Chapter 4 The evolution of SHRM
This chapter deals with how the notion of strategic HRM (SHRM) emerged in the 1980s and what has happened to it since. Initially, it covers the development of the important concept of strategic fit (vertical and horizontal integration). As Wright and McMahan (1992: 52) observed, strategic fit refers to the two dimensions that distinguish SHRM: â€˜First, vertically, it entails the linking of human resource management practices with the strategic management processes of the organization. Second, horizontally, it emphasizes the coordination or congruence among the various human resource management practices.â€™ This idea is fundamental to SHRM. Schuler (1992:18) stated that:
Strategic human resource management is largely about integration and adaptation. Its concern is to ensure that: (1) human resources (HR) management is fully integrated with the strategy and strategic needs of the firm (vertical fit); (2) HR policies cohere both across policy areas and across hierarchies (horizontal fit); and (3) HR practices are adjusted, accepted and used by line managers and employees as part of their everyday work.
Initially SHRM theorists focused on vertical fit, but the importance of horizontal fit (a â€˜configurationalâ€™ approach involving both vertical and horizontal fit) was quickly recognized. The idea of strategic fit is associated with the issue of what should be done about formulating HR strategies where the basic choice is between the principles of â€˜best fitâ€™ or â€˜best practiceâ€™. The development of views on this issue is covered in the second section of the chapter.
SHRM is influenced by a number of theories that support the principle of adopting a strategic approach to managing people (the resource-based view) or explain the factors that affect strategy and should be taken into account in formulating it (human capital and behavioural factors, AMO theory and stakeholder theory). These are described in the third section of this chapter. As SHRM evolved, various preoccupations emerged. These are reviewed in the fourth section of the chapter and are concerned with the impact of SHRM on performance, an increased focus on implementation and the need for a multi-stakeholder approach.
The development of SHRM has not been linear. Different concepts have emerged concurrently and in some respects it could be characterized as a circular process. And while a convincing case for SHRM has been made by many commentators, doubts can be expressed about its reality â€“ what does SHRM mean in practice? These doubts are explored in the next chapter.
Beginnings â€“ focus on vertical integration or fit
The first suggestion that people resource planning and strategic planning should be linked came from Walker (1978). This was followed by Tichy et al, (1982: 47) who argued that: â€˜The fundamental strategic management problem is to keep the strategy, structure and human resource dimensions of the organization in direct alignment.â€™ As noted by Wright et al (2001: 701), â€˜Walkerâ€™s call signified the conception of the field of SHRM, but its birth came in the early 1980s with Tichy et alâ€™s article devoted to extensively exploring the link between business strategy and HR.â€™ Lengnick-Hall et al (2009) pointed out that early strategic HRM literature emphasized a contingency perspective in which the focal point was fit between HR policies and practices and various strategy elements (vertical fit or integration).
This view was expressed clearly by Dyer and Holder (1988: 3) who wrote that in strategic HRM: â€˜Strategies are business-driven and focus on organizational effectiveness; thus, in this perspective, people are viewed primarily as resources to be managed toward the achievement of strategic business goals.â€™
It was during this early period that the two seminal books on human resource management were published â€“ Beer et al (1984) and Fombrun et al (1984). Both acknowledged the need to fit HR strategy to the business strategy, that is, vertical fit.
Recognizing the importance of horizontal as well as vertical fit
Baird and Meshoulam (1988) expanded the notion of fit to incorporate both vertical and horizontal components. Vertical fit is aligning a firmâ€™s HR practices with its strategy, whereas horizontal fit is aligning a firmâ€™s HR practices with one another, thus enabling them to mutually reinforce each other, a process that became known as â€˜bundlingâ€™.
The significance of horizontal fit as a means of achieving high employee performance also emerged in the writings of Wright and McMahan (1992) and MacDuffie (1995). Research in US automotive assembly plants carried out by the latter established that innovative HR practices affect performance not individually but as interrelated elements in an internally consistent HR bundle. He explained the concept of bundling as follows: â€˜Implicit in the notion of a â€œbundleâ€ is the idea that practices within bundles are interrelated and internally consistent, and that â€œmore is betterâ€ with respect to the impact on performance, because of the overlapping overlapping and mutually reinforcing effect of multiple practices (MacDuffie, 1995: 197).
Dyer and Reeves (1995: 656â€“57) stated that: â€˜The logic in favour of bundling is straightforward… Since employee performance is a function of both ability and motivation, it makes sense to have practices aimed at enhancing both.â€™
Research in an international furniture firm in Holland by Paauwe et al (2013) established that an important contributory factor to the companyâ€™s success was its pursuit of fit in strategic HR planning
Views on the development of HR strategy â€“ â€˜best fitâ€™ or â€˜best practiceâ€™
The emergence of the notions of vertical and horizontal fit sparked a debate at about this time on the relative merits of what became known as â€˜best practiceâ€™ and â€˜best fitâ€™.
Perspectives on HRM
Delery and Doty (1996: 802â€“03) led the debate by identifying three HRM perspectives:
1. The universalistic perspective â€“ some HR practices are better than others and all organizations should adopt these best practices. There is a universal relationship between individual â€˜bestâ€™ practices and firm performance.
2. The contingency perspective â€“ in order to be effective, an organizationâ€™s HR policies must be consistent with other aspects of the organization. The primary contingency factor is the organizationâ€™s strategy. This can be described as â€˜vertical fitâ€™.
3. The configurational perspective â€“ â€˜In order to be effective, an organization must develop an HR system that achieves both horizontal and vertical fit. Horizontal fit refers to the internal consistency of the organizationâ€™s HR policies or practices, and vertical fit refers to the congruence of the HR system with other organizational characteristics such as firm strategy. An ideal configuration would be one with the highest degree of horizontal fit.â€™
An alternative way of presenting these perspectives was suggested by Guest (1997) who referred to fit as an ideal set of practices (a universalistic or best practice approach), fit as contingency (a best fit approach) and fit as bundles (a configurational approach).
The third configurational (bundle) approach was generally accepted but the choice between best practice or best fit was more controversial.
The best practice approach
This â€˜universalistâ€™ approach is based on the assumption that there is a set of best HRM practices and that adopting them will lead to superior organizational performance. They are universal in the sense that they are best in any situation.
The following well-known list of best practices was produced by Pfeffer (1994):
1. Employment security.
2. Selective hiring.
3. Self-managed teams.
4. High compensation contingent on performance.
5. Training to provide a skilled and motivated workforce.
6. Reduction of status differentials.
7. Sharing information.
The â€˜best practiceâ€™ rubric was attacked by Cappelli and Crocker-Hefter (1996:7) who commented that the notion of a single set of best practices has been over-stated: â€˜There are examples in virtually every industry of highly successful firms that have very distinctive management practices. We argue that these distinctive human resource practices help to create unique competencies that differentiate products and services and, in turn, drive competitiveness.â€™
In accordance with contingency theory, which emphasizes the importance of interactions between organizations and their environments so that what organizations do is dependent on the context in which they operate, it is difficult to accept that there is any such thing as universal best practice. 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. However, a knowledge of what is assumed to be best practice can be used to inform decisions on what practices are most likely to fit the needs of the organization, as long as it is understood why a particular practice should be regarded as a best practice and what needs to be done to ensure that it will work in the context of the organization. Perhaps it is best to think of â€˜good practiceâ€™ rather than â€˜best practiceâ€™.
The best fit approach
The best fit approach emphasizes that HR or people strategies should be related to the context of the organization, its circumstances and its type. There is a choice of models, namely: lifecycle, competitive strategy and strategic configuration.
The lifecycle model
The lifecycle model is based on the theory that the development of a firm takes place in four stages: start-up, growth, maturity and decline. This is in line with product lifecycle theory. The basic premise of this model was expressed by Baird and Meshoulam (1988: 117) as follows:
Â· Human resource managementâ€™s effectiveness depends on its fit with the organizationâ€™s stage of development. As the organization grows and develops, human resource management programmes, practices and procedures must change to meet its needs. Consistent with growth and development models it can be suggested that human resource management develops through a series of stages as the organization becomes more complex.
Best fit and competitive strategies
Three strategies aimed at achieving competitive advantage were identified by Porter (1985):
1. Innovation â€“ being the unique producer.
2. Quality â€“ delivering high quality goods and services to customers.
3. Cost leadership â€“ the planned result of policies aimed at â€˜managing away expenseâ€™.
It was contended by Schuler and Jackson (1987) that to achieve the maximum effect it is necessary to match the role characteristics of people in an organization with the preferred one of these.
Another approach to best fit is the proposition that organizations will be more effective if they match one of the ideal types defined by theories such as those produced by Mintzberg (1979) and Miles and Snow (1978). This increased effectiveness is attributed to the internal consistency or fit between the patterns of relevant contextual, structural and strategic factors. The typology of organizations produced by Mintzberg classified them into five categories: simple structure, machine bureaucracy, professional bureaucracy, divisionalized form, and adhocracy. Miles and Snow identified three types of what they called â€˜idealâ€™ organizations:
1. Prospectors, which operate in an environment characterized by rapid and unpredictable changes.
2. Defenders, which operate in a more stable and predictable environment than prospectors and engage in more long-term planning.
3. Analysers, which are a combination of the prospector and defender types. They operate in stable environments, like defenders, and also in markets where new products are constantly required, like prospectors.
Comments on the concept of best fit
The best fit model seems to be more realistic than the best practice model. As Dyer and Holder (1988: 31) commented: â€˜The inescapable conclusion is that what is best depends.â€™ It can therefore be claimed that best fit is more important than best practice.
But there are limitations to the concept of best fit. Paauwe (2004: 37) argued that: â€˜It is necessary to avoid falling into the trap of contingent determinism, ie acting as if the context absolutely determines the strategy. There is, or should be, room for making strategic choices.â€™
The difficulty of mechanistically matching HR policies and practices with strategy should be noted. It is not credible to claim that there are single contextual factors that determine HR strategy, and internal fit cannot therefore be complete. Boxall (2007: 61) contended that: â€˜It is clearly impossible to make all HR policies reflective of a chosen competitive or economic mission.â€™
Purcell (1999: 35) referred to the concept of â€˜idiosyncratic contingencyâ€™ which â€˜shows that each firm has to make choices not just on business and operational strategies but on what type of HR system is best for its purposesâ€™. He commented (p 37) that: â€˜The search for a contingency or matching model of HRM is also limited by the impossibility of modelling all the contingent variables, the difficulty of showing their interconnection, and the way in which changes in one variable have an impact on others, let alone the need to model idiosyncratic and path dependent contingencies.â€™
Youndt et al (1996) compared the universalistic (best practice) with contingency (best fit) perspectives of SHRM in a study of 97 manufacturing plants. The results supported the contingency approach. They found that an HR system focused on human capital enhancement in organizations pursuing a quality enhancement strategy improved multiple dimensions of operational performance. But the researchers argued that universalistic and contingency perspectives are not necessarily mutually exclusive, an assertion that Boxall and Purcell (2008) also made. In other words, it has been suggested that universal â€˜best practicesâ€™ can provide a foundation for SHRM activities, but in order to achieve a higher level of performance, contingent factors should be considered.
Michie and Sheehan (2005) tested the universalistic (best practice) contingency (best fit), and configurational (pattern of HR practices) perspectives on a sample of UK manufacturing and service-sector firms. They found that the relationship between HR policies and practices and performance is dependent upon business strategy (the contingency perspective) and that companies pursuing an integrated approach to HR perform best.
Some support for the best practice viewpoint was provided by Ahmad and Schroeder (2003) who examined the relationship between HRM practices and operations management across a number of countries and industries. They found a relationship between Pfefferâ€™s (1994) seven best HRM practices and organizational performance across three industries and four countries.
The concept of best practice should not be dismissed out of hand in favour of best fit. Stavrou et al (2010: 952, 973) suggested that both could be appropriate:
There may be merit in both approaches where the debate is between general principles/bundles (training and development, staffing, compensation and benefits, communication and participation, and planning) and the manner in which they are carried outâ€¦ It seems that the â€˜best fitâ€™ and â€˜best practiceâ€™ approaches of the HRâ€“performance relationship are not necessarily mutually exclusive. On the contrary, they may be combined to provide a more holistic picture of the subject.
Development of a conceptual framework for SHRM
SHRM is essentially conceptual. The notion of adopting a strategic approach to managing people has been underpinned by a number of theories that highlight the significance of SHRM and explain what it involves, as described below.
The resource-based view
The resource-based view (RBV) first appeared as an underpinning theory for SHRM at the same time as the initial descriptions of SHRM were being made. According to Delery and Roumpi (2017), the RBV arguably constitutes one of the most popular theoretical frameworks in the management literature. It indicates that it is the range of resources in an organization, including its human resources, that produces its unique character and creates competitive advantage. The RBV is founded on the ideas of Penrose (1959: 24â€“25), who wrote that the firm is â€˜an administrative organization and a collection of productive resourcesâ€™ and saw resources as â€˜a bundle of potential servicesâ€™. It was expanded by Wernerfelt (1984: 172), who explained that strategy â€˜is a balance between the exploitation of existing resources and the development of new onesâ€™. Resources were defined by Hunt (1991: 322) as â€˜anything that has an enabling capacityâ€™.
The concept was developed by Barney (1991: 102), who stated that â€˜a firm is said to have a competitive advantage when it is implementing a value-creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy. This will happen if their resources are valuable, rare, inimitable and non-substitutable.â€™ He noted later (Barney 1995: 49) that an environmental analysis of strengths, weaknesses, opportunities and threats (SWOT analysis) was only half the story: â€˜A complete understanding of sources of a firmâ€™s competitive advantage requires the analysis of a firmâ€™s internal strengths and weaknesses as well.â€™ He wrote (p 60):
Creating sustained competitive advantage depends on the unique resources and capabilities that a firm brings to competition in its environment. To discover these resources and capabilities, managers must look inside their firm for valuable, rare and costly-to-imitate resources, and then exploit these resources through their organization.
The following rationale for resource-based strategy was produced by Grant (1991: 13):
The resources and capabilities of a firm are the central considerations in formulating its strategy: they are the primary constants upon which a firm can establish its identity and frame I ts strategy, and they are the primary sources of the firmâ€™s profitability. The key to a resource-based approach to strategy formulation is understanding the relationships between resources, capabilities, competitive advantage and profitability â€“ in particular, an understanding of the mechanisms through which competitive advantage can be sustained over time. This requires the design of strategies which exploit to maximum effect each firmâ€™s unique characteristics.
Resource-based SHRM can produce what Boxall and Purcell (2016) refer to as â€˜human resource advantageâ€™. The aim is to develop strategic capability. This means strategic fit between resources and opportunities, obtaining added value from the effective deployment of resources, and developing managers who can think and plan strategically in the sense that they understand the key strategic issues and ensure that what they do enables the strategic goals of the business to be achieved. In line with human capital theory, the resource-based view emphasizes that investment in people increases their value to the firm. It proposes that sustainable competitive advantage is attained when the firm has a human resource pool that cannot be imitated or substituted by its rivals.
Boxall (1996: 66) observed that the strategic goal emerging from the resource-based view was to â€˜create firms which are more intelligent and flexible than their competitors by hiring and developing more talented staff and by extending their skills baseâ€™. Resource-based strategy is therefore concerned with the enhancement of the human or intellectual capital of the firm.
The human capital perspective
Human capital theory is associated with the resource-based view. It states that the unique nature of human capital resources within the firm have the potential to generate sustainable competitive advantage (Nyberg et al, 2014; Ployhart et al, 2014). However, as pointed out by Delery and Roumpi (2017: 9), human capital is different from other types of resources in that it is owned by employees and can be transferred to other firms if they leave. Therefore it is critical for firms to use HRM systems to enhance existing levels of human capital, initially by attracting high-quality people and providing them with development opportunities, and then preventing the loss of their human capital investments to other firms by enhancing the commitment of employees to the firm and applying retention policies. As Wright et al (1994: 320) noted: â€˜Sustained competitive advantage is achieved only by the interaction between the human capital pool and the HR practices.â€™
Skaggs and Youndt (2004) investigated a sample of 234 service organizations and found strong empirical support to indicate that if fit is achieved between human capital and the organizationâ€™s strategic positioning, the result is positive organizational performance.
The behavioural perspective
The behavioural perspective emerged in the late 1980s. Schuler and Jackson (1987) asserted that different strategy types (cost reduction, quality improvement, and innovation) require different types of employee role behaviours. They also argued that once the desired employee role behaviours have been identified to fit the strategy, HR practices should be used to ensure those behaviours take place. As described by Lepak and Shaw (2008), the behavioural perspective suggests that HRM practices affect firm performance by encouraging needed role behaviours that are aligned to the organizationâ€™s strategy. It offered a new dimension to the practice of SHRM, one as much concerned about people as about profit. Paauwe et al (2013) referred to research (Bowen and Ostroff, 2004) which suggested that a coherent and consistent HR system sent messages to employees regarding desired behaviours.
Cabrera and Bonache (1999) conducted research that highlighted the need to align an organizationâ€™s culture with its strategy. As they noted, a culture will be an asset for an organization if it encourages behaviours that support its intended strategy. They argued that a strong strategic culture can be created through two processes: planning HR practices that are aligned with the organizationâ€™s strategy to promote the desired behavioural norms, and deliberately selecting candidates who share the desired values.
Dyer and Ericksen (2005) extended the behavioural perspective to argue that the future of HRM in terms of creating value lies in the ability of the HRM system to achieve workforce agility and flexibility. Technological changes often force organizations to be fluid, and the structures and processes emanating from the HRM system must follow suit. They stated (Dyer and Ericksen, 2005: 187) that: â€˜Agile enterprises require guiding principles that encourage the inflow and outflow of talent in ways that facilitate and only minimally disrupt internal fluidity.â€™ Thus the behavioural perspective enhanced the resource-based view and the human capital movement to provide a conceptual framework for talent management.
The AMO model
The AMO model as expressed by Boxall and Purcell (2003) is associated with the behavioural perspective but is also linked to the preoccupation with the link between HRM and performance which started in the later 1990s. It states that performance depends on the individualâ€™s ability, motivation and opportunity. Employees must have the ability to perform well and the motivation to do so, while organizations must ensure that they are given the opportunity to perform.
Boxall and Purcell (2016: 155) formulated the AMO framework as P = f(A,M,O) and explained that:
Individuals perform when they have:
Â· the ability (A) to perform (they can do the job because they have the necessary knowledge, skills and aptitudes);
Â· the motivation (M) to perform (they will do the job because they want to do it or feel they must do it);
Â· and the opportunity (O) to perform (their work structure and environment provide the necessary support and avenues for expression).
They also noted that someoneâ€™s ability, motivation and opportunity to perform would depend on two groups of factors: 1) the individualâ€™s experience, intelligence, health, personality etc; 2) the situational factors of HR policies and practices orientated to creating â€˜AMOâ€™ and related variables in the production system and the organizational context.
Stakeholder theory as developed by Freeman (1984) states that a number of different groups are stakeholders in organizations, including shareholders, managers, employees, customers, government and the public at large. He quoted (Freeman, 1984: 31) the Stanford Research Instituteâ€™s 1963 definition of stakeholders as â€˜those groups without whose support the organization would cease to existâ€™. Organizations must take account of these various interests when formulating and implementing HR strategy and policies.
Preoccupation with performance
A notable characteristic of the development of SHRM from the 1990s onwards was the quantity of research conducted to demonstrate that effective SHRM generates improved organizational performance. In the UK, studies such as those conducted by Birdi et al (2008), Carlson et al (2006), Guest et al (2000), Purcell et al (2003) and West et al (2002) have shown that good HRM practice and firm performance are correlated. In the United States, extensive research on the impact of HRM on performance was conducted by Arthur (1994), Combs et al (2006), Huselid (1995) and Ichniowski et al (1997). Lengnick-Hall et al (2009: 79) commented that:
The most recent period of SHRM research is characterized by a number of established ideas and issues either further examined or tweaked, and a few new ideas or avenues that offer promise for enhancing our knowledge of this field. First, evidence continues to accumulate that there is a relationship between HR systems and organizational performance, although the causal sequence may be more reciprocal than direct.
Focus on implementation
SHRM commentators began in the 2000s to focus more on implementation issues (Barney, 2001, Bos-Nehles et al, 2006, Guest and Bos-Nehles, 2013). As Lengnick-Hall et al (2009: 79) observed:
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