Critically Discuss The Various Existing Models Linking Organizational/ Business Strategy With Hrm Strategy

In today’s rapidly changing globalised business environment, human capital has become one of the keys to competitive advantage. Consequently, any good business strategy must fully utilise the inimitable assets of people through their knowledge, skills and abilities. This highlights the need for strategic human resource management (SHRM). The key assumption of SHRM is that organisational performance is affected by employees through a set of human resource (HR) practices (Pan et al 2006).

A review of the literature linking HR practices to business strategy shows two conflicting perspectives in SHRM. The universalistic perspective suggests that there is a universal set of best practices that any business can adopt to improve organisational performance. Conversely, the contingency perspective suggests that business performance will improve when there is consistency or fit between business strategy and HR policies. This essay will discuss the theory and models behind each perspective and provide a critique on each of the opposing views.

Universalistic perspective

This approach maintains that all firms will see performance gains by identifying and implementing best practice irrespective of the product market situation, industry or location of the firm. Performance gains include improvements in employee behaviours and attitudes, reduced staff turnover, increased productivity, quality and customer service and of course increased profitability. This requires support from top-level managers to adopt these key HR practices, research the latest trends of best practice and reward correct implementation of these practices.

Redman (2006) suggests that making changes to individual practices will have a very limited effect whereas making changes together will have a more powerful effect. This leads onto the concept of looking for a �bundle’ of practices which need to be combined together (Huselid 1995). Although many researchers agree with the concept of bundling practices together, there has been little agreement about which HRM practices should be included. Consequently, some models have only a few key practices while others have a dozen or more. The most influential work to date is that of Jeffrey Pfeffer. Pfeffer originally devised a list of 16 practices in 1994 but subsequently narrowed them down to the following 7 in 1998:

1. Employment Security

2. Selective Hiring

3. Self-managed teams or team working

4. High pay contingent on company performance

5. Extensive training

6. Reduction of status differences

7. Sharing information

The HR practices in this bundle, and indeed any bundle should be consistent across workplaces and function together, otherwise known as internal fit. For example, it would be wrong to encourage team work but support individual performance related pay. Any perceived (and actual) inconsistencies between practices will reduce the effectiveness of the bundle and can lead to dissent and dissatisfaction. (Marchington et al 2004).

Boxall and Purcell (2003) summarise the core features of best practice models using the AMO rubric: performance is a function of Ability, Motivation and Opportunity. That is, best practice models typically aim to enhance employee skills through appropriate recruitment and effective training, motivate desired behaviour through incentives and empower workers to open up opportunities to them.

Critique

Redman (2006) identifies both methodological and theoretical problems with the universalistic approach. Methodologically speaking, the degree and direction of causation can be questioned. Adopting best practice may be just one of several factors that improve business performance. Furthermore, it may only be successful firms who can afford to adopt these practices, thus reversing the perceived direction of causation. Research suggests that best practice models are only really seen in higher value-added sectors. A lot of businesses have proven to be successful without using best practices, as confirmed by Wood and de Menezes (1998).

From a theoretical position, the wide range of models and lists of best practices creates a problem. Widely acknowledged illegal practices and certain generic practices aside, it is the unique context of each business that matters when developing a HR strategy. In addition, the intentions of best practice should benefit both shareholders and workers. But as with most models of best practice, there is little reference to the role of unions or the differing needs and objectives each group has in the workforce. For example, Marchington and Grugulis (2000) suggest that Pfeffer takes a unitarist view and doesn’t take into account the complexities of managing a diverse and differentiated workforce.

The best practice approaches are also not culturally sensitive. Models that tend to reflect the individualist values of the USA will not be suitable for more collectivist cultures such as Germany or Japan. National context and the differing labour laws of each country play a fundamental role in SHRM. This severely implicates the usefulness of a best practice model.

Contingency perspective

For the contingency perspective otherwise known as best fit HRM, there are no universal prescriptions of HR policies and practices. It is all contingent on the organisation’s context and culture and its business strategy. To gain a full picture of this perspective, one must examine both forms of best fit вЂ" internal and external fit.

Internal fit has already been shown to influence universalistic models. This notion of fit advocates bundles of practices, to ensure that organisations gain benefits from implementing a number of complementary practices rather than only a single practice (MacDuffie, 1995). Baron and Kreps (1999) define three types of internal fit for HR practices. �Single employee consistency’ ensures that HRM practices are adapted to each individual, such as following up expensive selection procedures with substantial training and development. Secondly, �among employee consistency’, promotes equity in the workplace, with HR policies that ensure people in the same occupational group are treated the same. Finally, �temporal consistency’ provides consistent treatment of employees over time, enabling them to rely on the predictability of HR policies.

Most models of best fit focus on ways to achieve external fit. Legge (2005) suggests two broad