Why Is It Important to Have a Very Close Relationship Between Business Strategy and an Organisation’s Human Resource (hr) Strategy?

Why is it important to have a very close relationship between business strategy and an organisation’s human resource (HR) strategy? Why might it be difficult to determine the impact of an organisation’s human resource strategy on organisational performance?

1.0 Introduction

In today’s globalised world, the nature of our competitive economy coupled with the ever increasing uncertain nature of our workforce makes it imperative for firms to consistently evaluate its work practices in order to boost efficiency and productivity (Burma, 2014). The view that having a sound business strategy could help a firm avert any sort of crisis has certainly become an obsolete phenomena, as proven by the difficulties that have been faced by firms who have chosen to take up such a one-dimensional path (Schutte, 2015). These also include firms who have neglected basic human resource practices in its recruitment exercise; poor interviewing skills, job mismatch, and the lack of proper training for new employees (Matuson, 2010). As such, the development of an effective Human Resource Management (HRM) framework has become a pivotal aspect of most organisation’s work agenda as they seek to reap the benefits of combining its business and human resource strategy. These benefits include sustaining or increasing a firm’s competitive advantage, ensuring adaptability in the face of an uncertain economy, and to attract and retain exceptional talents that could add value and boost productivity within the company. Therefore in this essay, we will seek to explore the importance of maintaining a closely knitted relationship between a firm’s business and HR strategy and at the same time, discuss the potential difficulties in assessing the impact of the latter on a firm’s organisational performance.

2.0 Close relationship between Human resources strategy and business strategy

In a world where talent pool are mostly scattered across the globe and luring them become increasingly difficult for firms on a smaller scale (Babcock, 2012), HRM strategy has become an essential component to a successful business strategy, be it for the Small and Medium Enterprises (SME) or large Multinational Companies (MNC). HR departments realise the importance of having a pool of well-trained and highly motivated employees to achieve the company’s financial goals while providing career advancement opportunities that seeks to retain its well performing employees. Although some may choose to argue that in the face of rapid advancement in technology and the subsequent decreased reliance on manpower, a company should therefore focus less on HR related matters and instead focus entirely on research and development works, there are several reasons as to why maintaining this sacred relationship is of paramount importance to a company’s short and long-term growth.

2.1

Firstly, linking HR strategy to organisational strategy can be profitable according to a report by Watson Wyatt’s human capital index (Wyatt, 2002). The human capital index provides evidence that there is a direct link between investing in a company’s human capital and its eventual financial returns. The report gave concrete data on the investment returns of 500 publicly held companies and the result was simply astonishing, suggesting that shareholders of employee-friendly companies received double the return as compared to those from companies without proper human resource practices. Under progressive HR practices and strategy, HR managers can effectively determine the skills currently required by the company and bridge those skills gap through active recruitment and training. This will ensure that workforce productivity and efficiency will not be compromised in the event of a cyclical unemployment or an economic downturn. Such preparatory measures are  necessary to keep the company in good stead and well-prepared to face any adversaries, resulting in profitability even during difficult times.

2.2

Secondly, paying close attention to HR strategy will prevent firms from getting into conflicts with federal workforce requirements, which may undermine its business strategy. When a firm links its HR and business strategy, it has the additional benefit of tapping into HR’s expertise on workplace requirements and employment laws. In the face of increased competition from neighbouring firms, it is inevitable that a firm would normally seek for an expansionary business strategy to maximise its growth potential. However in doing so, the chances of falling foul of employment laws and regulation could also very well serve as the company’s downfall. For example, a firm’s plan to increase the number of foreign employees may be scrutinised by the manpower department for not meeting the necessary criteria to first hire locals before deciding to hire foreigners. This could result in a fine or even a hiring freeze, either of which would result in serious repercussions to a firm’s financial standing and also its future business strategy.Therefore, in order to prevent such lapses, it is vital that a firm put in place a well-established HR department who could conduct checks and balances to the company’s overall business strategy. It could be said that HR and business strategy is just like the flip of a coin, where one’s existence depends on the other.

2.3

Thirdly, the implementation of any business strategy would normally require a group of competent workers to execute the task so that the maximum potential could be achieved. This is where the fundamental function of HR comes in, to assist in the development of human potential and boost the employee’s performance so that the organisation could achieve its business mission, vision, strategy,  and goals (Lee, 2013). The integration of HR strategy to an organisation’s operational strategy could be well depicted by the example of a well-known fast-food chain, MacDonald. Over the years, not only have they been successful in the development of its menu and operational capabilities but they have also been recognised for developing its HR strategy that places a great deal of emphasis on the recruitment and training processes of its employees (Zolkifi, 2013). If we look at MacDonald’s franchise in Singapore, any of its islandwide outlets consistently displays the following two attributes: Active recruitment of new employees and a well-managed outlet that is run by a sound management team comprising several crew members and managers (McDonald, 2015). As the name of “fast-food” restaurant suggests, customers would expect an efficient service that allows them to have their meals almost instantly. Therefore, maintaining sufficient staff with the right competencies to carry out its daily operations is crucial in ensuring smooth operation and customer satisfaction. All these would eventually lead to a successful operational performance that increases the reputation of an organisation.