What is strategic Human Resources Management(SHRM)?
Strategic human resources management(SHRM) is a process or system of linking human resources practices to achieving key organizational outcomes. In strategic SHRM, the focus of human resources practices is not on HR per se but on the organization's bigger and more strategic goals. The focus is developing HR interventions and practices that positively impact the organization's higher-level goals and targets. Dave Ulrich often summarises this thrust as "HR for business" and not "HR for HR". In summary, the success of human resources practices should be measured on strategic business outcomes and not human resources outcomes.
Gartner indicates, "Only 32% of HR leaders state that their HR strategic planning process is fully integrated with the business' planning process."
Strategic Human Resources Management (SHRM) involves aligning HR policies and practices with an organization's strategic goals. Hayati (2021) emphasizes the importance of HR professionals understanding the strategic value of HR activities, while Gashi (2013) notes that SHRM and Strategic Human Capital Management (SHCM) are similar but differ in their focus on treating employees as assets.
In SHRM, HR professionals work closely with top-level management to develop and implement HR strategies that support the organization's mission, vision, and values.
The transition of Human Resources Management to Strategic Human Resources Management
This handbook summarises the transition HR needs to move to strategic human resources management. The role of HR Management has undergone a significant transformation in recent years. Previously, HR primarily served as a support function for managers and the organization, focusing on maintaining a positive social environment. However, with increased market competition, the expectations for HR have changed. It now plays a strategic role in the organization, with top management looking to HR to take full responsibility for people management. The employees themselves have become crucial to the success of modern and innovative organizations, leading to an increased emphasis on effective HR management. As a result, HR has evolved to strategically align its strategies with the overall business strategy, translating it into competitive HR strategies. This has become a challenging strategic mission for HR teams as they identify key business challenges and develop appropriate HR policies and practices.
Strategic Human Resources Management: What are the pillars?
This article presents insights from five case studies conducted in leading firms regarding effective people management. The findings highlight three key conclusions. Firstly, a successful HR function is built upon a business strategy that recognizes the value of people as a competitive advantage and fosters a management culture that embraces this belief. Secondly, a value-added HR function prioritizes operational excellence, providing excellent client service to individual employees and managers while minimizing costs. Lastly, an effective HR function requires managers who understand the human capital implications of business challenges and can utilize or adapt the HR system to address these issues. These insights emphasize the importance of aligning HR practices with strategic goals and cultivating a culture that values and leverages human capital for organizational success.
A study examining 115 Fortune 500 companies' subsidiaries found that most had successfully integrated their HRM (Human Resource Management) and strategic planning systems. The study revealed that HRM issues were explicitly addressed in the strategic plans, with HRM executives actively involved as "strategic partners" in the planning process. Moreover, the importance of HRM in implementing business strategies was widely recognized. However, the study did not find a direct relationship between the degree of integration and short-term firm performance. It suggests that time lags may play a role in this regard. These findings have implications for organizations, highlighting the significance of integrating HRM and strategic planning while considering potential time-related factors for optimal performance.
According to a report by Gartner, HR leaders face a historic amount of disruption, and their timeline from planning to action keeps shrinking while the imperatives increase. Gartner surveyed more than 800 HR leaders about their top 5 priorities for 2023. At the top of their list is leader and manager effectiveness, but many HR leaders will also prioritize change management, employee experience, recruiting and the future of work.
Strategic human resources management and organizational performance
There is enough research evidence to show that strategic human resources management(SHRM) impacts business outcomes. Many research papers suggest that strategic human resource management practices are a source of competitive advantage and improve organizational performance. Hassan (2006) found that high-performance management practices are associated with economic gains. Enz (2000) identified five types of HR practices that can improve morale, reduce turnover, increase productivity, and boost guest satisfaction: leader development, training and knowledge building, employee empowerment, employee recognition, and cost management. Bakshi (2014) emphasized the need for horizontal and vertical organizational fit when implementing HR practices.
This study explored the connection between human resource practices, employee quit rates, and organizational performance in the service sector. The findings revealed that call centers prioritizing high skills, employee participation in decision-making and teams, and human resource incentives like high relative pay and employment security experienced lower quit rates and higher sales growth. The study also found that quit rates partially mediated the relationship between human resource practices and sales growth. Additionally, the impact of these relationships was influenced by the specific customer segment served. These insights highlight the importance of effective human resource practices in fostering employee retention and driving organizational success in the service sector.
A field study of 136 technology companies found that commitment-based human resource practices positively influenced the organizational social climate of trust, cooperation, and shared codes and language. The above practices impacted the firm's capability to exchange and combine the knowledge. The study revealed that this relationship predicted the company's revenue from new products and services and sales growth.
In this paper, the Strategic HR Bundles are statistically significant in business performance. Fifteen bundles were identified, with six positively impacting performance and one negatively impacting it. These findings highlight the strategic use of human resources for sustainable competitive advantage. The results are a blueprint for evaluating and adopting organizational practices to achieve performance goals. The bundles with significant relationships include the training Bundle, Share-Options Bundle, Profit-Sharing Bundle, Organization of Work Bundle and the Wider-Jobs Bundle.
Strategic Human resources management: Who is handling it?
Bhatnagar (2004) found a moderate quality of strategic HR roles in Indian organizations, while Holland (2005) found that HR professionals in Australian organizations have strengthened their strategic positioning but may face career path restrictions and inadequate measures of HR's contribution to the bottom line. Dainty (2011) explored the skills required for HR professionals to operate strategically in Australia and found that while many skills can be developed, some areas still need improvement. Khatri (2002) examined strategic HR issues in an Asian context and found that top management enlightenment and level of HR competencies determine the role and status of the HR function in organizations and that HR strategy affects both vertical and horizontal fits of the HR function.
Steps to Strategic Human Resources Management
Research consensus suggests that strategic human resource management involves a three-stage process of strategy formulation, implementation, and evaluation (Krishnan 2004). HR professionals play a key role in each of these stages. The literature also suggests that organizational factors can enable or deter the success of each stage. McCowan (1999) provides an example of a company's HR strategy, which includes building employee capabilities and commitment, improving HR function capabilities, and developing innovative partnerships with business leaders. Lengnick-Hall (1988) proposes a typology that posits a reciprocal interdependence between a firm's business and human resources strategies. Finally, Hayati (2021) highlights the importance of HR professionals understanding various activities with strategic value and the need for creativity and innovation in achieving organizational performance.
The link between strategic human resources management and organizational strategy
The relationship between human resource management practices and business strategy has been a topic of interest in empirical research. A study was conducted using data collected from 200 Spanish companies. The findings of this study reveal significant associations between certain human resource practices and the adopted business strategies within these companies.
The reported results confirm some of the previously established relationships and provide valuable insights into the dynamic nature of human resource management practices in alignment with business strategy. These findings highlight the importance of strategic HRM in driving organizational success and competitiveness.
Furthermore, this research opens up avenues for future investigation in understanding the nuanced interplay between human resource practices and different business strategies. By delving deeper into these associations, researchers can uncover new dimensions and explore how HRM practices can be tailored to specific strategic orientations for optimal outcomes.
Many research papers show a strong relationship between business strategy and HR strategy and that HR can be a new basis for sustainable competitive gain and can play a significant role in achieving business strategies. This paper highlights the importance of strategic alignment, which enables continuous monitoring, review, and appraisal of strategy according to environmental changes and helps to ensure quality, up-to-date information for management. The paper emphasizes the need for HR departments to be involved in strategic planning and to align their strategies with the overall business strategy.
The Human Resources Strategic Planning Process
According to Gartner, setting a strategy is just the beginning. It is crucial to turn that strategy into a strategic HR plan and successfully execute it. However, this process often fails due to various reasons. One common reason is the lack of visibility into business goals. Without a clear understanding of the organization's objectives, aligning HR initiatives with the overall strategy becomes difficult.
- Align with business strategy: Human resources strategy should always respond to and align with the overall business strategy. This alignment should occur upward, aligning with business priorities, and downward, aligning with functional priorities. In today's world, where talent is increasingly important, HR strategy should inform and influence the broader business strategy.
- Establish goals as part of the strategy: It is important to define what constitutes long-term success for the HR function and prioritize goals that support the enterprise strategy. This may involve creating a prioritized list of initiatives and HR goals and evaluating the gaps between the current state and mission-critical initiatives.
- Set criteria for measuring successful strategy execution and adaptation: Once goals have been established, it is crucial to identify key performance measures that describe the current level of HR function performance. These measures should be specific, quantifiable, and tied to the overall strategy. By setting criteria for measuring success, organizations can track progress and make necessary adaptations to ensure effective strategy execution.
Developing an HR strategy aligned to the business strategy and the Gartner guidelines above makes business sense.
Strategic human resources management: The challenges
There are several challenges in implementing strategic human resources management. Graziani (2020) found that cultural, political, and sectorial factors can interfere with implementing public enterprises' strategic human resource management policies. Stojanović (2022) highlights the importance of employee performance, engagement, and communication in strategic human resource management. McMahan (1998) suggests that employee involvement, diversity, and international issues present important challenges for current and future research in strategic human resource management. Armstrong (2000) provides practical guidance on implementing HR strategies in a real-world context, including human capital management, corporate social responsibility, and talent management. Overall, the papers suggest that implementing strategic human resources management can be complex and challenging, requiring attention to cultural, political, and sectorial factors and factoring in employee engagement and diversity.
Frequently Asked Questions on Strategic Human Resources Management
What is meant by strategic human resource management?
The CIPD gives a concise definition as follows: "Strategic human resource management (strategic HRM) provides a framework linking people management and development practices to long-term business goals and outcomes. It focuses on longer-term resourcing issues and other HR strategies, such as reward or performance, determining how they are integrated into the overall business strategy."
Strategic human resources management aligns human resources initiatives and practices to the organization's strategic outcomes. What is evident from this definition is that when strategic human resources management is at play, the impact is assessed on strategic organizational outcomes. Such human resources initiatives focus on business outcomes instead of HR outcomes.
What is strategic human resource management, with example?
Strategic human resources management links HR initiatives to key business outcomes. The following research papers provide evidence of strategic human resource management (SHRM) in various contexts. Mabey (1995) presents case studies of SHRM in British Aerospace, National and Provincial, IBC, and Grampian Health Authority. Hemmati (2012) presents a case study of a commercial organization in Malaysia and recommends HR strategies to emphasize competitive advantages. Karami (2004) explores the relationship between strategic management and employee relations in the electronic manufacturing industry and concludes that HR involvement in developing and implementing business strategy leads to organizational effectiveness. Kumar (2014) examines the impact of SHRM on achieving organizational goals and objectives in selected public sector companies in India and finds a weak relationship between SHRM and outcome assessments. The papers collectively suggest that SHRM is present in various industries and can contribute to organizational effectiveness and competitive advantage.
What are the 4 types of HR strategy?
Four research papers present different perspectives on HR strategy. Khatri (2002) found that the companies studied pursued four types of HR strategies: informal and not communicated; informal and communicated; formal but not communicated; and formal and communicated. Gholamzadeh (2013) proposed an integrative HR strategy model that includes four main strategies: paternalistic, commitment, free-agent, and secondary. Wright (1991) derived six basic HR strategies for managing competencies and behaviour: Competence Acquisition, Competence Utilization, Competence Retention, Competence Displacement, Behavior Control, and Behavior Coordination. Anthony (2001) presented a comprehensive overview of HR strategy, including strategies for acquisition and placement, maximizing productivity, maintaining human resources, and strategic separation. So far, research findings suggest that there are multiple types of HR strategies and that the choice of strategy depends on factors such as company culture, labor market, and strategic goals.
What are the 7 steps to strategic human resource management?
Garner recommends the following steps to strategic human resources management.
1. Understand your organization's strategy and goals
To build an effective HR strategy, it is crucial to have a deep understanding of your organization's mission, strategy, and business goals. This alignment between HR strategy and the overall objectives of the organization not only ensures that the HR function contributes to desired business outcomes but provides a solid business case for future HR initiatives. To achieve this alignment, HR leaders should collaborate closely with senior business leaders to clarify the organization's priorities for the HR function. Here are some tips to help align HR strategy with business priorities:
- Establish a direct line of communication with the CEO through formal or informal meetings. These one-on-one discussions provide an opportunity to understand the CEO's priorities and current strategic focus. By staying informed about the CEO's vision, HR leaders can tailor their strategies to support the organization's overall direction.
- Collaborate closely with the Chief Financial Officer (CFO) by actively engaging in financial updates and reviewing profit-and-loss statements. By participating in regular business reviews and discussing financial priorities and initiatives, HR leaders can gain insights into the financial aspects of the organization's strategy. This partnership allows a better understanding of how HR initiatives can contribute to financial success.
- Review quarterly market analysis reports and actively discuss market research findings. Understanding market trends and their impact on the organization is crucial for developing an HR strategy that aligns with business priorities. By staying informed about market conditions, HR leaders can identify opportunities and challenges that may influence their strategic decisions.
2. Identify Capabilities and Skills for Future
To ensure effective strategy implementation, HR leaders should discuss with each business unit or function leaders to understand how their priorities impact workforce requirements. By conversing with the heads of each function, HR can assess the specific implications of the strategy on individual functions and identify the support and resources required from HR in the future. This dialogue should encompass inquiries such as: What talent-related conditions are necessary for the organization to achieve its objectives? Which initiatives, if implemented, would significantly expedite goal attainment or enhance the organization's strategic execution capabilities? When considering various talent risks, what is each risk's potential impact and likelihood of occurrence? Lastly, which talent-related challenges do leaders and employees acknowledge as crucial for the organization's success?
3. Evaluate Current Capabilities and Skills
Evaluating current capabilities and skills helps HR leaders understand talent implications and identify gaps between present and future organizational needs. This assessment helps identify talent objectives for the HR strategy.
4. Develop HR Goals and Criteria for Success
It is crucial to establish goals and criteria for measurement. When setting goals, it is important to define long-term success for the HR function and prioritize these goals based on their alignment with the organization's strategy.
5. Communicate Your HR Strategy
Craft a focused and succinct statement that captures the essence of the strategy and outlines the primary objectives that the HR function will prioritize in the upcoming year. Customize the communication for each stakeholder group to see what they need to do to support the strategy.
Trost (2019) suggests starting with the corporate strategy, purpose, competitive advantage and desired understanding of leadership and organization before addressing HR-specific challenges and topics. Ulrich (1998) argues that HR should become a partner in strategy execution, an expert in work organization and execution, a champion for employees, and an agent of continual change.