Strategic Human Resource Management: An Analysis of the Prospective HR Theory

CHAPTER 1- Introduction:

The evolution of businesses from a mere “factory” production towards a complicated process information based products and services has also changed the perception for the employees from a “worker” to a dedicated ambassador of the organizational culture seen in the introduction of the term “Human Resources Management-HRM” by 1960s. The new wording displayed the increase of a holistic approach to the strategic relations between employers and company management to develop a common organizational culture. Because it became clear that the most difficult competitive edge or differentiation element of a company to be copied by competitors has become its organizational culture and its people. As organizational culture becomes more vital for survival in a cut throat competitive business environment, the need for a holistic “macro” strategical approach to defend and sustain organizational culture as well linking it with the business strategy has emerged.

Because billion dollar companies has begun to sink due to certain ethical flaws of the executive management or damaged severely due to the loss of reputation or organizational culture. The HRM function has been the right place to develop such a task that recently the term “Strategic HRM-SRHM” is used to refer the linkage between certain HRM policies and the organizations’s business strategy. While HRM refers to “micro” level practices, SRHM refers to “macro” level (Carbery & Cross 2003, 13) After a condensed literature review on HRM theoretical framework, the paper analyses two companies’ HRM practices in the lights of the contemporary HRM theoretical framework.

CHAPTER 2- Literature Review:

Today, business success is not measured only by the profit margin or total revenue, but how sustainable competitive a company is. Ultimate effectiveness is measured via more qualitative measures such as the achievement and maintenance of sustainable competitive advantage, organizational survival and the development and maintenance of corporate reputation where HRM practices lie at the heart for the achievement of all these (Carbery & Cross 2003, 4). Traditionally key HRM practices were largely about recruitment, providing contracts, payroll, performance management including rewarding and disciplinary actions, training and finally dismissal/ turnover/employee legislation. As an indication of changing nature of businesses and seeing employees as stakeholders; certain new key tasks added including but not limited to talent management, career development, conflict resolution, counseling, employee wellbeing, managing expatriation, motivation, health and safety. This process mostly happened in 1980s and 1990s where the service sector (dependent heavily on employee performance) boomed against manufacturing (mostly capital intensive) industry and achieving effectiveness began to be perceived as reaching “excellence” in service rather than just decreasing the costs. Finally, as a part of SHRM practices in order to keeping organizational culture intact; key tasks such as strategy formulation and development, managing diversity, organizational climate, corporate social responsibility and ethics has been added recently (Carbery & Cross 2003, 9). This has been parallel to the recent changes in business understandings where the avoidance of ethics and corporate social responsibility can hinder the future of the companies (e.g. the case of Enron and Arthur Anderson).

With the introduction of SHRM, the department of SHRM has turned into the watchdog of the organizational culture that is now very essence of the business strategy. The SHRM department is the appropriate place for such a challenging task since keeping the organizational culture needs a holistic approach where other business functions have relatively limited focus. Thus, the role and function of the HRM professionals has evolved to meet these challenges. Capitalizing on Ulrich and Brookbank’s identification of the roles in HR practices; the contemporary HR professional is at the same time a strategic partner, an employee advocate, a human capital developer, a functional expert and a leader (Carbery & Cross 2003, 10).

The research and theoretical framework on HRM has evolved in the same manner. We will only focus on the approaches that focus on the integration of HRM practices with the business strategy.[1] Among many studies to refer few having holistic models are matching model of HRM (Michigan Model) formulized by Fombrun, Tichy and Devanna in 1984; and Harvard model formulized by Beer et. al again in 1984. According to Michigan model in order to gain competitive advantage, HR strategy should align in accordance with employee management and corporate strategy. At one hand, HR strategy should be designed to meet the objectives of corporate business strategy, termed as external fit or vertical integration. At other hand, HR policies need to be complementary and consistent, termed as internal fit or horizontal integration. A successful HR environment or best fit can only be achieved coherence between the two sides (Carbery & Cross 2003, 12).  The Harvard model focuses on the impact of various stakeholders on the designing of HR policies that implemented effectively would provide organizational effectiveness. Here, contingency or situational factors including economic climate, legislation, workforce, unions and etc. play an important role on the design of the appropriate HR model. Whereas Michigan model offers a “hard” stand that offers certain HRM practices to provide organizational effectiveness even in various different settings, whereas the Harvard model offers a “soft” approach that every company/business setting might need a contingent/sui generis set of HRM policy-practices. Thus the group of theories fall more or less on the side of Michigan model is refereed as having universalism approach, whereas Harvard model and its followers as having contingency approach. A third model, configurational approach act as the synthesis of the two approaches. (Carbery & Cross 2003, 15)

Whether be the HRM strategy is to be developed firm specific/contingent or best fit/universalism, both internal organizational environment (micro) and external environment (macro) factors are to be studied in detail. The organizational culture, the size and structure of the organization, the sector, workforce characteristics, financials and values/ideology of the senior management are major micro factors. STEEPLE (social, technological, economic, environmental, political, legal and ethical) framework is convenient to dwell on external environment (Carbery & Cross 2003, 15-16) The choice of appropriate HRM strategy does change according to the setting of both internal and external environment.

CHAPTER 3- Analysis of the HR practice in IBM and Nokia:

  1. a) Nokia:

Nokia has been an innovative technology company famous for its diversity and employee friendly inclusive organizational culture. In 1990s the company was to be the major mobile phone producer but due to increasing trend for smart phones the company lost its competitive edge in this area and sold the devices branch to Microsoft in 2014. Today, the company operates nearly in 130 countries with approximately 101K employees, has 23.6 bn Euro sales (2016) and 38% gross profit range (Nokia 2017a, 2).

Being a cradle of constant innovation, Nokia perceives its employees as the most valuable assets and its main HR policy is to cultivate globally diverse workplace culture of respect without neglecting the peculiarities of local markets. The main HR policies include Compensation and benefits, Internal Mobility, International Mobility, Recruitment, Performance Management, Talent Management, Career Management, Leadership Development, Organizational Development, Employment, Disciplinary measures, Grievance measures, Executives Life Cycles (Nokia 2017b). The HR practices are executed under the guidance of four main values: respect, challenge, achievement and renewal (Nokia 2017a, 15). The values, chosen as a result of strong and cooperative “internal dialogue”[2], form the backbone of the strong organizational culture. The congruence of business strategy with organizational culture together with compliance to ethics are crucially important for the company. Nokia has reserved 3 executives positions (among 16) to handle all these areas. While Chief Human Resources Officer is responsible for mainstream HR policies in order to develop a diverse, international environment and entrepreneurial spirit, the Chief Legal Officer is to be responsible for managing all ethics, legal and corporate governance matters and finally Chief Strategy Officer focuses on the coordination and setting of corporate strategy and long-term strategic decision (Nokia 2015). Strong emphasis on diversity, commitment to ethical conduct, excellent opportunities for career development, open internal dialogue channels together with rewarding employees competitively let Nokia to hire best talents. Actually, besides base salary rewarding high performance includes short-term and long term incentives to be given as the realization of preset performance targets finally benefits to be determined by country of employment and align with local practices and regulatory requirements.

  1. b) IBM:

Historically a hardware company, now IBM is one of the leading global research organizations with a portfolio of consulting and IT implementation services, cloud and cognitive offerings and enterprise systems and software. It has a complicated business model offering both hardware and software solutions. In 2016 total revenues were close to 80 bn USD and net income was around 12bn USD. It is a global giant having more than 380K employees within 175 countries (IBM 2017a, 72) IBM describes itself as a people company that respect for the individuals is the main motto. The company is differentiated with its strong emphasis to innovation and R&D, in 2016 there were more than 8.000 US approved patents of the company. In order to sustain innovative spirit together with cost efficient personnel structure, IBM has developed a unique organizational model. At one hand, open door policy, focus on diversity, strong training & learning opportunities together with competitive pay structure let company to recruit best talents (IBM 2017b). At other hand, customized taxonomy of job definitions as the successful result of Workforce Management Initiative (WMI-developed between 2002-2009) has provided a centralized control over the talent pipeline required for the prospective operations (Boudreau 2010c, 2). What is more IBM has also reformed its classical organizational design that used to be based upon functional division. HR processes were separate from other functions. However, due to the nature of globalization of the units within the company, certain HR practices were divided and relegated to the various functions, thus making leaders of each functional area of HR “dual-hatted”. For example, HR leader for recruitment was also business leader for Global Business Services. In the same manner many HR functions are dispersed among many other function leaders (Boudreau 2010c, 4). [4]

CHAPTER 4- Conclusion and Recommendation:

Today, HRM practices have become an essential for a successful execution of business strategy as well as keeping sustainable strong organizational culture. Thus, we see an increasing trend towards the inclusion of HRM with business strategy. Companies either struggle to develop their unique organizational design for that purpose or try to imitate best practices. Nokia is a global company where internal organizational environment is strong and in accordance with more of an universalism/best fit approach. Although the HR practices may slightly change to meet the local needs, the nature of the business (technology company, similar product everywhere) urges a strong central organizational culture where innovation and high R&D capacity is to be achieved via diversity, internal dialogue and acquiring best talent. On the other hand IBM has developed a very unique organizational design that is suitable for the complicated nature of its business strategy. Besides, its strong innovative spirit, the organizational design is also providing a competitive edge that cannot be copied easily by the competitors.

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