1.

INTRODUCTION
1.1 STRATEGY

Strategy is a high-level plan to achieve one or more goals under conditions of uncertainty.
Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed strategic
planning process”.

 Chandler defines Strategy is the determination of the basic long-term goals of an

enterprise, and the adoption of courses of action and the allocation of resources necessary
for carrying out these goals.
 Mintzberg defines Strategy is a mediating force between the organization and its
environment: consistent patterns in streams of organizational decisions to deal with the
environment.
 Prahlad defines Strategy is more then just fit and allocation of resources. It is stretch and
leveraging of resources

 Jauch and Glueck defines “Strategy is a unified, comprehensive and integrated plan that
relates the strategic advantages of the firm to the challenges of the environment. It is
designed to ensure that the basic objectives of the enterprise are achieved through proper
execution by the organisation.”

1.1.1 NATURE OF STRATEGY

Based on the above definitions, we can understand the nature of strategy. A few aspects
regarding nature of strategy are as follows:

 Strategy is a major course of action through which an organization relates itself to its
environment particularly the external factors to facilitate all actions involved in meeting the
objectives of the organization.

 Strategy is the blend of internal and external factors. To meet the opportunities and threats
provided by the external factors, internal factors are matched with them.

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 Strategy is the combination of actions aimed to meet a particular condition, to solve certain
problems or to achieve a desirable end. The actions are different for different situations.

 Due to its dependence on environmental variables, strategy may involve a contradictory

action. An organization may take contradictory actions either simultaneously or with a gap of
time. For example, a firm is engaged in closing down of some of its business and at the same
time expanding some.

 Strategy is future oriented. Strategic actions are required for new situations which have not
arisen before in the past.

 Strategy requires some systems and norms for its efficient adoption in any organization.

 Strategy provides overall framework for guiding enterprise thinking and action.

1.1.2 CONCEPT OF STRATEGY

The concept of strategy is based on three subsidiary concepts:

 Competitive advantage

 Distinctive capabilities and

 Strategic fit.

Competitive advantage

The concept of competitive advantage was formulated by Michael Porter (1985). Competitive
advantage, Porter asserts, arises out of a firm creating value for its customers. To achieve it,
firms select markets in which they can excel and present a moving target to their competitors by
continually improving their position.

Distinctive capabilities

A distinctive capability or competence can be described as an important feature that confers

superiority on the organization’. Kay extends this definition by emphasizing that there is a
difference between distinctive capabilities and reproducible capabilities. Distinctive capabilities
are those characteristics that cannot be replicated by competitors, or can only be imitated with
great difficulty. Reproducible capabilities are those that can be bought or created by any

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company with reasonable management skills, diligence and financial resources. Most technical
capabilities are reproducible.

Strategic fit

The concept of strategic fit states that to maximize competitive advantage a firm must match its
capabilities and resources to the opportunities available in the external environment. A critical
aspect of top management’s work today involves matching organizational competences (internal
resources and skills) with the opportunities and risks created by environmental change in ways
that will be both effective and efficient over the time such resources will be deployed.

1.1.3 FORMULATION OF STRATEGY

Strategy formulation refers to the process of choosing the most appropriate course of action for
the realization of organizational goals and objectives and thereby achieving the organizational
vision.

The process of strategy formulation basically involves six main steps. Though these steps do
not follow a rigid chronological order, however they are very rational and can be easily followed
in this order.

1. Setting Organizations’ objectives - The key component of any strategy statement is to

set the long-term objectives of the organization. It is known that strategy is generally a
medium for realization of organizational objectives. Objectives stress the state of being
there whereas Strategy stresses upon the process of reaching there. Strategy includes both
the fixation of objectives as well the medium to be used to realize those objectives. Thus,
strategy is a wider term which believes in the manner of deployment of resources so as to
achieve the objectives. While fixing the organizational objectives, it is essential that the
factors which influence the selection of objectives must be analyzed before the selection
of objectives. Once the objectives and the factors influencing strategic decisions have
been determined, it is easy to take strategic decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the general
economic and industrial environment in which the organization operates. This includes a
review of the organizations competitive position. It is essential to conduct a qualitative

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 and quantitative review of an organizations existing product line. The purpose of such a
review is to make sure that the factors important for competitive success in the market
can be discovered so that the management can identify their own strengths and
weaknesses as well as their competitors’ strengths and weaknesses. After identifying its
strengths and weaknesses, an organization must keep a track of competitors’ moves and
actions so as to discover probable opportunities of threats to its market or supply sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind this
is to compare with long term customers, so as to evaluate the contribution that might be
made by various product zones or operating departments.

4. Aiming in context with the divisional plans - In this step, the contributions made by
each department or division or product category within the organization is identified and
accordingly strategic planning is done for each sub-unit. This requires a careful analysis
of macroeconomic trends.

5. Performance Analysis - Performance analysis includes discovering and analyzing the

gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future conditions must
be done by the organization. This critical evaluation identifies the degree of gap that
persists between the actual reality and the long-term aspirations of the organization. An
attempt is made by the organization to estimate its probable future condition if the current
trends persist.

6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of
action is actually chosen after considering organizational goals, organizational strengths,
potential and limitations as well as the external opportunities.

1.1.4 STRATEGY IMPLEMENTATION

Strategy implementation is the translation of chosen strategy into organizational action so

as to achieve strategic goals and objectives. Strategy implementation is also defined as
the manner in which an organization should develop, utilize, and amalgamate

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 organizational structure, control systems, and culture to follow strategies that lead to
competitive advantage and a better performance.

Steps in implementing a strategy:

Developing an organization having potential of carrying out strategy successfully.

Disbursement of abundant resources to strategy-essential activities.

Creating strategy-encouraging policies.

Employing best policies and programs for constant improvement.

Linking reward structure to accomplishment of results.

Making use of strategic leadership.

Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability
between strategy and each organizational dimension such as organizational structure,
reward structure, resource-allocation process, etc.

1.2 EVOLUTION OF SHRM

The evolution of SHRM are summarised here:

1. From Personnel Management to HRM:

Traditionally, it was the initial stage to perform the HR functions in the managerial set up in the
form of personnel department. There were mainly the functions of staffing and maintaining the
labour relations at every sphere of organisational set up. The personnel management was more
centralise and bureaucratic with some old and traditional approaches. It was not viewed as
involved in the competitive or strategical areas of business. Before the year 1970, the emergence
of HRM as replacement for personnel management was taken up. The main task of HRM is to
ensure the achievements of organisational goals through the commitment of people and it is often
believed in that HRM is just a more modern term as compared to the traditional personnel
management.

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2. From HRM to SHRM:

For the last four decades, it was the dynamic and competitive business environment resulting
from globalisation has led top managerial cadres to bring a new focus on HR to be organises and
managed. It was a basic perception that how the HRM managed and contributes to the effective
role and performance of organisation. Now the HR function has to develop more dynamic and
strategical viewpoints. The late 1980th and early 2000s witnessed an integrated approach was
developed between HRM and business strategy. More attention was given on the relationship of
HRM with the strategic management of organisation. In the 21st century the HRM has the
approaches of HR cognition, HR learning, knowledge of HR, network of HR and HR
development within the purview of strategic managerial scenario.

It was the proactive role of HRM which have concerned with organisational effectiveness,
strategical framework, behavioural aspects, resource utilisation, capacity development and
change environment. Since the HR provide and contribute a lot of different competitive
advantages to the organisation, it is needful to integrate HR practices with the emergence of new
strategical viewpoints of corporate business areas. With the emerging role of strategic planning
of HR, integrated approach of HR systems, strategical business environment and new avenues of
organisational effectiveness was emerged. There have been a dynamic shift from the concept of
HRM to Strategic Human Resource Management.

Strategic human resource management is the process of linking the human resource function
with the strategic objectives of the organization to improve performance. Attracting and keeping
talented and skilled employees is one of the most important challenges organizations face in
today’s dynamic business world. No strategy, no matter how well designed, will work unless the
organization has the right people, with the right skills and behaviors, in the right roles, motivated
in the right way and supported by the right leaders. A company can develop a competitive
advantage through the skills and competencies of its people. So to be successful more value must
be given to people.

 Strategic human resource management is the proactive management of people to the

desired value to them. It is designed to help companies better meet the needs of their
employees while promoting company goals.

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  SHRM is a philosophy of people management based on the belief that human resources
are uniquely important to sustain business success.
 SHRM aims to ensure that the culture, style, and structure of the organization and the
quality, commitment and motivation of its employees contribute fully to the achievement
of business objectives.
 HR strategies combine all people management activities into an organized and integrated
program to meet the strategic objectives of an enterprise.

1.3 SHRM DEFINITION

“Strategic human resource management means formulating and executing human resource
policies and practices that produce the employee competencies and behaviors that the company
needs to achieve its strategic aims.”- Gary Dessler

“Strategic human resource management is an approach to making decisions on the intentions and
plans of the organization concerning the employment relationship and the organization’s
recruitment, training, development, performance management, and the organization’s strategies,
policies, and practices.” – Armstrong

Strategic human resource management (SHRM) is defined as “the pattern of planned human
resource deployments and activities intended to enable an organization to achieve its goals”. –
Wright & McMahan

1.3.1 NATURE OF SHRM

 Long-term Focus: As business strategies have a long-term orientation, therefore, focus of
SHRM is also long-term probably more than one year
 Associated with Goal-Setting: SHRM is highly related with setting of objectives, formulation
of policy and allocation of resources and it is carried out at all levels of top management.
 Interrelated with Business Strategies: There is an interrelation between business strategies
and SHRM. E.g. it gives significant inputs when business strategy is formulated, and human
resource strategies (like recruitment, staffing, training and performance appraisal)

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 Fosters Corporate Excellence Skills: SHRM considers employees as the strategic potential of
the organization and on that basis makes effort to differentiate the organization from its
competitors present in the markets. It also promotes learning of modern skills

1.3.2 COMPONENTS OF STRATEGIC HUMAN RESOURCE MANAGEMENT

This definition implies the following four components of SHRM:

1. It focuses on an organization’s human resources (people) as the primary source of competitive

advantage of the organization.

2. The activities highlight the HR programs, policies, and practices as the means through which
the people of the organization can be deployed to gain competitive advantage.

3. The pattern and plan imply that there is a fit between HR strategy and the organization’s
business strategy (vertical fit) and between all of the HR activities (horizontal fit).

4. The people, practices, and planned patterns are all purposeful, that is, directed towards the
achievement of the goals of the organization.

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Fig 1: Components of SHRM

1.3.1 OBJECTIVES OF SHRM

(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.

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(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.

1.3.2 NEED FOR SHRM

 The first & at most concern of SHRM is to focus on actions that distinguish an
organization/firm from its competitors.

 It provides idea to allocate the resources of organization to most match & capable
Employee.

 It design the foundation of organization to achieve efficient business benefits, structure,

culture, employees values propositions and effective communication strategic plan for
HRM.

 SHRM also keep track of down turns, down falls, risks and other business acquirement.

 SHRM also take part in employee recruitment, hiring, training and assessments
processes.

 SHRM add its expression in business’s decision making task.

 Strategic Human Resource Management give emphasis to organizational codes of moral

values and manage public crash of business.

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  SHRM provide tactic and proposal to the director of organization.

 SHRM take your business to the new level, integrates HR workflow, defines new goals,
aligned employee work force for business flourishment.

1.3.3 IMPORTANCE OF STRATEGIC HUMAN RESOURCE MANAGEMENT

1. Identifying and analysing 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 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.

1.3.4 ROLE OF SHRM

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.

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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.

1.3.7 HR AS ASSETS - VRIO Framework:

The VRIO Framework or VRIO Model is part of the Resource-Based View (RBV), which is a
perspective that examines the link between a company’s internal characteristics and its
performance. RBV is therefore complementary to the Industrial Organization (I/O) perspectives
that look more at external factors such as competitiveness in order to determine performance and
profit potential .

The supporters of RBV argue that organizations should look inside the company to find the
sources of competitive advantage instead of looking at the competitive environment. The key
concepts within this view are therefore Firm Resources and Sustainable Competitive Advantage.
Firm resources can be defined as ‘all assets, capabilities, organizational processes, firm
attributes, information and knowledge controlled by a firm that enables it to improve its
efficiency and effectiveness’.

Resources are often classified into categories such as tangible (e.g. equipment, machinery, land,
buildings and cash) and intangible (e.g. trademarks, brand reputation, patents and licenses)
or physical, human and organizational resources. In order for companies to transform these
resources into sustainable competitive advantage, resources must have four attributes that can be
summarized into the VRIO framework.

Valuable:

First and foremost resources must be valuable. According to the RBV, resources are seen as
valuable when they enable a firm to implement strategies that improve a firm’s efficiency and
effectiveness by exploiting opportunities or by mitigating threats.

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Rare Secondly, resources must be rare. Resources that can only be acquired by one or few
companies are considered to be rare. If a certain valuable resource is possessed by a large
amount of players in the industry, each of the players has a capability to exploit the resource in
the same way, thereby implementing a common strategy that gives non of the players a
competitive advantage. Such a situation is indicated as competitive parity or competitive
equality. In case a company does possess a large amount of resources that are valuable and rare,
it is likely to have at least temporary competitive advantage.

Inimitable

Although valuable and rare resources may help companies to engage in strategies that other firms
cannot pursue since the other firms lack the relevant resources, it is no guarantee for long-term
competitive advantage. It may give the focal company a first-mover advantage but competitors
will probably try to imitate these resources. Another criteria that resources should meet is
therefore that they should be hard and costly to imitate or substitute.

Organization

The resources themself do not create any advantage for a company if the company is not
organized in way to adequately exploit these resources and capture the value from them. The
focal company therefore needs the capability to assemble and coordinate resources effectively.
Examples of these organizational components include a company’s formal reporting structure,
strategic planning and budgeting systems, management control systems and compensation
policies. Without the correct organization to acquire, use and monitor the resources involved,
even companies with valuable, rare and imperfectly imitable resources will not be able to create
a sustainable competitive advantage. When all four resource attributes are present, a company is
save to assume it has a distinctive competence that can be used as source of sustainable
competitive advantage. Below is a diagram that sums up the four VRIO attributes and the
resulting advantages the company has in different situations.

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Fig 2: VRIO Framework

1.4 TRADITIONAL HRM VERSUS SHRM

. The major points of differences between the two are;

Basis Traditional HRM SHRM

Responsibility Staff personnel in the HR Line managers; all managers responsible

for HR department for people are HR managers
programs

Focus of Employee relations— ensuring Partnerships with internal (employees) and

activities employee motivation and external (customers, stakeholders, public
productivity, compliance with laws interest groups) groups

Role of HR Reactive and transactional Proactive and transformational, change

leader

Initiative for Slow, piecemeal, and fragmented, Fast, flexible, and systemic, change
change not integrated with larger issues initiatives implemented in concert with
other HR systems

Time horizon Short-term Consider various time frames as necessary

(short, medium, or long-term)

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 Control Bureaucratic control through rules, Organic control through flexibility, as few
procedures, and policies restrictions on employee behavior as
possible

Job design Focus on scientific management Broad job design, flexibility, teams and
principles—the division of labor, groups, and cross-training
independence, and specialization

Important Capital, products, technology, and People and their knowledge, skills, and
investments finance abilities

Accountability Cost center. Investment center.

1.5 DIFFERENCE BETWEEN SHRM AND HR STRATEGIES

The terms strategic human resource management and human resource strategies are often used
interchangeably, however, some distinction can be made between the two.

In a general sense, the difference between SHRM and HR strategies is similar to that between
strategic management and corporate business strategies. Both SHRM and strategic management
describe an approach adopted by the management and focus on long-term issues and provide
direction to the organization.

Human resource strategies and business strategies are outcomes of this approach which focus on
the organizational view concerning key issues and specific functions, or activities.

SHRM HR Strategies

 A general approach to the  Outcome (manifestation) of the general SHRM

strategic
management of human resources. approach.

  Focus on specific organizational intentions

Aligned with the organizational intention about
its future direction. about what needs to be done.

 Focus on specific issues that facilitate the

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 Focus on long-term people issues. achievement of corporate strategy.

  Human resource strategy decisions are derived

Defines the areas in which specific HR
strategies need to be developed. from SHRM.

 Focus on macro concerns such as structure,

culture.

 Strategic HRM decisions are built into the

strategic business plan.

1.6 HARD VS. SOFT HRM

Hard HRM:

The focus here is to identify workforce needs so you can recruit and manage as you need to
(including hiring staff, or making others redundant).

The main features of this approach are

 Regular changes in employee numbers.

 Little business transparency.
 Lower wages.
 Little to no empowerment of employees.
 Appraisal systems that focus on good and bad performance.
 A more old-fashioned style of leadership.

Soft HRM: This approach treats employees as an essential resource in your business—if not the
most important one of all. This makes it a more progressive outlook. One where you treat staff
members as individuals. The soft HRM model focus is for the needs of your staff, including
rewards and motivation.

 Focussing on long-term planning for your business and its workforce.

 An open and transparent business model with good communication.
 Competitive pay, relying on salary benchmarking and bonus packages.
 Employee empowerment.

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  Appraisal systems that identify training opportunities and professional development.
 A more democratic type of leadership.

1.7 LINKING HR PRACTICES TO BUSINESS STRATEGY AND ONE ANOTHER

This issue of fitting HR practices to business strategy is becoming increasingly important and
relevant HR issues for HR staff and line managers. HR fit involves making sure HR activities
make sense and help the organization achieve its goals and objectives.

The three aspects of HR fit are:

1. Vertical fit

This aspect of vertical fit concerns the coincidence between HR practices and overall
business strategy.

2. Horizontal fit

This relates to the extent to which HR activities are mutually consistent. Consistency
ensures that HR practices reinforce one another.

3. External fit

The third aspect concerns how well HR activities match the demands of the external
environment. Ensuring these aspects of fit requires HR practice choices. The challenge is
to develop internally consistent configurations of HR practice choices that help to
implement the firm’s strategy and enhance its competitiveness.

There is a need for strategic flexibility along with a strategic fit for the long-term
competitive advantage of the firm. The fit is defined as a temporary state in an
organization, whereas flexibility is defined as the firm’s ability to meet the demands of
the dynamic environment. The two types of flexibility identified are:

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  Resource Flexibility

Resource flexibility is the extent to which a firm can apply its resources to a variety of
purposes. It also involves the cost, difficulty, and time needed to switch resources from
one use to another.

 Coordination flexibility

Coordination flexibility concerns the extent to which an organization has decisionmaking

and other systems that allow it to move resources quickly from one use to another. This
task is accomplished by having an effective partnership between HR managers and line
managers.

1.8 STRATEGIC FIT:

Strategic fit expresses the degree to which an organization is matching its resources and
capabilities with the opportunities in the external environment. In addition, strategic fit also
examines the resource base of the organization and explores how they can be utilized to achieve
maximum benefits. Resources can be classified both as tangible and intangible:

Tangible: ▪ Financial (Cash, securities) ▪ Physical (Location, plant, machinery)

Intangible: Technology (Patents, copyrights) Human resources Reputation (Brands) Culture

Strategic fit” is an often-used term in strategic goals. It is a crucial part of strategic process
management. Two important key factors that help organization achieve strategic fit are the
planning and implementing strategy. Strategic fit portrays an organization’s ability to utilize its
resources and depicts how well it is performing in making the most of the internal and external
environmental issues as well as strengths and opportunities. Strategic fit is linked to the effective
utilization of resource by a business organization which implies that profitability cannot be only
achieved through positioning and selecting the right industry for the organization but rather
through focusing on internal factors that make use of the inimitable distinctiveness of the
organization’s assortment of resources and competences. Strategy fit is all about managing and
modifying strategies, which includes formation of business structure to support the way it
operates through the progression and correlation; achieving success by the use of available
resources, such as people, technology and information, and adjusting the strategy to face new
challenging situations

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RESOURCE-BASED VIEW (RBV)

The resource-based view of the firm (RBV) represents a fundamental change in SHRM thinking
by focusing on the internal resources of the organization, rather than external. This approach
particularly seeks to build a ‘unique bundles’ of HR practices as a source of sustainable
competitive advantage.

In order to have competitive advantage keeping key employees loyal is essential.For an example,
a luxury restaurant management provides a unique platform for employees where they customize
their kitchen based on the Chef’s needs & desire, this strategic HR approach is a core
competence that will make your employees feel like business partners. Another example of using
(RBV) approach in attracting & wining back employees who matters to your business. A trading
firm offers their key employee’s a comprehensive benefits scheme through providing flexible
hours initiatives which allows them to work from home; such HR practices acts as a valuable
resource which will reduce the threats of them leaving you and heading to the competitor.

Fig 3 : RESOURCE-BASED VIEW (RBV)

The resource-based view (RBV) is a way of viewing the firm and in turn of approaching
strategy. Fundamentally, this theory formulates the firm to be a bundle of resources. It is these
resources and the way that they are combined, which make firms different from one another. It is

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considered as taking an inside-out approach while analysing the firm. This means that the
starting point of the analysis is the internal environment of the organization.

Resources

Resources of the firm can include all assets, capabilities, organizational processes, firm
attributes, information and knowledge. In short resources can be considered as inputs that
facilitate the organization to perform its activities. All resources that an organization has may not
have strategic relevance. Only certain resources are capable of being an input to a value creating
strategy which put the organization in a position of competitive advantage. An organization’s
resource should have four attributes to provide the potential for competitive advantage.

The VRIN characteristics :

 Valuable - When resources are able to bring value to the firm they can be a source of
competitive advantage.

 Rare - Resources have to deliver a unique strategy to provide a competitive advantage to

the firm as compared to the competing firms. Consider the case where a resource is
valuable but it exists in the competitor firms as well. Such a resource is not rare to
provide competitive advantage

 Inimitable - Resources can be sources of sustained competitive advantage if competing

firms cannot obtain them. Consider the case where a resource is valuable and rare but the
competing organizations can copy them easily. Such resources also cannot be sources of
competitive advantage

 Non-substitutable - Resources should not be able to be replaced by any other

strategically equivalent valuable resources. If two resources can be utilized separately to
implement the same strategy then they are strategically equivalent. Such resources are
substitutable and so are not sources of sustained competitive advantage. The VRIN
characteristics mentioned above are individually necessary for the resources to be
valuable

1.9 BEST PRACTICE VS. BEST FIT APPROACH

Most organizations don’t place a high enough focus on human capital management as a
component of core competence. In order for organizations to be successful in any market, they
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must have a strategic approach in managing human resources which will lead in creating a
workforce that provides a sustainable competitive advantage.

The relationship between performance and human resources management can be linked into two
strategic approaches which are the “best practice” & “best fit”.

Best practice

The Best-practice model claims that certain bundles of HR activities exist

which universally support in improving Any organizational performance in reaching a
competitive advantage regardless of the organizational setting and irrespective of the location &
size. What works well in one organization will not necessarily work well in another because it
may not fit its strategy, culture, management style, technology or working practices.

Best fit

On the other hand, Best-fit approach is also known as the contingency model and proponents of
this approach assert that there is no universal way of doing things as what might work well in
one place may be unsuccessful in another place. This vertical integrated approach the proposition
that organizations will be more effective if they adopt a policy of strategic configuration by
matching their strategy to one of the ideal practices, where leverage is gained through the close
link of HR policies & practices to the business objectives.

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1.10 THEORETICAL PERSPECTIVES OF SHRM

Fig 4 THEORETICAL PERSPECTIVES OF SHRM

1. Fit Perspective :

HR practices and organization performance indicators. The fit perspective, therefore, proposes
HR as a critical success variable that must be integrated into all phases of organizational planning.
Moreover, even the best laid strategic plans cannot be implemented without taking into account the
HR practices.

2. Functional perspective

Strategic human resource management literature classified as ‘functional’ has two characteristics.
Human resource is seen as a staff function and, therefore, as advisory and subordinate to the core
line functions. This is in accordance with the classical organization design theory. This
perspective relies on the principle that an organization performs best when each departmental unit
maximizes its contributions, limited to its unique area of expertise. General managers at the top have
the responsibility of giving direction to the firm, functional managers with independent expertise
(HR functional staff specialists) are in the middle, and subordinates who carry out supervisors’
directives are at the bottom.

3. Economic Perspective

This perspective views human resources as a unique and distinguishable source of competitive

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advantage. Barney’s resource-based VRIO framework, discussed earlier, takes an economic
perspective on SHRM. Wright and McMahan (1992) extended Barney’s view and argued that
human resources can be a source of sustained competitive advantage when four basic require-
ments are met—human resources must add value to the firm’s production processes, skills
sought by the firm must be rare, human capital must not be easily imitable, and human resources
must not be subject to replacement by technological advances or other substitutes.

4. Typological Perspective

Typologies help in developing systematic comprehensive theories for the study of new innovations
in managerial thought. The three distinct types of HR strategies identified by them were as
follows:

Inducement strategy It is used by firms to support a business environment that is highly

competitive with respect to price and/or quantity. In this strategy, the decision making power is
highly centralized, with supervisors accepting only a moderate amount of employee initiative,
while discouraging innovation and spontaneity. Human resource strategies focus on cost,
expecting high performance in a minimally staffed organization. Loyalty and commitment are
rewarded by the organization to discourage high employee turnover.

Investment strategy It is most likely to be found in firms where the business strategy is based on
differentiation, such as quality, features, or service, rather than price. The organization is
characterized by a tall structure, power is centralized, and the technology is modern and
adaptable. The HR strategy encourages creativity, initiative, and high performance standards.
Formal rules and procedures are minimal.

Involvement strategy It is found in firms with a business strategy based on innovation and
flexibility when they are confronted with a market that is characterized by a highly competitive
price and/or quality. This strategy is also found in firms that use innovation to continuously provide
differentiated products or services, and also respond fast as there is a change in markets or when
their competitors catch up.

1.11 STRATEGIC HUMAN RESOURCE MANAGEMENT (SHRM) – APPROACHES

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There are two approaches to strategic human resource management:

1. Attempts to link Human Resource activities with competency based performance measures.

2. Attempts to link Human Resource activities with business surpluses or profit.

These two approaches indicate two factors in an organisational setting. The first one is the
human factor, their performance and competency and the later is the business surplus. An
approach of people concern is based on the belief that human resources are uniquely important in
sustained business success.

An organization gains competitive advantage by using its people effectively, drawing on their
expertise and ingenuity to meet clearly defined objectives.Integration of the business surplus to
the human competency and performance required adequate strategies. Here the role of strategy
comes into picture. The way in which people are managed, motivated and deployed, and the
availability of skills and knowledge utilized will all shape the business tomorrow’s strategy.

The strategic orientation of the business then requires the effective orientation of human
resources to competency and performance excellence.

1.11.1 Benefits of a Strategic Approach to HR:

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,

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11. Facilitates development of high-quality workforce through focus on types of people and
skills needed,

12. Facilitates cost-effective utilization of labour, particularly in service industries where labour
is generally greatest cost,

13. Facilitates planning and assessment of environmental uncertainty, and adaptation of

organization to external forces,

14. Successful SHRM efforts begin with identification of strategic needs,

15. Employee participation is critical to linking strategy and HR practices,

16. Strategic HR depends on systematic and analytical mindset,

17. Corporate HR departments can have impact on organization’s efforts to launch strategic
initiatives.

1.12 BARRIERS TO STRATEGIC HUMAN RESOURCE MANAGEMENT

1. Short term mentality: Short-term mentality and focus on the current performance of
SHRM is the first barrier. Every manager act, long-term focus, because the organization
has been established with long-terms objectives/focus.
2. Strategic inability: Very often SHRM does not think strategically and he cannot think it
due to incapability. This type of inability may arise for many reasons as lack of technical
knowledge, insufficient training and the like.
3. Lack of appreciation: Sometimes top managers do not recognize the activities of
strategic human resource management. So SHR manager does not get interested in doing
any innovative venture. A few appreciations may get them a substantial mental boost up.
4. Failure in understanding the role: General managerial roles may not be fully understood
by be managers. This failure is due to lack of knowledge about the specialty of a degree
of responsibility. This failure may create distance between these managers.
5. Difficulty in quantifying outcomes: Many outcomes may not be quantified. But SHRM
tries to enjoy the contribution. This is not always possible. Participation, work etc. type
function cannot be quantified because of their intangibility.

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6. Wong perception on human assets: Investment in human assets may be regarded as high
risk than that of technology and information. Though these technologies are run by the
human resources. This wrong perception may inhibit the progress.
7. Resistance: SHR Managers may be resisted because of the incentives for change that
might arise. The change implemented demand some incentives for efforts to execute the
changed program. If these incentives are not given reasonable, they may create barriers
SHRM

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