Corporate Strategy & Human Resource Management

In this article, some major business strategies and their implication for HRM practices has been analyzed. Human Resource Management (HRM) was once viewed as a support function to business organizations. But with changing times, aligning human resource strategies with corporate strategies have become very important for competing successfully with other organizations.

This process starts with an understanding of organization’s purpose and mission and culminates with the HR managers serving as a strategic partner to the operating divisions of the organization. Under this view HR managers job is to help the line managers at all level to achieve their strategic goals. This view also has important implication in training of HR managers and designing of HRM courses. An organization must choose HR practices that fit its strategy and mission, and so there cannot be any universal best practices.

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There are competitors who are targeting the same customer base or trying to sell the same products and each of them seeks the best possible returns for its shareholders. To attain the above objective firms require employing and retaining the best available human resources. A firm can gain competitive advantage if they recruit the right personnel; efficiently train them; put them in right jobs; motivate them to give their best efforts and retain them as long as the company requires their services. Employees are important resources that are difficult to copy or replace.

MAJOR STRATEGIES

The corporate strategy should be closely tied to HRM policies within the firm and only then higher level of corporate performance can be achieved. Three strategies which a firm competing in a single market generally follows are: (1) Growth Strategy (2) Retrenchment Strategy and (3) Stability Strategy.

GROWTH STRATEGY:

Whenever a company is able to identify a niche factor and is successfully and aggressively expanding within that particular market segment, it is said to be pursuing a growth strategy.

A key challenge for HR manager with firms using a growth strategy is recruiting and training the large number of qualified employees to help operate growing operations. So, the top management team would consult with the HRM team to ensure that it had the capability to attract and train the large number of new employees.

When mergers and acquisitions happen, a major challenge for HR managers become determining how to merge two existing workforces into a single cohesive and integrated unit. In some cases; there will be unnecessary duplication of employees, and choices will have to be made about which overlapping employees to retain, which to transfer, and which to lay off. Similarly, it is likely that the two firms will be using different HR philosophies for issues such as training practices, promotional policies, and so forth. HR decision makers thus have to decide which practices to retain and which to discard.

RETRENCHMENT OR TURNAROUND STRATEGY:

Sometimes, firms are forced to adopt, at least in the short run, a strategy usually referred to as a retrenchment or a turnaround strategy, which occurs when an organization finds that its current operations are not effective. Management may close operations, shut down factories, terminate employees, and take other measures to scale back current operations and reduce their workforces. The ultimate goal in such scenarios is to take the resources generated as a result of these steps and reinvest them into other more promising products and markets.

Layoff, retrenchment and renewed labor contacts are part of HR’s response to restructuring move of organization. Downsizing is resulting in increasing job insecurities among employees. At this time, HR managers need to provide morale boost to the employees so that employees continue to feel attached to the organization. HR managers must help in ensuring that decisions about who will be let go are made for job related reasons as opposed to reasons that might reflect or suggest bias. Similarly, HR managers can help optimize the transition process for displaced workers through practices such as equitable severance packages and outplacement counseling.

STABILITY STRATEGY:

A third single market strategy that might be adopted by some firms is a stability strategy. A company adapting this strategy plans to stay in its current business and intends to manage them at same pace at which they are already being managed. The organization’s motto is to protect itself from environmental threats. A stability strategy is frequently used after a period of retrenchment or after a period of rapid growth. Here HR managers play a major role in determining how to retain the firm’s existing employees when the firm can offer little in the way of growth and development opportunities, salary increase, and so forth.

DIVERSIFICATION STRATEGY:

In addition to strategy focusing on one specific market, diversification is another widely used approach to corporate strategy. A corporation that uses this strategy usually makes the decision to own and operate several different businesses. Diversification can be i) Related and ii) Unrelated.

• The various business owned by a corporation are usually related to one another in some way; this strategy is known as related diversification. Because the markets for each business are similar, the firm can develop relatively uniform procedures for selection, compensation, training and so forth.

• Sometimes, an organization may decide to expand into products or markets that are unrelated to its current products and markets. This approach is termed as unrelated diversification. The basic logic behind this strategy is that a company can shield itself from the adverse effects of business cycles, unexpected competition and other economic fluctuations. A downturn or setback in one segment can be covered to some extent by some other segment. In most cases, managers are likely to stay in a single business unit as they progress up the ladder.

OTHER COMPETITIVE STRATEGIES:

DIFFERENTIATION STRATEGY:

A company that uses differentiation strategy attempts to develop an image or reputation for its product or service that sets it apart from its competitors. The differentiating factor may be real or objective, such as product reliability or design, or it may be more perceptual or subjective, such as fashion and appearance. Regardless of its basis, however a firm can differentiate its services or products can charge higher prices and thereby having a greater profit margin. BMW and Rolex are two companies which have used differentiation strategy successfully. HR manager’s job is to recruit and retain employees who can perform high quality work or provide exemplary customer service. Likewise, employee training will likely focus on quality improvement, and reward system which would be based on employee’s performance.

COST LEADERSHIP STRATEGY:

This is a strategy which focuses on minimizing the cost as much as possible. This strategy allows the firm to charge lowest possible prices for its products, thereby presumably generating overall level of revenue due to very high sales volume and having huge market share. Low costs are achieved through production, distribution, or product design efficiencies. HR contribution here focuses on recruiting and retaining employees who can work as efficiently and as productively as possible at optimal compensation. Training should emphasize efficient production methods, and reward system could be based on quantity rather than quality of output. Fast food restaurants often follow this strategy to control labor costs. Another popular approach to reduce costs today is moving production to other countries where labor costs are lower.

FOCUS STRATEGY:

When an organization uses the focus strategy, it tries to target a specific segment of the marketplace for its products or services. This focus may be towards a specific geographic area, a specific segment of the consuming population based on ethnicity or gender, or some other factors that segments the market. Within that focus, a firm may differentiate or cost lead its products or services. For example, Fiesta Mart prospered by focusing its marketing on large number of immigrants especially Hispanics, who live in Southwest Houston. The key HR goal in this instance is recruiting and retaining employees who understand the local market and the language of most of its customers.

CONCLUSION:

HR managers should understand the purpose and mission of the organization as they formulate and integrate their strategies with corporate strategies. The specific best solution or practice will depend on strategic goals and top management values of an organization. The actual process of formulating HR strategies results in separate but consistent strategies for staffing, employee development and compensation. The implementation of human resource strategy requires an understanding of fundamental individual and interpersonal behavioral processes. Managers should attempt to evaluate the effectiveness of the HR function and its role in helping the organization attain its strategic goals.

This article has been authored by Suvayan Roy from IMI New Delhi

REFERENCES:

1. Charles R. Greer, Strategy and Human Resources(Englewood Cliffs, NJ: Prentice Hall, 1995)

2. Hill and Jones, Strategic Management: An analytical Approach

3. Druker Janet, (2003) "Strategy and Human Resource Management", Management Decision, Vol. 41 Iss: 5, pp.523 – 524

4. The International Journal of Human Resource Management, Volume 8, Issue 3, 1997

5. R.E.Mills and C.C. Snow(1984), “Designing Strategic Human Resource Management System”, Organizational Dynamics, 84(13), pp. 36-52

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