HCM provides the basis for strategic HRM through measurement and analysis leading to evaluation, diagnosis and action. As Kearns (2006) contends, ‘HCM is only concerned with outputs, results and value – right from the outset – and designs its interventions and act- ivities accordingly.’
Applications of HCM ❚ 99 Walker (1992) defines strategic HRM as ‘the means of aligning the management of human resources with the strategic content of the business’. It can be described as an approach to making deci- sions on the intentions and plans of the organization in the shape of the policies, programmes and practices concerning the employment relationship, talent management, knowledge management, learn- ing and development, performance management, reward, and em- ployee relations. The concept of strategic HRM is derived from the concepts of HRM and strategy. It takes the HRM model with its focus on strategy, integration and coherence and adds to that the key notion of resource-based strategy. The link between HCM and resource-based theory is that both emphasize the importance of human capital as a means of adding value and both recognize the importance of strategic planning that is based on an understanding of the factors that have a direct impact of the performance of people in the organization.
A resource-based approach to strategic HRM focuses on satisfying the human capital requirements of the organization by reference to the data provided by human capital measurements. The notion of resource-based strategic HRM is based on the ideas of Penrose (1959) who wrote that the firm is ‘an administrative organization and a col- lection of productive resources’. The approach was developed by Hamel and Prahalad (1989) who declared that competitive advantage is obtained if a firm can obtain and develop human resources that enable it to learn faster and apply its learning more effectively than its rivals. Barney (1991) states that sustained competitive advantage stems from the acquisition and effective use of bundles of distinctive resources that competitors cannot imitate. As Purcell et al (2003) sug- gest, the values and HR policies of an organization constitute an important non-imitable resource. This is achieved by ensuring that (1) the firm has higher-quality people than its competitors; (2) the unique intellectual capital possessed by the business is developed and nurtured; (3) organizational learning is encouraged; (4) organization- specific values and a culture exist which ‘bind the organization together (and) gives it focus’. Resource-based theory is linked to human capital theory; they both emphasize that investment in people adds to their value to the firm.
HCM indicates the direction to be taken by a resource-based ap- proach in order to improve resource capability – achieving strategic fit between resources and opportunities and obtaining added value from the effective deployment of human capital. Resource-based strategy, as
100 ❚ The practice of HCM
Barney (1991) indicates, can develop strategic capability and produce what Boxall (1996) refers to as human resource advantage.
A strategic HCM approach involves identifying the drivers of org- anizational performance such as customer service, innovation, quality and sales/cost leadership. The key a�ributes people need to deliver effective performance can then be identified and defined in terms of recruitment and promotion specifications, skills, competencies and upholding corporate values. The degree to which individuals have the required a�ributes can be included in performance review proc- esses. A direct link can be made, as at the NSPCC, between evolving corporate strategies and values so that as these are redefined, they can specifically become part of the performance planning and review process. At Selfridges, as reported by Purcell et al (2003), a key element of the business strategy was to enhance and promote the Selfridges brand. As a result conscious steps were taken to improve the brand image among both Selfridges staff and staff employed in the various concessionary retail outlets on the shop floor. An assessment tool was developed based on the competencies and behaviours that were found to be most positive in promoting customer care and the external brand they were keen to foster. This was used in both recruitment and promotion to ensure that those appointed had the behavioural char- acteristics required by the company as well as the necessary skills.
Taking this one step further there were several examples among the companies interviewed for this book where the HR function was actively developing human capital measures aligned to the business strategy. Centrica (CIPD, 2006a), for example, took the business strategy as its starting point and then identified what the organization would have to measure to monitor progress against that strategy.
Becker et al (2001) refer to the need to develop a ‘high-performance perspective’ in which HR and other executives view HR as a system embedded within the larger system of the firm’s strategy imple- mentation. They state that: ‘The firm manages and measures the relationship between these two systems and firm performance.’ A high-performance work system is a crucial part of this approach in that it:
❚ links the firm’s selection and promotion decisions to validated competency models;
❚ develops strategies that provide timely and effective support for the skills demanded by the firm’s strategy implementation;
Applications of HCM ❚ 101
❚ enacts compensation and performance management policies that a�ract, retain and motivate high-performance employees.
Lloyds TSB has produced the following definition of what they mean by a high-performance organization as part of their HCM programme:
❚ People know what’s expected of them – they are clear about their goals and accountabilities.
❚ They have the skills and competencies to achieve their goals.
❚ High performance is recognized and rewarded accordingly.
❚ People feel that their job is worth doing, and that there’s a strong fit between the job and their capabilities.
❚ Managers act as supportive leaders and coaches, providing regular feedback, performance reviews and development.
❚ A pool of talent ensures a continuous supply of high performers in key roles.
❚ There is a climate of trust and teamwork, aimed at delivering a distinctive service to the customer.