Everything you need to know about strategic human resource management.

Strategic human resource management refers to adopting a specific plan in regard to human resources, and revamping human resource policies and practices, and developing employee competencies to cope with the special or challenging situations.

SHRM is essential in both large as well as in small companies. In small companies, it can be a simple process as owner or manager takes very little time every day to observe, assist and assess employees and provide regular reviews. Large companies can have a whole department in charge of human resource and development.

In the words of David A. De Cenzo and Stephen P. Robbins,


“Strategic human resource management creates a clear connection between the goals of the organisation and the activities of the people who work there. All employees should see the link between their daily tasks and achievement of a purpose or goal.”

Learn about:-

1. Meaning and Definition of Strategic Human Resource Management (SHRM) 2. Evolution of Strategic Human Resource Management (SHRM) 3. Concept 4. Objectives 5. Importance

6. Different Core Areas for HR Strategies 7. Major Role in an Organisation 8. Approaches 9. Challenges in a Changing Environment and 10. Advantages and Disadvantages.

Strategic Human Resource Management (SHRM): Meaning, Definition, Importance, Role, Approaches and Other Details



  1. Meaning and Definition of Strategic Human Resource Management (SHRM)
  2. Evolution of Strategic Human Resource Management (SHRM)
  3. Concept of Strategic Human Resource Management (SHRM)
  4. Objectives of Strategic Human Resource Management (SHRM)
  5. Importance of Strategic Human Resource Management (SHRM)
  6. Different Core Areas for HR Strategies in Strategic Human Resource Management (SHRM)
  7. Major Role of Strategic Human Resource Management (SHRM) in an Organisation
  8. Approaches of Strategic Human Resource Management (SHRM)
  9. Challenges of Strategic Human Resource Management (SHRM) in a Changing Environment
  10. Advantages and Disadvantages of Strategic Human Resource Management (SHRM)

Strategic Human Resource Management (SHRM) – Meaning and Definition

The word “strategic” literally means something done as a part of a plan to achieve a particular purpose or to gain an advantage. Strategic management may be conceived as the process of identifying and formulating strategic goals, selecting strategies to achieve the goals, executing the strategic plan and evaluating its effectiveness.

Strategic human resource management, thus, refers to adopting a specific plan in regard to human resources, and revamping human resource policies and practices, and developing employee competencies to cope with the special or challenging situations.

In the words of Gary Dessler and Biju Varkkey, “Strategic human resource management means formulating and executing human resource policies and practices that produce employee competencies and behaviours the company needs to achieve its strategic aims.”


In the words of David A. De Cenzo and Stephen P. Robbins, “Strategic human resource management creates a clear connection between the goals of the organisation and the activities of the people who work there. All employees should see the link between their daily tasks and achievement of a purpose or goal.”

Upon facing certain new and special situations, a company may demand the formulation of a strategic plan appropriate for ensuring desired contributions from employees. For example, a company may be in urgent need of computerising its various departments, which calls for immediate recruitment of persons conversant with handling of computers.

For this, the company may either hire competent hands from outside on lucrative terms, or may launch a crash training programme for the suitable existing employees. Similarly, a company may be in urgent need of improving both the quality and quantity of products or substantial reduction in production costs for surviving in competition and enhancing consumer satisfaction.

This requires formulation of strategic plans for improving the competencies and skills of employees and for ensuring their effective implementation, which may require employees’ active cooperation and involvement. Adoption of strategic human resource policy, plan and programme is also needed in extraordinary situations such as a sudden increase in the demand for the products or unprecedented contraction of business.


Mergers, acquisitions and collaborations also, very often, create challenging situations, which necessitate the adoption of suitable human resource strategic plans and their effective implementation. Similarly, local issues such as installation of manufacturing units in an area may involve pressures for giving employment to local people, even though they do not have the required skills and qualifications.

Managements may also have to face certain other difficult situations such as deterioration in law and order situation, drastic change in governmental policy and conditions created by natural calamities.

Strategic Human Resource Management (SHRM) – Evolution (In Chronological Order)

The evolution of strategic human resource management in chronological order is presented below:

1. Strategic Human Resource Management is an area that continues to evoke a lot of debate as to what it actually embraces. The definitions range from a human resource system that in tailored to the demands of the business strategy to the pattern of planned human resource activities intended to enable an organization to achieve its goods. – Miles and Snow, 1984


2. SHRM is a concept that integrates traditional human resource management activities within a firm\s overall strategic planning and implementation. SHRM integrates human resource considerations with other physical, financial and technological resources in the setting of goals and solving complex organizational problems. – Lignick Hall, 1988

3. SHRM can be regarded as a general approach to the strategic management of human resources in accordance with the intentions of the organization on the future direction. It is concerned with long term people issues and macro concerns about structure, quality, culture, values, commitment and matching resources to future need. It has been defined as all the activities affecting the behaviour of individuals in their efforts to formulate and implement the strategic needs of business. – Schufer. R. S., 1992

4. SHRM also emphasizes the implementation of a set of policies and practices that will build employee pool of skills, knowledge and abilities that are relevant to organizational goals. – Jackson and Schuler, 1995

5. A larger variety and more complete set of solutions for solving organizational problems are provided and the likelihood that that business goals of the organization will be attained is increased. – Mectielin, 1996


6. Although the human resource management is a reactive management field in which human resources becomes a tool to implement strategy, in the later definition it has a proactive function in which HR activities actually create and shape the business strategy. -Sanz-Valle, et al, 1999

Human resources are critically important strategic resources. The successful organization will be able to attract, motivate, develop and retain competent employees through appropriate human resource management practices. They will be able to create and implement strategic changes in an atmosphere of close cooperation and participation while trying to manage people, of course, there is no best way of getting results.

The competitive advantage refers to the ability of an organization to formulate strategies to exploit profitable opportunities, thereby maximizing its return on investment (ROI). It occurs if customers perceive that they receive value from their transaction with an organization, this requires single minded focus on customer needs and expectations.

To achieve this, the organization needs to tune its policies in line with changing customer requirements. The second principle of competitive advantage derives from offering a product or service that your competitor cannot easily imitate or copy. An organization should always try to be unique in its industry along with dimensions that are widely valued by customers.

Strategic Human Resource Management (SHRM) – Concept

In today’s intensely competitive world, competitive advantage lies not just in differentiating a product or service or in becoming a low cost leader, but in also being able to capture company’s special skills or core competencies, as well as rapidly responding to customer’s needs and competitor’s moves.


The concept of SHRM was developed in 1984. This term was first coined by Fombrun, Tichy and Devanna. They suggested that HR systems and organizational structures should be managed in such a way that is congruent with organizational strategy. SHRM is the result of two major radical shifts, first the shift from old Personnel Administration to Human Resource management.

This change is based on the belief that people are an important asset in organizations that can be managed systematically by coordinating the shape and the substance of several traditional policies and practices. Second major shift is the reorientation of generic strategic models to the modern concept of SHRM. This reorientation is based on the philosophy that in addition to coordinating HR policies and practices with each other, this also needed to be coordinated with the needs of the organization.

Major impetus in the field of SHRM came in the mid-1990s when Huselid (1995) published his landmark study demonstrating statistically significant relationship between HRM practices and corporate performance. Also in the same year, MacDuffies industry focused study illustrated how particular bundles of HR practices when aligned with an organizational logic lead to plant level performance.

Thus, all over the world HR practitioners have realized that in addition to personal and developmental aspects, there is urgent need to use strategic management concept too. This reorientation of generic strategic models to internal aspects of the organizations became a focal point for strategic HRM.

An important aspect of SHRM is employee development. This is possible when the company has employed effective recruitment and selection technique. Human beings are the most important asset of an organization. Motivated human resource can help the organization to achieve unimaginable heights of success. So, it is necessary to invest in the development of the employees.


SHRM is essential in both large as well as in small companies. In small companies, it can be a simple process as owner or manager takes very little time every day to observe, assist and assess employees and provide regular reviews. Large companies can have a whole department in charge of human resource and development.

Let’s understand some terms which are used in SHRM:

i. Core competencies – A unique capability in the organization that creates high value and differentiates organization from its competitors.

ii. Mission Statement – It explains the purpose and reason for existence, it is usually broad but does not go beyond couple of sentences and it serves as a foundation for everything that organization does.

iii. Strategy – It is the company’s plan for how it will balance its internal strengths and weaknesses with external opportunities and threats in order to maintain a competitive advantage.

Strategic Human Resource Management (SHRM) – Objectives

Strategic HRM is the improved version of HRM over a period of time under drastically changing business environment and stiff competition. For survival, growth stabilize and excel in business performance, the need for willing cooperation was needed from employees.


To do so the approach of human resource management went under drastic changes with the interest to match the HR requirement with the business strategies so that the goals are achieved. The new concept of SHRM developed and it is nothing but HRM plus strategy.

The main objectives of SHRM are the following:

(a) Plan for manpower requirements for its business located in national and international markets.

(b) Conduct scientific selection and appointment of employees for business operation of right type and right in number.

(c) Train the employees on technology in use and working procedure for developing their skills and knowledge.

(d) Place the employees at jobs according to their areas of specialization.


(e) Provide opportunities for the employees deserving on the scientific basis.

(f) Compensate employees according to their skills, experience and contributions.

(g) Maintain employees motivated, satisfied and cooperative in organisation.

(h) Improve industrial relations, industrial peace and harmony at workplace.

(i) Encourage employees for their cooperation, commitments and higher performance at work.

(j) Contribute through manpower in improvement of organisational performance and organisational effectiveness in business.


(k) Contribute in profitability, progress and image of the organisation.

(l) Stay competitive and effective in business for growth and excellence in global market.

For effective accomplishment of the objectives the Strategic HRM should keep in mind the interests of all concerned parties or stakeholders in the organisation in designing its strategies. The main stakeholders are employees, employer and management. The focus of SHRM should be on human relations, regular development, empowerment of employees; leadership, communication, welfare and security of employees, quality of work life.

The efforts should be there and must be considered these as investment in human resources in the interest of the organisation and its business. Strategic HRM should put the efforts and achieve the proper balance between organisational requirements and employees’ requirements. Every organisation uses its resources effectively and efficiently for achieving an objective.

But management should keep always human consideration in mind. Employees should be considered as human being and must be treated accordingly. They should not be ignored for the sake of organisational gains. Generally, the problem is that in dealing the organisation comes first and it not a healthy practice.

So for strategic dealing there should be proper balance between these two aspects. Quinn Mills supported this point and advocated that they should plan with people in mind, taking into accounts the needs and aspirations of all the members of the organisation.

Strategic Human Resource Management (SHRM) – Importance

Human resources are the most needful assets in any organisation. The development of dynamic, excellent, motivated and committed employees are the means to achieve better organisational performance. There are different approaches based on the strategical viewpoints may be fruitful to initiate, facilitate and promote the strategical design towards making the HR strategies in signifying directions.


The Importance of Strategic Management of Human Resource:

For many decades such responsibilities as selection, training, and compensation were considered basic functions of the area historically referred to as personnel management. These functions were performed without much regard for, how they are related to each other. From this narrow view we have seen the emergence of what is now known as human resources management.

Personnel management performs the basic functions of selection, training, compensation, etc., in the management of an organization’s personnel.

Strategic management of human resource, as it is currently perceived, represents the extension rather than the rejection of the traditional requirements for managing personnel effectively. An understanding of human behavior and skill in applying that understanding are still required.

Also required are knowledge and understanding of the various personnel functions performed in managing human resources, as well as the ability to perform those functions in accordance with organizational objectives. An awareness of existing economic, social, and legal constraints upon the performance of these functions is also essential.

Strategic management of human resource extension of the traditional requirements of personnel management, which recognizes the dynamic interaction of personnel functions with each other and with the strategic and planning objectives of the organization.

Strategic management of human resource, as it is practiced today, recognizes the dynamic interaction of personnel functions with each other and with the objectives of the organization. Most important, it recognizes that HR planning must be coordinated closely with the organizations strategic and related planning functions. As a result, efforts in HRM are being directed toward providing more support for the achievement of the organization’s goals, whether it is a profit, not for profit, or governmental organization.

Strategic Human Resource Management (SHRM) – Different Core Areas for HR Strategies

Within SHRM, the strategical viewpoints aims to create and develop the skill, knowledge and capabilities of HR in some perspective ways. Overall the HR strategies are the focal points to make them effective at their cognitive work performance.

There are different core areas to develop the HR strategies as stating here:

1. For Competitive Advantages:

Within the competitive environment, it is a differentiate situation in that the product and services have some upgraded and qualitatively better position from those of its competitors. It increase their market share and gains and maintain an edge over its competitors. Here the role of HR practices are more important and some of the strategies as intensive specialisation, more learning capabilities proper job enlargement and prepare explicit job design are to be included.

2. For Developmental Prospective:

With the growth and expansion of business houses, there is a need to upgrade the level and structure of human resource capabilities. In order to meet new change environment, innovations, modernisation, upgraded the level of better quality of products and services, there is a need to follow the prospective approaches and systems with creative and optimistic HR policies, better HR opportunities and most appropriate HR motivation and compensation etc.

3. For Resource Based Setup:

It is a view to holds that human resources contribute to sustained qualitative perform and advantage when they are valuable resources. In fact HR develops a resource based set up in any organisation. As such, HR are the resources on which other resources depends for their effective and efficient utilisation. The HR strategies may be determined in context of capacity utilisation, developing competitive strength, identifiable HR practices and skills upgradation etc.

4. For Better Work Culture:

It is needful to make some desirable strategical viewpoints for better and healthy work culture. Here within the purview of SHRM the internal and external environmental analysis is being helpful to develop different motivational measures for work culture. The code of conduct, disciplinary measures, value based tasks, behavioural aspects might be helpful to make better work culture.

5. For Technological Upgradation:

The strategical view points are based on some new and innovative technological upgradations. The technical skill and knowledge are important for human resources in perspective ways. Within, strategical design, the R & D programmes, training and development, intensive job specifications, core competencies are needful for technological upgradation of HR.

6. For Behavioural Practices:

Within HR strategies, there is an upmost need to make proper interaction between individual and group behaviour. The streamline of HR practices might be able to develop the approaches of ethical norms and behavioural science in organisation.

As such, over a long time, the HR functions, practices and their efficient utilisation are based on HR managerial and organisational setup in an organisation. There is an alarming recognition that HR referred to as human capital or human assets. It is important to integrate HRM with the business strategy and try to develop and better utilise the HR towards most competitive strength of business.

Now, the HR practices are the drivers that lead to core competencies as well as business strategies. There are certain and major core areas like competitive, developmental, resource based, work cultural and technological upgradations etc., provide some targeted bases in that the HR practices might be developed and HR strategies are being outcome of the organisation.

Strategic Human Resource Management (SHRM) – Major Role of SHRM in an Organisation: Strategic, Informational, Decision Making, Functional and Administrative Roles

The HR managers need to be instrumental in taking the responsibility of the effective planning and implementation of the policies and decisions in tune with the business changes. They should act as strategic partners and be proactive in their role than mere reactive, passive spectators.

The HR managers should understand how far their decisions contribute to business surplus incorporating human competency and performance to the organization. Strategic HR managers need a change in their outlook from seeing themselves as relationship managers to strategic resource managers.

Kossek (1987, 1989) argues that major HRM innovations occur when senior management takes the lead and adoption of innovative SHRM practices is dependent on the nature of relationship of the HR department with the CEO and the line managers. HR department and HR managers in these innovative organizations play a strategic role linking the HR strategy with the business strategy of the organization.

A crucial aspect concerning SHRM is the concepts of fit and flexibility. The degree of fit determines the human resource system’s integration with organization strategy. It is the role of HR managers to ensure this fit in between Human Resource System with the Organization Strategy.

Ideally HR and the top management of an organization should work together so as to formulate the company’s overall business strategy; that strategy then provides the framework within which HR activities such as recruiting and appraising must be crafted. If it is done successfully, it should result out in the employee competencies and behaviour that in turn should help the business implement its strategies and realize its goals.

The major roles of Strategic HRM in an organisation are given below:

1. Strategic role – The strategic role of HR involves formulating business decisions, translating corporate strategy into a human resource strategy, and training employees to concentrate on customer needs.

2. Information and decision-making role – In this role, the HR department must inform and advice the organisation about the various best practices like efficiency in customer services or new product development. In the information and decision- making role, HR must take decisions about problems in employee relations.

3. Strategic HR functional role – This is a very important role. In this role, HR must select, design and implement planning and appraisal systems for the employees. These systems should fit both the strategy and the culture of the organisation concerned.

4. Administrative role – In this role, HR must implement policies and procedures for the organisation. In addition, the HR department must try to improve the administrative system of the organisation.

SHRM organises various training and development programmes to encourage employee involvement. It thus, motivates the employees to become flexible to achieve the strategic goals of the organisation.

Strategic Human Resource Management (SHRM) – Top 5 Approaches: Performance Based, Commitment Based, Resource Based and a Few Others

Over a long period of time, many experts have opined about the concept of Strategic Human Resource Management. They discussed it with slight different approach. From their literature study some approaches have been identified. These approaches are based on performance, commitment, resources, involvement and strategic match based strategies.

These are explained below:

1. Performance Based Approach:

This approach is a backward integration approach. The focus of this approach is on the output or performance of employees, machines or systems and organisation as a whole. To get the better performance the performance affecting factors are to be studied backward. As strategies are prepared for other factors, the strategy is prepared for human resource also because human resource is an important factor that affects the performance.

The approach of management to SHRM is on performance base. The strategies can be prepared for technology, materials, operating procedure, supply, maintenance, etc. The strategy is prepared for human resource also. So it is the performance based approach of the top management to SHRM. The performance of individual is kept in mind and calculation is done backward to design HR strategy to improve the performance of employees.

The individual performance contributes in organisational performance in products, services, quality of work, customers’ relationship, behaviour profit, growth and organisational effectiveness, etc. To achieve higher performance at all levels, HR strategy is designed for procurement, development, compensation, motivation and good relations. All these contribute to keep the people talented, satisfied, and motivated and retained In return, they give their best contribution in achievement of the objectives.

The approach includes backward integration keeping in view the end results and then HR strategy is designed performance based approach is similar to the United States high performance work systems or practices aims to make an impact on the performance of the firm through its employees’ performance. This approach was advocated by US Department of Labour.

2. Commitment Based Approach:

Commitment based approach is more psychological in nature. It is related the psychological and internal feelings of the employees. For designing the strategies, the commitment level of employees to their work and organisation is the focus point. The high level of commitment makes everything favourable for the organisation.

Employees’ higher contribution to their jobs impacts positive on production volume, quality of products or services, employer-employees relationship, industrial relations and peace. All the results in higher performance of the organisation as a whole, profitability, progress of business, overall effectiveness in business, and reputation in markets. Higher level of commitment of employees is kept in mind while designing HR strategy.

Factor affecting employees, commitment level are considered for improving it. The strategies are prepared to keep the employees satisfied and happy so they willingly cooperate everywhere. HR strategies are prepared regarding planning, recruitment and selection, development, compensation, incentives and rewards, motivation, opportunities for development, management approach, etc.

Through these functions the persons can be talented, satisfied and highly motivated that can give higher contribution towards job and organisation.

High-commitment management approach was given by Wood stated that, ‘A form of management which is aimed at eliciting a commitment so that behaviour is primarily self-regulated rather than controlled by sanctions and pressures external to the individual, and relations within the organisation are based on high levels of trust’.

This approach was also supported by Beer and Walton separately by mentioning certain functions for enabling higher contribution. Wood and Albanese further added that the higher level of commitment can be achieved through proper job design, good industrial relations, proper system for compensation and incentive. In brief it is concluded that the different experts have advocated for higher level of commitment in different styles but focus point is higher level of commitment from employees.

3. Resource Based Strategy:

This approach is a forward integrated approach. The focus is on input resources to achieve the desired objectives. Resources are being utilized by every organisation for achieving the pre-planned objectives. The resources are being utilized to avail the opportunities in the global markets. Under this approach, human resource is one of the resources and considered the most important resource.

For every resource the management prepares a strategy. In similar way the management prepares a strategy for human resource also. The human resource is deployed; capability to perform the tasks developed and tasks are performed as planned. Further, manpower can be motivated to learn faster and apply the expertise on the jobs better and before their rivals.

This approach is from starting to end. The quality of human resource as input is focused to achieve competitive advantage. Human resources competency can include their ability, capability, skills, knowledge, experience, problem-solving ability, etc. With good performance the employees add value to products or services of the organisation.

The proper utilization of human resources ensures that the individual performance, overall organisational performance, and organisational effectiveness in business are achieved. This leads to progress of all stakeholders. Keeping in view this, the strategies are designed by human resource management.

This is called human resource based strategy. The focus is on human resource because it is human resource utilizes other resources to generate other resources further. It can be said definitely that the human resource is most important. The strategies are prepared accordingly for procurement, development, motivation, and commitment to achieve competitive advantage over rival competitors in local and international markets.

Barney supported this approach stated that the human resource based approach increase firm’s strategic capability by the development of managers who are well trained, motivated and committed to the organisation and have good knowledge of the strategic issues relating to the business of the company.

Hamel and Prahalad also supported this approach by saying that develop, motivate and enable further to learn faster and apply expertise on job so that performance enhances before competitors. Human resource based strategy believe that expenses on human resource is not a cost but an investment because it adds value to human resources and organisation as well.

Human resource based strategy is only concerned with enhancement of human competencies or human capital of the organisation. Ulrich advocated in favour of this approach and said that through knowledge the company gets direct competitive advantage over its competitors. The organisations must have expertise to procure, develop, compensate, motivate, utilize and retain the talented employees.

It is a great challenge for the management of the company. Human resource based strategy has been strongly supported by Grant He argued that the main factor for getting competitive advantage is the unique talent or ability to differentiate between the products or services provided to the customers by the company and its competitors. This can be done by a learning organisation.

The HR strategy ensures that company is having talented and motivated people better than that of competitors.

4. Involvement Based Approach:

This approach is combination of psychological and physical aspects of the individual. In this approach of management the involvement of the employees in their job is most important. In this first, the employees must be satisfied and motivated and they should involve physically in the job.

The employees’ psychological satisfaction is possible by treating them properly in procurement, development, compensation, incentives and rewards, opportunities for development, communication, employees’ empowerment, favourable attitude of management and better employees-employer relationship. All these contribute in maintaining good industrial relations and harmony.

The healthy working environment of mutual understanding, openness, confidence, cooperation and team-spirit should be created. The workers must be treated the partners and profit sharing scheme would contribute further in this.

Keeping in view all these things the HR strategies are to be designed so the employees are satisfied and involved in their assigned jobs at different level. SHRM is responsible for all these strategies to tackle the global and competitive business environment.

5. Strategic Match Approach:

This approach is broader in nature and can be called vertical integrated approach. The focus is on business environment. Keeping in view the rapidly changing business environment, the corporate and HR strategy are prepared to carry-out the business activities effectively and efficiently. The business environment changes drastically. The internal and external environmental factors are undergoing drastic changes.

The organisation operates its business in the environment where it is located and influenced by global environment. The business cannot be carried out in isolation because the environment influences the performance of the business. Due to globalisation, the multinational companies are entering in different countries for business purpose wherever they find the opportunity.

A high degree of competition is faced by the companies from local and multinational companies as well. Now, it is the question of survival, growth, stabilize and excel in business. The companies are at the crucial juncture and they are not sure what to do and what not to do.

In this situation, to tackle multiple challenges the right approach is to design the corporate strategy according to environment and business condition and act accordingly. For achievement of the corporate objectives, at department level strategies are also prepared. The corporate strategy is vertically integrated with departmental strategy so that these can contribute in accomplishment of the corporate goals and achieve competitive advantage over their competitors.

With the objective of corporate objective accomplishment, under vertical integration HRM is an integral part of corporate management, HRM should also prepare the strategy accordingly. The HR strategy should be aligned in line with the business corporate strategy. HR strategy should be an integral part of the business strategy along with strategies of other departments.

The HR strategy should be supportive to corporate business strategy. Through vertical integration, there must be proper match or strategy fit between corporate business strategy and HR strategy. HR strategy should be in position to contribute in accomplishment of the corporate objectives. According to the requirements of corporate business strategy, through HR strategy the required manpower would be obtained, trained, maintained, motivated and enabled the employees to give their best contribution in job performance.

This way the individual performance improves and organisational performance as a whole also. The effectiveness of the organisation in business performance improves and it gets competitive advantage over the competitors in the markets. The sales, revenue, profitability and image of the organisation improve. This leads to progress of all stakeholders such as – employees, employers and management and society as a whole.

It is only possible when the corporate business strategy is prepared according to business environment and corporate business strategy is vertically integrated with departmental strategy that HR strategy. It can be concluded that there must be proper strategic match between corporate and HR strategy for effective working and better future. This approach starts from business at the top and moves downward to corporate and HR strategies. It is an example of vertical integration.

Strategic Human Resource Management (SHRM) – 3 Major Challenges: Environmental, Organizational and Individual Challenges

Today’s organizations are facing challenges upon following levels:

1. Environmental Challenges

2. Organizational Challenges

3. Individual Challenges.

Challenge # 1. Environmental:

Environmental challenges refer to forces external to the firm that are largely beyond management’s control but influence organizational performance. They include – rapid change, the internet revolution, workforce diversity, globalization, legislation, evolving work and family roles, and skill shortages and the rise of the service sector.

Seven important environmental challenges today are:

a) Rapid Change:

Many organizations face a volatile environment in which change is nearly constant. If they are to survive and prosper, they need to adapt to change quickly and effectively. Human resources are almost always at the heart of an effective response system. Here are a few examples of how HR policies can help or hinder a firm grappling with external change.

b) Work Force Diversity:

All these trends present both a significant challenge and a real opportunity for managers. Firms that formulate and implement HR strategies that capitalize on employee diversity are more likely to survive and prosper.

c) Globalization:

One of the most dramatic challenges facing as they enter the twenty-first century is how to compete against foreign firms, both domestically and abroad. Many companies are already being compelled to think globally, something that doesn’t come easily to firms long accustomed to doing business in a large and expanding domestic market with minimal foreign competition.

Weak response to international competition may be resulting in upwards layoffs in every year. Human resources can play a critical role in a business’s ability to compete head-to-head with foreign producers. The implications of a global economy on human resource management are many.

Here are a few examples:

Worldwide Company Culture:

Some firms try to develop a global company identity to smooth over cultural differences between domestic employees and those in international operations. Minimizing these differences increases cooperation and can have a strong impact on the bottom line. For instance, the head of human resources at the European division of Colgate Palmolive notes, “We try to build a common corporate culture. We want them all to be “Colgaters”.

Global Alliances:

Some firms actively engage in international alliances with foreign firms or acquire companies overseas to take advantage of global markets.

Making such alliances work requires a highly trained and devoted staff.

For instance, Phillips (a Netherlands lighting and electronics firm) became the largest lighting manufacturer in the world by establishing a joint venture with AT&T and making several key acquisitions.

These illustrations show how firms can use HR strategies to gain a worldwide competitive advantage.

d) Legislative:

Much of the growth in the HR function over the past three decades may be attributed to its crucial role in keeping the company out of trouble with the law. Most firms are deeply concerned with potential liability resulting from personnel decisions that may violate laws enacted by the state legislatures, and/or local governments. These laws are constantly interpreted in thousands of cases brought before government agencies, federal courts, state courts, and the Supreme Court.

How successfully a firm manages its human resources depends to a large extent on its ability to deal effectively with government regulations. Operating within the legal framework requires keeping track of the external legal environment and developing internal systems (for example, supervisory training and grievance procedures) to ensure compliance and minimize complaints.

Many firms are now developing formal policies on sexual harassment and establishing internal administrative channels to deal with alleged incidents before employees feel the need to file a lawsuit.

Legislation often has a differential impact on public- and private sector organizations. (Public sector is another term for governmental agencies; private sector refers to all other types of organizations.) Some legislation applies only to public-sector organizations.

For instance, affirmative action requirements are typically limited to public organizations and to organizations that do contract work for them. However, much legislation applies to both public- and private sector organizations. In fact, it’s difficult to think of any HR practices that are not influenced by government regulations.

e) Technology:

The world has never before seen such rapid technological changes as are presently occurring in the computer and telecommunications industries. One estimate is that technological change is occurring so rapidly that individuals may have to change their entire skills three or four times in their career. The advances being made, affect every area of a business including human resource management.

f) Evolving Work and Family Roles:

The proportion of dual-career families, in which both wife and husband work is increasing every year. Unfortunately, women face the double burden of working at home and on the job, devoting 42 hours per week on an average to the office work and an additional 30 hours of work at home. Men spend 43 hours per week working in the office and only 12 hours at home.

More and more companies are introducing “family-friendly” programs that give them a competitive advantage in the labor market. These programs are HR tactics that companies use to hire and retain the best-qualified employees, male or female, and they are very likely to payoff. For instance, among the well-known organizations / firms, half of all recruits are women, but only 5% of partners are women.

Major talent is being wasted as many women drop out after lengthy training because they have decided that the demanding 10- to 12-year partner track requires a total sacrifice of family life. These firms have started to change their policies and are already seeing gains as a result. Different companies have recently begun offering child-care and eldercare referral services as well to facilitate women workers as well as are introducing alternative scheduling to allow employees some flexibility in their work hours.

g) Skill Shortages and the Rise of the Service Sector:

Expansion of service-sector employment is linked to a number of factors, including changes in consumer tastes and preferences, legal and regulatory changes, advances in science and technology that have eliminated many manufacturing jobs, and changes in the way businesses are organized and managed. Service, technical, and managerial positions that require college degrees will make up half of all manufacturing and service jobs by 2000.

Unfortunately, most available workers will be too unskilled to fill those jobs. Even now, many companies complain that the supply of skilled labor is dwindling and that they must provide their employees with basic training to make up for the shortcomings of the public education system. To rectify these shortcomings, companies currently spend large amount year on a wide variety of training programs.

Challenge # 2. Organizational:

Organizational challenges refer to concerns that are internal to the firm. However, they are often a by-product of environmental forces because no firm operates in a vacuum. These issues include – competitive position (cost, quality, and distinctive capability), decentralization, downsizing, organizational restructuring, self-managed work teams, small businesses, organizational culture, technology, and outsourcing.

Organizational challenges are concerns or problems internal to a firm. They are often a by-product of environmental forces because no firm operates in a vacuum. Still, managers can usually exert much more control over organizational challenges than over environmental challenges. Effective managers spot organizational issues and deal with them before they become major problems. One of the themes of this text is proactively – the need for firms to take action before problems get out of hand.

Only managers who are well informed about important HR issues and organizational challenges can do this. These challenges include the need for a competitive position and flexibility, the problems of downsizing and organizational restructuring, the use of self-managed work teams, the rise of small businesses, the need to create a strong organizational culture, the role of technology, and the rise of outsourcing.

An organization will outperform its competitors if it effectively utilizes its work force’s unique combination of skills and abilities to exploit environmental opportunities and neutralize threats.

HR policies can influence an organization’s competitive position by:

a) Controlling costs

b) Improving quality

c) Creating distinctive capabilities

d) Restructuring.

a) Controlling Costs:

One way for a firm to gain a competitive advantage is to maintain low costs and a strong cash flow. A compensation system that uses innovative reward strategies to control labor costs can help the organization grow. A well-designed compensation system rewards employees for behaviors that benefit the company.

Other factors besides compensation policies can enhance a firm’s competitiveness by keeping labor costs under control. These include – better employee selection so that workers are more likely to stay with the company and to perform better while they are there, training employees to make them more efficient and productive; attaining harmonious labor relations); effectively managing health and safety issues in the workplace and structuring work to reduce the time and resources needed to design, produce, and deliver products or services.

b) Improving Quality:

The second way to gain a competitive advantage is to engage in continuous quality improvement. Many companies are implementing total quality management (TQM) initiatives, which are programs designed to improve the quality of all the processes that lead to a final product or service. In a TQM program, every aspect of the organization is oriented toward providing a quality product or service.

c) Creating Distinctive Capabilities:

The third way to gain a competitive advantage is to utilize people with distinctive capabilities to create unsurpassed competence in a particular area (for example, 3M’s competence in adhesives, Carlson Corporation’s leading presence in the travel business and Xerox’s dominance of the photocopier market).

d) Restructuring:

A number of firms are changing the way the functions are performed. For example, some companies are restructuring HR for reasons such as time pressures, financial considerations, and market pressures. This restructuring often results in a shift in terms of who performs each function. Organizations still perform the majority of a firm’s HR functions inside the firm.

Adjusting to HR restructuring trends—who performs the human resource management tasks? The traditional human resource manager continues to be in place in most organizations, but some organizations are also using shared service centers, outsourcing, and line managers to assist in the delivery of human resources to better accomplish organizational objectives.

Additionally, the size of some HR departments is getting smaller because certain functions are now being accomplished by others. This shift permits the HR managers to focus on more strategic and mission-oriented activities.

i. The Human Resource Manager:

An individual who normally acts in an advisory or staff capacity, working with other managers to help them deal with human resource matters. One general trend is that HR personnel are servicing an increasing number of employees. The human resource manager is primarily responsible for coordinating the management of human resources to help the organization achieve its goals. There is a shared responsibility between line managers and human resource professionals.

ii. Shared Service Centers:

Take routine, transaction-based activities that are dispersed throughout the organization and consolidate them in one place.

iii. Outsourcing Firms:

The process of transferring responsibility for an area of service and its objectives to an external provider. The main reason for this movement was to reduce transaction time, but other benefits include cost reductions and quality improvements. Companies found that administrative, repetitive tasks are often performed in a more cost-effective manner by external sources.

iv. Line Managers:

Line managers, by the nature of their jobs, are involved with human resources. Line managers in certain firms are being used more to deliver HR services. When implemented, this change reduces the size of the HR department.

v. Decentralization:

In the traditional organizational structure, most major decisions are made at the top and implemented at lower levels. It is not uncommon for these organizations to centralize major functions, such as human resources, marketing, and production, in a single location (typically corporate headquarters) that serves as the firm’s command center.

Multiple layers of management are generally used to execute orders issued at the top and to control the lower ranks from above. Employees who are committed to the firm tend to move up the ranks over time in what some have called the internal labor market.

However, the traditional top-down form of organization is quickly becoming obsolete, both because it is costly to operate and because it is too inflexible to compete effectively. It is being replaced by decentralization, which transfers responsibility and decision-making authority from a central office to people and locations closer to the situation that demands attention. HR strategies can play a crucial role in enhancing organizational flexibility by improving decision-making processes within the firm.

vi. Downsizing:

Periodic reductions in a company’s work force to improve its bottom line-often called downsizing-are becoming standard business practice, even among firms that were once legendary for their “no layoff” policies, such as AT&T, IBM, Kodak, and Xerox.

In addition to fostering a lack of emotional commitment, transient employment relationships create a new set of challenges for firms and people competing in the labor market, as well as for government agencies that must deal with the social problems associated with employment insecurity (including loss of health insurance and mental illness). However, the good news for laid-off employees is that the poor- performance stigma traditionally attached to being fired or laid off is fading.

Challenge # 3. Individual:

Human resource issues at the individual level address concerns that are most pertinent to decisions involving specific employees. These issues almost always reflect what is happening in the larger organization. How individuals are treated also is likely to have an effect on organizational issues.

For instance, if many key employees leave a firm to join its competitor, it will affect the competitive posture of the firm. The individual issues include matching people and organization, ethics and social responsibility, productivity, empowerment, brain drain, and job insecurity.

Human resource issues at the individual level address the decisions most pertinent to specific employees.

These individual challenges almost always reflect what is happening in the larger organization. For instance, technology affects individual productivity; it also has ethical ramifications in terms of how information is used to make HR decisions (for example, use of credit or medical history data to decide whom to hire). How the company treats its individual employees is also likely to affect the organizational challenges.

For example, if many key employees leave the firm to join competitors, the organization’s competitive position is likely to be affected. In other words, there is a two-way relationship between organizational and individual challenges. This is unlike the relationship between environmental and organizational challenges, in which the relationship goes only one way few organizations can have much impact on the environment.

The most important individual challenges today involve, productivity, ethics and social responsibility, productivity, empowerment, brain drain, job security and matching people and organizations. Here we discuss each of them –

a) Productivity is a measure of how much value individual employees add to the goods or services that the organization produces. The greater the output per individual, the higher the organization’s productivity. Two important factors that affect individual productivity are ability and motivation. Employee ability, competence in performing a job, can be improved through a hiring and placement process that selects the best individuals for the job.

It can also be improved through training and career development programs designed to sharpen employees’ skills and prepare them for additional responsibilities. Motivation refers to a person’s desire to do the best possible job or to exert the maximum effort to perform assigned tasks. Motivation energizes, directs, and sustains human behavior. A growing number of companies recognize that employees are more likely to choose a firm and stay there if they believe that it offers a high quality of work life (QWL).

b) Ethics and Social Responsibility Corporate social responsibility refers to the extent to which companies should and do channel resources towards improving one or more segments of society other than the firm’s owners or stockholders. Ethics is the bedrock of socially responsible behavior.

People’s expectations that their employers will behave ethically are increasing, so much that many firms and professional organizations have created codes of ethics outlining principles and standards of personal conduct for their members. Unfortunately, these codes often do not meet employees’ expectations of ethical employer behavior. These negative perceptions have worsened over the years.

In a recent poll of Harvard Business Review readers, almost half the respondents indicated their belief that managers do not consistently make ethical decisions. The widespread perceptions of unethical behavior may be attributed to the fact that managerial decisions are rarely clear-cut. Except in a few blatant cases (such as wilful misrepresentation), what is ethical or unethical is open to debate. Even the most detailed codes of ethics are still general enough to allow much room for managerial discretion.

In other words, many specific decisions related to the management of human resources are subject to judgment calls. A company that exercises social responsibility attempts to balance its commitments-not only to its investors, but also to its employees, its customers, other businesses, and the community or communities in which it operates.

For example, McDonald’s established Ronald McDonald houses several years ago to provide lodging for families of sick children hospitalized away from home. Sears and General Electric support artists and performers, and many local merchants support local children’s sports teams.

c) Empowerment in recent years many firms have reduced employee dependence on superiors and placed more emphasis on individual control over (and responsibility for) the work that needs to be done. This process has been labelled empowerment because it transfers direction from an external source (normally the immediate supervisor) to an internal source (the individual’s own desire to do well).

In essence, the process of empowerment entails providing workers with the skills and authority to make decisions that would traditionally be made by managers. The goal of empowerment is an organization consisting of enthusiastic, committed people who perform their work ably because they believe in it and enjoys doing it (internal control).

This situation is in stark contrast to an organization that gets people to work as an act of compliance to avoid punishment (for example, being fired) or to qualify for a paycheck (external control).

d) Brain Drain – With organizational success more and more dependent on knowledge held by specific employees, companies are becoming more susceptible to brain drain-the loss of intellectual property that results when competitors lure away key employees. High-Tec firms are particularly vulnerable to this problem.

Such important industries as semiconductors and electronics suffer from high employee turnover as key employees, inspired by the potential for huge profits, leave established firms to start their own businesses. This brain drain can negatively affect innovation and cause major delays in the introduction of new products. To make matters worse, departing employees, particularly those in upper management, can wreak considerable havoc by taking other talent with them when they leave.

To combat the problem of defection to competitors, some firms are crafting elaborate ant defection devices. For example, Compaq computer has introduced a policy that revokes bonuses and other benefits to key executives if they take other employees with them when they quit. Micron Technology staggers key employees’ bonuses; they lose un-awarded portions when they leave.

e) Job Insecurity:

In this era of downsizing and restructuring, many employees fear for their jobs. For most workers, being able to count on a steady job and regular promotions is a thing of the past. Even the most profitable companies have laid off workers. Companies argue that regardless of how well the firm is doing, layoffs, have become essential in an age of cutthroat competition.

f) In addition, the stock market often looks favourably on layoffs. For employees, however, chronic job insecurity is a major source of stress and can lead to lower performance and productivity. Though union membership has been declining in recent years, many workers still belong to unions, and job security is now a top union priority. In return for job security, though, many union leaders have had to make major concessions regarding pay and benefit.

g) Matching People and Organizations Research suggests that HR strategies contribute to firm performance most when the firm uses these strategies to attract and retain the type of employee who best fits the firm’s culture and overall business objectives. For example, one study showed that the competencies and personality description of top executives could hamper or improve firm performance, depending on what the firm’s business strategies are.

Fast-growth firms perform better with managers who have a strong marketing and sales background, who are willing to take risks, and who have a high tolerance for ambiguity. However, these managerial traits actually reduce the performance of mature firms that have an established product and are more interested in maintaining (rather than expanding) their market share.

Other research has shown that small high- tech firms benefit by hiring employees who are willing to work in an atmosphere of high uncertainty, low pay, and rapid change in exchange for greater intrinsic satisfaction and the financial opportunities associated with a risky but potentially very lucrative product launch

Strategic Human Resource Management (SHRM) – Advantages and Disadvantages

Strategic HRM is concerned with the relationship between human resource management and strategic management in an organization. It caters to provide overall direction to the organization in order to achieve its goals through people.

As people or the intellectual capital is a major source of competitive advantage, and it is the people who implement the strategic plan, top management must take these key considerations fully into account for developing its corporate strategies. Strategic HRM is an integral part of such people strategies.

Strategic HRM addresses broad organizational issues relating to organizational effectiveness and performance, changes in structure and culture, matching resources to future requirements, the development of distinctive capabilities, knowledge management and the management of change.

It is concerned with both meeting human capital requirements and the development of process capabilities, that is, the ability to get things done effectively. On an overall, SHRM considers any major people issues that affect or are affected by the strategic plan of the organization. The critical concerns of HRM such as choice of executive leadership and formation of positive patterns of labour relations form the core strategic concern in any firm.

Advantages of SHRM:

SHRM has the following advantages, namely:

1. Identifying and analyzing external opportunities and threats that may be crucial to the company’s success.

2. Provides a clear business strategy and vision for the future.

3. To supply competitive intelligence that may be useful in the strategic planning process.

4. To recruit, retain and motivate people.

5. To develop and retain of highly competent people.

6. To ensure that people development issues are addressed systematically.

7. To supply information regarding the company’s internal strengths and weaknesses.

8. To meet the expectations of the customers effectively.

9. To ensure high productivity.

10. To ensure business surplus thorough competency

Disadvantages of SHRM:

Barriers to successful SHRM implementation are complex. The main reason is the lack of growth strategy or failure to implement one.

Other major barriers are summarized as follows:

1. Inducing the vision and mission of the change effort.

2. High resistance due to lack of cooperation from the bottom line.

3. Interdepartmental conflict.

4. Lack of commitment of the entire senior management team.

5. Ineffective plans that integrate internal resource with external requirements.

6. Limited time, money and the resources.

7. Resistance of employees.

8. Resistance of senior level managers to take up strategic steps.

9. Diverse work-force with competitive skill sets.

10. Fear towards victimization in the wake of failures.

11. Improper strategic assignments and leadership conflict over authority.

12. Ramifications for power relations.

13. Vulnerability to legislative changes.

14. Resistance that comes through the legitimate labour institutions.

15. Presence of an active labour union.

16. Economic and market pressures influencing the adoption of strategic HRM.