Human resources strategy focuses on two primary issues:
- The degree to which human resources (HR) practices are aligned with business strategies
- The extent to which these practices influence organizational performance
It is also based on three key assumptions:
- Human resources can be a source of competitive advantage.
- Human resource practices have a direct influence on the motivation and productivity of organizational members.
- Such practices are key determinants of organizational performance.
Although strategies for managing people in organizations have been the focus of research in management and industrial and organizational (I/O) psychology since the turn of the century (e.g., Scientific Management, Likert’s Systems-4 Management), there has been a renewed interest in the topic in recent years. Furthermore, researchers have offered several new frameworks for understanding the effects of HR practices on organizational performance including the best practices model, the alignment model, and the resources-based model. These models and research examining their effectiveness are described in the following text.
The Best Practices Model
One framework for understanding strategic human resources management has been labeled the best practices model. This approach argues that there are sets of best practices in the field of HR management, and the use of these practices has a positive influence on organizational performance or profitability. Some empirical research conducted in a variety of countries, such as the United States, Japan, Israel, and Korea, supports this prediction. For example, research has indicated that the use of high-performance work practices—including job analysis, training, employment testing, quality of work life programs, and incentive compensation—is positively related to firm performance and profitability. Similarly, research comparing production lines in the United States and Japan found that Japanese production lines were more productive than U.S. lines. However, the productivity rates of U.S. lines were equal to the Japanese lines when Japanese management systems were used. Although most research has found that high-performance work practices are positively related to an organization’s profitability, results of one recent study found that these work practices increase productivity but also increase labor costs.
The Alignment Model
Another framework for understanding HR strategy has been characterized as the alignment model. This approach suggests the effectiveness of organizations can be increased if HR practices are aligned with the competitive strategies used by organizations to differentiate themselves in the marketplace. For example, firms that differentiate themselves based on cost or speed use different HR practices than those that seek to gain a competitive advantage based on quality or innovation. Some empirical research has shown that organizations following different business strategies use different HR practices, and studies have shown that manufacturing and financial performance is enhanced when firms align their HR practices with the firm’s business strategy.
The Resource-Based Model
Still a third model of strategic human resources management has been designated as the resource-based model. This model emphasizes that human resources can be a source of competitive advantage for organizations, but the value of people is not always readily apparent. In addition, the resource-based model contends that human resources may be a key advantage in organizations because they provide organizations with a unique pool of talent that is not easily imitated or substitutable. Furthermore, this model suggests that a combination of HR practices may be more difficult to imitate, and therefore, more valuable to the organization than a single practice—such as use of valid selection techniques. A number of empirical studies have provided support for this prediction and found that bundles of HR practices are more effective than individual practices. In addition, research suggests that HR practices need to be synergistic or complement one another if they are to have an impact on organizational performance. Similarly, research has revealed that firms often have higher levels of performance when they use different HR practices for different employee groups rather than use a uniform HR system with all employees. Similarly, research has indicated there are often sets of critical employees in organizations who are responsible for the organization’s core competencies, and retention of these individuals is a key determinant of the success of organizations.
Although some research has shown that sets of HR practices may be related to organizational performance, researchers argue that it is important to understand the processes that mediate this relationship. As a result, research in strategic human resources management has examined the extent to which productivity, voluntary turnover, and organizational flexibility mediate the relationship between high-performance work practices and organizational outcomes, including profitability and return on investment. In addition, researchers have argued that HR systems create clearly defined social structures, and strong systems clarify organizational goals and the nature of the exchange between employees and employers. Finally, researchers contend that HR practices affect firm performance because they increase employee skill levels, motivation, and perceptions of empowerment. Although this argument seems highly plausible, little empirical research has directly examined the degree to which these psychological factors mediate the relationship between HR practices and organizational performance.
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