In today’s intensely competitive and global marketplace, maintaining a competitive advantage by becoming a low cost leader or differentiators put a heavy premium on having a highly committed or competent workforce.
Competitive advantage lies not just in differentiating a product or service or in becoming the low cost leader but in also being able to tap the company’s special skills or core competencies and rapidly respond to customer’s needs and competitor’s moves. In other words competitive advantage lies in management’s ability to consolidate corporate-wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities.
In a growing number of organizations human resources are now viewed as a source of competitive advantage. There is greater recognition that distinctive competencies are obtained through highly developed employee skills, distinctive organizational cultures, management processes and systems. This is in contrast to the traditional emphasis on transferable resources such as equipment. Increasingly it is being recognized that competitive advantage can be obtained with a high quality workforce that enables organizations to compete on the basis of market responsiveness, product and service quality, differentiated products and technological innovation.
Strategic human resource management has been defined as ‘ the linking of human resources with strategic goals and objectives in order to improve business performance and develop organizational culture that foster innovation and flexibility ‘. Strategic HR means accepting the HR function as a strategic partner in the formulation of the company’s strategies as well as in the implementation of those strategies through HR activities such as recruiting, selecting, training and rewarding personnel. Whereas strategic HR recognizes HR’s partnership role in the strategizing process, the term HR Strategies refers to specific HR courses of action the company plans to pursue to achieve it’s aims.
HR management can play a role in environmental scanning i.e. identifying and analyzing external opportunities and threats that may be crucial to the company’s success. Similarly HR management is in a unique position to supply competitive intelligence that may be useful in the strategic planning process. HR also participates in the strategy formulation process by supplying information regarding the company’s internal strengths and weaknesses. The strengths and weaknesses of a company’s human resources can have a determining effect on the viability of the firm’s strategic options.
By design the perspective demands that HR managers become strategic partners in business operations playing prospective roles rather than being passive administrators reacting to the requirements of other business functions. Strategic HR managers need a change in their mindset from seeing themselves as relationship managers to resource managers knowing how to utilize the full potential of their human resources.
The new breed of HR managers need to understand and know how to measure the monetary impact of their actions, so as to be able to demonstrate the value added contributions of their functions. HR professionals become strategic partners when they participate in the process of defining business strategy, when they ask questions that move strategy to action and when they design HR practices that align with the business strategy. By fulfilling this role, HR professionals increase the capacity of a business to execute its strategies.
The primary actions of the strategic human resource manager translate business strategies into HR priorities. In any business setting, whether corporate, functional, business unit or product line a strategy exists either explicitly in the formal process or document or implicitly through a shared agenda on priorities. As strategic partners, HR professionals should be to identify the HR practices that make the strategy happen. The process of identifying these HR priorities is called organizational diagnosis, a process through which an organization is audited to determine its strengths and weaknesses.
Translating business strategies into HR practices helps a business in three ways. First, the business can adapt to change because the time from the conception to the execution of a strategy is shortened. Second, the business can better meet customer demands because its customer service strategies have been translated into specific policies and practices. Third, the business can achieve financial performance through its more effective execution of strategy.
In brief, a strategic perspective of HRM that requires simultaneous consideration of both external (business strategy) and internal (consistency) requirement leads to superior performance of the firm. This performance advantage is achieved by:
- Marshalling resources that support the business strategy and implementing the chosen strategy, efficiently and effectively.
- Utilizing the full potential of the human resources to the firm’s advantage.
- Leveraging other resources such as physical assets and capital to complement and augment the human resources based advantage.