prudent on HR's part to estimate the costs (increase in spend, cost opportunity of time invested) and the benefits (increased employee competence, lowered attrition) and then do a prudent prioritization of the HR deliverables depending on which would deliver maximum value.

5. Align the HR architecture with the HR variables: For HR to deliver on each of the deliverables, the HR architecture has to be tweaked or changed to enable and drive performance. These changes should ensure that:

1. The HR deliverables drive performance of the organization and are in line with its strategy.
2. The internal policies, practices and procedures are internally aligned with one another to work as a whole.

6. Design the strategic measurement system: A good and viable strategic management system measures the correct performance drivers and enablers and more importantly it chooses the right measures. The quality of the measures is extremely important in making the measurement a strategic advantage in the process. The HR scorecard is a very popular measurement system for measuring the HR strategy.

7. Execute management by measurement: The effective implementation of an average strategy dominates mediocre implementation of a great strategy every time. The execution of an HR strategy should not be a one-off event. It should be a system in place which is responsive to the business strategy and keeps renewing itself depending on the requirements of the situation. For its success, an important factor is the buy in of the rest of the organization, especially the line managers. To build acceptance for a newly implemented HR strategy, the suggested best practices are:

1. Finding a champion or a key executive sponsor
2. Creating a need
3. Shaping a vision
4. Encouraging commitment and involvement
5. Building the enabling system
6. Using early successes to demonstrate progress
7. Sustaining the effort

 

Figure 2.3 Seven-step model for using HR as a strategic asset

 

Figure 2.4 Creating a strategy map

 

2.7.1 Common Mistakes Made in the Development of HR Strategy

HR Strategy Owned by HR Only

In many organizations, HR strategy is the brainchild of the functional Head of HR. Now there is nothing wrong with that except that a brilliant HR strategy which does not have a buy in from the rest of the stakeholders of the organization is a sure recipe for a killing uphill climb for the HR function. One way to make the implementation easy and exciting is to involve the rest of the functions when planning is on the drawing board itself. Consider this—the HR Head makes a presentation on the HR strategy in the Business Planning conference and all of it comes as a surprise to the rest of the function heads. How can you even dream of having a strategy which is going to affect the people in the organization and the people managers have no role to play in that? While it might seem surprising to the reader, the HR head probably finds it all right to do that because he has an ill-placed assumption that the problems of the people are same across functions and what works for one set should work for the other too.

 

Over-ambition

One of the key characteristics of a sound HR strategy is its implementability. Often, developers for the HR strategy spend 80 per cent of the time in drawing out a grand strategy which looks perfect in its construction but fails to anticipate the implementation requirements and problems. It is foolhardy to expect that the implementation shall be a smooth sail. Too many items on the agenda for the implementation diffuse the focus. As time goes by, the implementation is not able to match the plan and failure starts to creep in the system. After that it is always a downward spin for the implementation (see Figure 2.5).

 

Figure 2.5 Strategy—gap between formulation and execution

Wishful Thinking

Often, HR strategies are designed on meagre or anecdotal data rather than on detailed analysis and study. Consider this—a retention strategy in a BPO is based on the data that come out of the exit form submitted by the employee at the time of leaving. HR makes it mandatory for the employee to fill that form for collecting their full and final dues. Most employees have filled in that they are leaving for higher studies. They find it one reason which does not invite too many questions from anyone: neither the supervisor nor HR. Based on this data, the retention strategy involves introducing an on-campus management programme in affiliation with a leading management school. When the programme is launched, they find very few takers. They realize that financially it is unviable for the organization to run a programme for (say) 5–10 employees and decide to scrap it. What stories do you think the company grapevine would carry now? Therefore, it is important to do root cause analysis of problems with data whose integrity is sufficiently assured.

Conflicting Elements

Often various parts of the HR strategy do not agree with one another, i.e., there is an integration problem among the various elements (strategy, systems and tools) of the strategy. Consider a software firm adopting a cost leadership posture in the industry. In line with the business strategy as a part of its resourcing strategy, it has decided to hire low-cost young graduates from campuses (strategy). However, operational HR has not put in place any separate system devoted to executing campus placements in a cost-effective manner (system). In addition, the HR department has not enabled the function with the right wherewithal (tools) such as web-based application tracking systems and testing methodologies for handling a large pool of applicants. Is it not then obvious that having a strategy which is not accompanied by complementing systems and tools will not enable the firm to achieve the cost efficiencies that it seeks to?

2.8 MEASURING HR'S CONTRIBUTION TO BUSINESS

Human resources are the key differentiators in building a competitive edge and hence human resource management for obvious reasons occupies a strategic place in business. It can be safely claimed that now the HR function is in the inner circle of management of an organization. In spite of this belief what still stumps businesses is the inability to quantify and measure this contribution. Many organizations have tried out different metrics, for example, Dow Chemicals calculated the expected human capital return and the actual human capital return (the first was calculated by ascertaining the breakeven point of the employee and the second by ascertaining the actual value contributed by the employee, which was a function of the value created by the projects they worked on) and compared the two to assess how well the business units were staffed. Quantum Corporation, an IT hardware manufacturer, identified a set of behaviours which they believed would enhance their performance and achieve their objectives. The company then based half the compensation of its employees on the financial results of the organization and the other half on the adherence to the identified behaviours.

Over the last few years, one method that has gained popularity in measuring the contribution of HR is the HR scorecard.

2.8.1 HR Scorecard

The HR scorecard uses the concept of the balanced scorecard to manage the performance of HR. It is a tool which allows a business to:

1. Manage HR as a strategic contributor to the maintenance of competitive edge of the organization through its people.
2. Measure the contribution of HR to the firm's financial results by quantifying this contribution.
3. Create an HR architecture which is aligned to the business strategy and measure its degree of alignment.

 

The balanced scorecard method says that there are two kinds of measures or indicators of performance—leading and lagging. A leading indicator is that which when measured will indicate the level of performance that might be reached in the future, whereas a lagging indicator is that which when measured would give the report card of performance after it has taken place. An analogy to understand these could be ‘quality check’ (lagging indicator) which tells which all products did not meet quality standard and ‘quality assurance’ (leading indicator) which if measured ensures that all products meet quality standards. Therefore, it is important to have a healthy combination of leading and lagging indicators of all the HR deliverables. An example of HR deliverables and their measures has been given in Table 2.4.

 

Table 2.4 Measuring HR deliverables

Financial	Leading Leading	Total labour costs HR cost/employee
Customer	Leading Leading	Employee engagement index Ranking of HR audit vs. benchmarks
Operations	Leading Leading	Percentage of training delivered Percentage of strategic plans implemented
Learning and Growth	Leading Leading	Internal promotion rate Separation rate (voluntary and involuntary)

Benefits of HR Scorecard

• It distinguishes clearly HR doables from HR deliverables: The HR scorecard is a shift from ‘jobs which have to be done by HR’ to ‘what should be HR's job’ to take the organization where it wants to be. Thus it encourages the HR managers to think strategically instead of simply thinking operationally.
• It empowers HR managers to control costs and create value: Earlier HR was encouraged to control costs as effectively as possible because it was a cost centre. Now the HR looks at itself as a value creator for which cutting costs can be a way.
• It measures the firm's leading indicators: The HR deliverables are linked to the implementation of the firm's strategy. The HR deliverables have leading and lagging measures. When these would be measured, it would mean ongoing feedback to the business on the achievement of goals till now (lagging) and the likelihood of achievement of goals in the future (leading).
• It clarifies HR's contribution to profitability: The HR scorecard enables an HR manager to quantify the contribution of HR to the firm's performance in credible and relevant measures.
• It allows HR professionals to manage better: The HR scorecard is a very empowering tool in the hands of the HR manager. Using this, the HR manager is able to make decisions and prioritize what needs to be done with the awareness of how each initiative will impact on the implementation of the firm's strategy.
• It encourages flexibility and ongoing change: The HR scorecard is not a list of arbitrary measures which have to be monitored and managed. It is a responsive performance measurement system in which the HR deliverables can keep changing depending on the organization's strategy.

1. For more details of Lincoln's HR strategy, refer to Jamie O'Connell and Christopher Bartlett Lincoln, Electric: Venturing Abroad Harvard Business School, case No. 9-398-095, 22 April 1998.
2. For more details of how McKinsey matches its corporate strategy and HR strategy, read Sumantra Ghoshal and Christopher Bartlett, The Individualized Corporation and Christopher Bartlett.
3. Living Strategy: Putting People at the Heart of Corporate Purpose by Lynda Gratton is a prescriptive book on the conceptualization and implementation of HR strategy and makes interesting reading.

1. Discuss the steps involved in the strategic management process in detail.
2. What are the different kinds of growth strategies that an organization can adopt?
3. What are the three basic propositions of an HR strategy? Explain with illustrations.
4. What are the main challenges in the implementation of HR strategy in an organization?
5. What is the relevance of human resource management in corporate strategies today?
6. How does HR scorecard help in measurement of contribution of HR to business?

1. Group exercise: What competitive strategy has the ‘Big Bazaar’ chain of stores of the Future group adopted? Find out what are the HR practices which are in line with the competitive strategy?
2. Group exercise: Which growth strategy has the Aditya Birla group of companies adopted? Find out the initiatives which the organization has taken on the people front to respond to this strategy?
3. Individual exercise: In 2009–10, Infosys implemented a new strategy which aimed to re-map the technology skills of its software professionals and offer them roles based on their current level of experience and technological know-how. The initiative was called ‘iRace’. Not all went right with the implementation and there was a sharp peak in attrition after its implementation. Do secondary research on the Internet based on articles in newspapers, magazines and blogs of Infosys employees, interviews with the Infosys executives and discuss what are the lessons learnt from this experience of Infosys.
4. Individual exercise: This is how L&T (Larsen & Toubro) states its vision on its Web site (http://www.larsentoubro.com). It also mentions that the vision reflects the collective goal of the company and that it was drafted through a large-scale interactive process which engaged employees at every level, worldwide. ‘L&T shall be a professionally-managed Indian multinational, committed to total customer satisfaction and enhancing shareholder value. L&T-ites shall be an innovative, entrepreneurial and empowered team constantly creating value and attaining global benchmarks. L&T shall foster a culture of caring, trust and continuous learning while meeting expectations of employees, stakeholders and society’. In a group of four to five students discuss what must be the elements of the HR strategy for the company.
5. Individual exercise: Evaluate the corporate social responsible strategy of ITC limited and find out the role played by the HR in driving it.

 

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