4TH EDITION Michael Armstrong STRATEGIC HUMAN RESOURCE MANAGEMENT A GUIDE TO ACTION
Contents Introduction PART 1 THE CONCEPTUAL FRAMEWORK OF STRATEGIC HRM 1 The concept of human resource management HRM defined 5;Human resource systems 8;Aims of HRM 9; Characteristics of HRM 12;Reservations about HRM 17 2 The concept of strategy 21 Strategy defined 22;The concept of strategy 23;The formulation of strategy 28 3 The concept of strategic human resource management 33 Strategic HRM defined 33;Basis of strategic HRM 34; Principles of strategic HRM35;Aims of strategic HRM35; Concepts of strategic HRM 37;Perspectives on strategic HRM39 The best-practice approach 40;The best-fit approach 42; Bundling 46;The reality of strategic HRM 48;Practical implications of strategic HRM theory 49
Contents Introduction PART 1 THE CONCEPTUAL FRAMEWORK OF STRATEGIC HRM 1 The concept of human resource management 5 HRM defined 5; Human resource systems 8; Aims of HRM 9; Characteristics of HRM 12; Reservations about HRM 17 2 The concept of strategy 21 Strategy defined 22; The concept of strategy 23; The formulation of strategy 28 3 The concept of strategic human resource management 33 Strategic HRM defined 33; Basis of strategic HRM 34; Principles of strategic HRM 35; Aims of strategic HRM 35; Concepts of strategic HRM 37; Perspectives on strategic HRM 39; The best-practice approach 40; The best-fit approach 42; Bundling 46; The reality of strategic HRM 48; Practical implications of strategic HRM theory 49 v
vi Contents PART 2 THE PRACTICE OF STRATEGIC HRM 4 HR strategies 53 What are HR strategies?53;What is the purpose of HR strategies?54;Overall HR strategies54 Specific HR strategies 59 Criteria for an effective HR strategy 61;How should HR strategies be developed?62;Developing HR strategies 66; Implementing HR strategies 70 5 The strategic role of HR 72 The strategic nature of HR72;The strategic partner model73 What being strategic means 75;The strategic role of HR directors 76;The strategic role of heads of HR functions 77; The strategic role of HR business partners 78;The strategic contribution of HR advisers or assistants 78 6 The impact of strategic HRM 79 How HR impacts on organizational performance 79; How strategic HRM concepts impact on practice 85 7 Strategic HRM in action 86 Formulating HR strategy 86;The content of HR strategies96; Corporate issues 98;Achieving integration 101;What are the most characteristic features of strategic HRM in action?104 PART 3 HR STRATEGIES 8 Human capital management strategy 10> Aims of human capital management 10 The link between HCM and business strategy 108;Developing a human capital management strategy 109;Conclusions:the role of human capital management strategy 114 9 High-performance strategy 115 High-performance work system defined 116;Characteristics of a high-performance work system 116;Components of an HPWS 117;Impact of high-performance work systems 117; Developing a high-performance strategy 121 10 Corporate social responsibility strategy 126 Strategic CSR defined 127;CSR activities 127;The rationale for CSR 128;Developing a CSR strategy 130
PART 2 THE PRACTICE OF STRATEGIC HRM 4 HR strategies 53 What are HR strategies? 53; What is the purpose of HR strategies? 54; Overall HR strategies 54; Specific HR strategies 59; Criteria for an effective HR strategy 61; How should HR strategies be developed? 62; Developing HR strategies 66; Implementing HR strategies 70 5 The strategic role of HR 72 The strategic nature of HR 72; The strategic partner model 73; What being strategic means 75; The strategic role of HR directors 76; The strategic role of heads of HR functions 77; The strategic role of HR business partners 78; The strategic contribution of HR advisers or assistants 78 6 The impact of strategic HRM 79 How HR impacts on organizational performance 79; How strategic HRM concepts impact on practice 85 7 Strategic HRM in action 86 Formulating HR strategy 86; The content of HR strategies 96; Corporate issues 98; Achieving integration 101; What are the most characteristic features of strategic HRM in action? 104 PART 3 HR STRATEGIES 8 Human capital management strategy 107 Aims of human capital management 108; The link between HCM and business strategy 108; Developing a human capital management strategy 109; Conclusions: the role of human capital management strategy 114 9 High-performance strategy 115 High-performance work system defined 116; Characteristics of a high-performance work system 116; Components of an HPWS 117; Impact of high-performance work systems 117; Developing a high-performance strategy 121 10 Corporate social responsibility strategy 126 Strategic CSR defined 127; CSR activities 127; The rationale for CSR 128; Developing a CSR strategy 130 vi l Contents
Contents vii 11 Organization development strategy 132 Organization development defined 132;OD strategies 133; Assumptions and values of OD 133;Activities incorporated in the OD strategy 134;Strategies for organizational transformation 136 12 Employee engagement strat egy 140 Engagement and organizational commitment 140;The significance of engagement 141;Engagement and discretionary behaviour 142:What is an engaged employee?142What are the factors that influence engagement?143;Strategies for enhancing engagement 145;Measuring engagement 148 13 Knowledge management strategy 149 The process of knowledge management 149;Sources and types of knowledge 150;Approaches to the development of knowiedge management strategies 151;Strategic knowledge management issues 151;Components of a knowledge management strategy 153 14 Employee resourcing strategy 154 e objective of employee reso rcing strategy 154;The strategic HRM approach to resourcing 155;Integrating business and resourcing strategies 155;Bundling resourcing strategies and activities156 The components of employee esourcing strategy 156;Human resource planning 157;Employee value proposition 160;Resourcing plans 161;Retention strategy 163; Flexibility strategy 167 15 Talent management s6Tess of talent 168 Talent manager nt define management 170;Developing a talent management strategy 173 16 Learning and development strategy 175 Strategic human resource development(SHRD)175;Strategies for creating a learning culture 178;Organizational learning strategies 178;Learning organization strategy 180;Individual learning strategies 181 17 Reward strategy 183 Reward strategy defined 183;Why have a reward strategy?183; Characteristics of reward strategies 184;The structure of reward strategy 184;The content of reward strategy 185;Guiding principles 188;Developing reward strategy 189;Effective reward strategies 191;Reward strategy and line management capability 192
11 Organization development strategy 132 Organization development defined 132; OD strategies 133; Assumptions and values of OD 133; Activities incorporated in the OD strategy 134; Strategies for organizational transformation 136 12 Employee engagement strategy 140 Engagement and organizational commitment 140; The significance of engagement 141; Engagement and discretionary behaviour 142; What is an engaged employee? 142; What are the factors that influence engagement? 143; Strategies for enhancing engagement 145; Measuring engagement 148 13 Knowledge management strategy 149 The process of knowledge management 149; Sources and types of knowledge 150; Approaches to the development of knowledge management strategies 151; Strategic knowledge management issues 151; Components of a knowledge management strategy 153 14 Employee resourcing strategy 154 The objective of employee resourcing strategy 154; The strategic HRM approach to resourcing 155; Integrating business and resourcing strategies 155; Bundling resourcing strategies and activities 156; The components of employee resourcing strategy 156; Human resource planning 157; Employee value proposition 160; Resourcing plans 161; Retention strategy 163; Flexibility strategy 167 15 Talent management strategy 168 Talent management defined 168; The process of talent management 170; Developing a talent management strategy 173 16 Learning and development strategy 175 Strategic human resource development (SHRD) 175; Strategies for creating a learning culture 178; Organizational learning strategies 178; Learning organization strategy 180; Individual learning strategies 181 17 Reward strategy 183 Reward strategy defined 183; Why have a reward strategy? 183; Characteristics of reward strategies 184; The structure of reward strategy 184; The content of reward strategy 185; Guiding principles 188; Developing reward strategy 189; Effective reward strategies 191; Reward strategy and line management capability 192 Contents l vii
viii Contents 18 Employee relations strategy 193 Employee relations strategy defined 193;Concerns of employee relations strategy 194;Strategic directions 194;The background to employee relations strategies 195;The HRM approach to employee relations 195;Policy options 197:Formulating employee relations strategies 197;Partnership agreements 198; Employee voice strategies 200 PART 4 THE STRATEGIC HR TOOLKIT 1 Strategic human resource management toolkit 205 References 226 Subject index Author index
18 Employee relations strategy 193 Employee relations strategy defined 193; Concerns of employee relations strategy 194; Strategic directions 194; The background to employee relations strategies 195; The HRM approach to employee relations 195; Policy options 197; Formulating employee relations strategies 197; Partnership agreements 198; Employee voice strategies 200 PART 4 THE STRATEGIC HR TOOLKIT 1 Strategic human resource management toolkit 205 References 226 Subject index 241 Author index 246 viii l Contents
1 Introduction business strategies and enable the organization to achieve its goals. In essence,strategic HRM is conceptual;it is a general notion of how inte gration or'fit'between HR and business strategies is achieved,the benefits of taking a longer-term view of where HR should be going and how to get there,and how coherent and mutually supporting HR strategies should be developed and implemented.Importantly,it isalso about how members of the HR function should adopt a strategic approach on a day-to-day basis This means that they operate as part of the management team,ensure that HR activties support the achievement of gies on a continuous basis and are consciously concerned with seeing that their activities add value To understand strategic HRM it is first necessary to appreciate the concepts of human resource management and strategy as covered in Chapters 1 and 2 respectively in Part 1(the framework of strategic HR).The concept of strategic human resource management(strategic HRM)is then examined in detail in Chapter 3 Part 2 of the book is concerned with the roles of management and HR in developed.The book concludes with a toolkit providing guidance on devel- oping HR strategy through a strategic review
Introduction Strategic human resource management (SHRM) is an approach to the development and implementation of HR strategies that are integrated with business strategies and enable the organization to achieve its goals. In essence, strategic HRM is conceptual; it is a general notion of how integration or ‘fit’ between HR and business strategies is achieved, the benefits of taking a longer-term view of where HR should be going and how to get there, and how coherent and mutually supporting HR strategies should be developed and implemented. Importantly, it is also about how members of the HR function should adopt a strategic approach on a day-to-day basis. This means that they operate as part of the management team, ensure that HR activities support the achievement of business strategies on a continuous basis and are consciously concerned with seeing that their activities add value. To understand strategic HRM it is first necessary to appreciate the concepts of human resource management and strategy as covered in Chapters 1 and 2 respectively in Part 1 (the framework of strategic HR). The concept of strategic human resource management (strategic HRM) is then examined in detail in Chapter 3. Part 2 of the book is concerned with the roles of management and HR in strategic HRM and with the processes of developing and implementing HR strategies. Part 3 covers each of the main areas of HR in which strategies are developed. The book concludes with a toolkit providing guidance on developing HR strategy through a strategic review. 1
3 Part 1 The conceptual framework of strategic HRM
Part 1 The conceptual framework of strategic HRM 3
5 The concept of human resource management In the first section of this chapter human reso rce management(HRM)is defined in general and as a system.Its aims and characteristics are described in later sections of the chapter. HRM DEFINED Human resource management is defined as a strategic and coherent approach to the management of an organization's most valued assets-the Boxall et al(2007)describe HRM as'the management of work and people towards desired ends'.John Storey (1989)believes that HRM can be regarded as a'set of interrelated policies with an ideological and philo- sophical underpinning'.He suggests four aspects that constitute the mean- ingful version of HRM:1)a particular constellation of beliefs and assumptions;2)a strategic thrust informing decisions about people management;3)the central involvement of line managers;and 4)reliance upon a set of'levers'to shape the employment relationship.HRMis further defined by the two models of HRM developed by what might be described as its founding fathers
1 The concept of human resource management In the first section of this chapter human resource management (HRM) is defined in general and as a system. Its aims and characteristics are described in later sections of the chapter. HRM DEFINED Human resource management is defined as a strategic and coherent approach to the management of an organization’s most valued assets – the people working there, who individually and collectively contribute to the achievement of its objectives. Boxall et al (2007) describe HRM as ‘the management of work and people towards desired ends’. John Storey (1989) believes that HRM can be regarded as a ‘set of interrelated policies with an ideological and philosophical underpinning’. He suggests four aspects that constitute the meaningful version of HRM: 1) a particular constellation of beliefs and assumptions; 2) a strategic thrust informing decisions about people management; 3) the central involvement of line managers; and 4) reliance upon a set of ‘levers’ to shape the employment relationship. HRM is further defined by the two models of HRM developed by what might be described as its founding fathers. 5
6 The conceptual framework of strategic HRM The matching model of HRM One of the first explicit statements of the HRM concept was made by the Michigan School(Fombrun,Tichy and Devanna,1984).They held that HR systems and the organization structure should be managed in a way that is congruent with organizational strategy (hence the name 'matching model'). They further explained that there is a human resource cycle(an adaptation of which Figure 1.1)which consists of four generic processeso functions that are performed in all organizations.These are: selection-matching available human resources to jobs appraisal-performance management; rewards-the reward system is one of the most under-utilized and that 'business must perform in the present to succeed in the future'; development-developing high-quality employees. The Harvard framework The other pioneers of HRM were the Harvard School of Beeret al(1984),who developed what Boxall (1992)calls the Harvard framework'.This framework is based on their belief that the problems of historical personnel management can only be solved: when general managers develop a viewpoint of how they wish to see employees involved in and developed by the enterprise,and of what HRM Rewards Selection Figure 1.1 The human resource cycle Source:Fombrun,Tichy and Devanna,1984
The matching model of HRM One of the first explicit statements of the HRM concept was made by the Michigan School (Fombrun, Tichy and Devanna, 1984). They held that HR systems and the organization structure should be managed in a way that is congruent with organizational strategy (hence the name ‘matching model’). They further explained that there is a human resource cycle (an adaptation of which is illustrated in Figure 1.1), which consists of four generic processes or functions that are performed in all organizations. These are: l selection – matching available human resources to jobs; l appraisal – performance management; l rewards – ‘the reward system is one of the most under-utilized and mishandled managerial tools for driving organizational performance’; it must reward short- as well as long-term achievements, bearing in mind that ‘business must perform in the present to succeed in the future’; l development – developing high-quality employees. The Harvard framework The other pioneers of HRM were the Harvard School of Beer et al (1984), who developed what Boxall (1992) calls the ‘Harvard framework’. This framework is based on their belief that the problems of historical personnel management can only be solved: when general managers develop a viewpoint of how they wish to see employees involved in and developed by the enterprise, and of what HRM 6 l The conceptual framework of strategic HRM Selection Performance Rewards Development Performance appraisal Figure 1.1 The human resource cycle Source: Fombrun, Tichy and Devanna, 1984
The concept of human resource management7 policies and practices may achieve those goals.Without either a centra philosophy or a strategic vision-which can be provided only by general managers-HRM is likely to remain a set of independent activities,each guided by its own practice tradition. Beer and his colleagues believed that,'Today,many pressures are demanding a broader,more comprehensive and more strategic perspective with regard to the organization's human resources.'These pressures have created a need forA longer-term perspective in managing people and consideration of people as potential assets rather than merely a variable cost'.They were the first to underline the HRM tenet that it belongs to line managers.They also stated that'Human resource management involves all management decisions and action that affect the nature of the relationship between the organization and its employees-its human resources.' The Harvard school suggested that HRM had two characteristic features: 1)line managers accept more responsibility for ensuring the alignment o competitive strategy and personnel policies:2)personnel has the mission of setting policies that govern how personnel activities are developed and ented in ays that em mor e mutually reinfor Haryard framework as modelled by Beersso Stakeholder shareholder management government unions HRM policy HR outcomes: Long-term choices: consequences individual gruence well-bei flown resource effectiveness ·workforce and nage nen labour market ·la values Figure 1.2 The Harvard framework for human resource management Source:Beer et al,1984
policies and practices may achieve those goals. Without either a central philosophy or a strategic vision – which can be provided only by general managers – HRM is likely to remain a set of independent activities, each guided by its own practice tradition. Beer and his colleagues believed that, ‘Today, many pressures are demanding a broader, more comprehensive and more strategic perspective with regard to the organization’s human resources.’ These pressures have created a need for ‘A longer-term perspective in managing people and consideration of people as potential assets rather than merely a variable cost’. They were the first to underline the HRM tenet that it belongs to line managers. They also stated that ‘Human resource management involves all management decisions and action that affect the nature of the relationship between the organization and its employees – its human resources.’ The Harvard school suggested that HRM had two characteristic features: 1) line managers accept more responsibility for ensuring the alignment of competitive strategy and personnel policies; 2) personnel has the mission of setting policies that govern how personnel activities are developed and implemented in ways that make them more mutually reinforcing. The Harvard framework as modelled by Beer et al is shown in Figure 1.2. The concept of human resource management l 7 Figure 1.2 The Harvard framework for human resource management Source: Beer et al, 1984 Stakeholder interests: • shareholders • management • employees • government • unions HRM policy choices: • employee influence • human resource flow • reward systems • work systems HR outcomes: • commitment • congruence • cost- effectiveness Long-term consequences: • individual well-being • organizational effectiveness • societal well- being Situational factors: • workforce characteristics • business strategy and conditions • management philosophy • labour market • unions • task technology • laws and social values