The problems organisations face integrating their Business and Human Resource Management Strategy
1. Introduction
This paper is a critical assessment of the various difficulties confronted by organisations in aligning their business strategy with HRM strategy. In this context, the paper will commence with a brief discussion of the association between the business and HR practices. The major problems will then be assessed with reference to the various aspects pertaining to the Human Resource Practices adopted by organisations pursuing different business strategies. In order to accomplish these objectives, secondary sources used, comprise of academic journals, newspaper articles and relevant text books.
Business Strategy and Human Resource Practices – The Link
The primary function of aligning the business strategy with HRM strategy / practices is to facilitate an organisation in achieving its strategic goals and objectives. Therefore, an organisation cannot formulate a business strategy by merely considering it external environment; the internal factors ought to be factored in. Research provides evidence that HRM practices form an integral part of the strategic process within an organisation that assist in the identification of relevant competencies and skills required for the specific business strategy being pursued (Miles and Snow, 1978; Hofer and Schendel, 1978; Porter, 1980).
In context of the association between the business strategy and HRM practices, it is argued by researchers that organisations might confront severe difficulties in implementation of the business strategy if it is not effectively supported with appropriate HRM policies (Galbraith and Nathanson, 1978; Porter, 1987). Based upon Fombrun et al (1984), the business strategy formulation process must incorporate three main issues:
The Organisations Mission – The recognition of the basic purpose, aims and objectives of an organisation and what strategy it employs to achieve them.
Human Resource System – The policies and practices adopted for recruiting, evaluating, training, developing and rewarding the employees.
Formal structure – For effectively developing an organisational structure where the employees and tasks are co-coordinated for achieving the organisation’s mission through the business strategy employed.
Based upon this framework, it is inferred that, human resource management practices constitute an integral part of the strategic decision making process. There are also different classifications that have been suggested by researchers for identifying the various forms of business strategies adopted by organisations (Miles and Snow, 1978; Hofer and Schendel, 1978; Wissema et al., 1980; Porter, 1980). In this context, it is deduced that the problems confronted by most organisations in aligning their business and HRM strategy is due to a mismatch between the objectives pursued through a particular type of business strategy and the strategic objectives underlying the HR function (Miles and Snow, 1984). Therefore, the business strategies have direct implications on the management and efficiency of HR function of an organisation (Schuler and Jackson, 1984).
Based upon Storey (1987), there are two distinct models of HRM; one that incorporates ‘hard’ aspects and the other constitutes of ‘soft’ HR aspects. Where ‘hard’ aspects stress upon the significance of integration between HR policies and functions with business strategy, the ‘soft’ aspects are more inclined towards development of employees as valued assets who can assist in achieving competitive advantage through long term commitment, competencies and adaptability (Guest, 1997). It is crucial to understand that it is the ‘soft’ HR aspects that are considered as intangible and are difficult to manage and control while the ‘hard’ aspects are more tangible and can be more conveniently monitored (Storey, 1992). Therefore, the problems confronted in alignment of business and HRM strategy, emerge when organisations fail to identify, evaluate, manage and control the ‘soft’ HR aspects.
Assessment of Difficulties Confronted in Aligning Business and HR strategy
The crucial internal organisational factors that hinder effective integration of business and HRM strategy are discussed as follows:
The Mismatch between Business Strategy and HR objectives/policies. The primary factor influencing the link between business and HR Strategy is the pursuit of competitive advantage. Most organisations formulate a business strategy which is not effectively coordinated with HR objectives. This factor not only deteriorates their competitive position but also hinders employee performance. Based upon Miles and Snow’s (1984) model that linked business strategy and HR practices, it is inferred that organisations ought to develop strategies relevant to the environment in which they operate. This factor is crucial in effective utilisation of existing human resources as the type of strategy pursued would determine the level of employee contributions. For instance, if an organisation is focusing on implementing a ‘cost leadership’ strategy, it is essentially required to control costs. In order to formulate a cost effective business strategy, organisations strive to keep employee wages to a minimum (Arthur, 1994). However, in a turbulent external environment, where competition is fierce, employee demands fluctuate and the payment structure might be perceived as inappropriate. In this scenario, if the business strategy is not integrated with competitive salary packages, the organisation will be unsuccessful in attracting and retaining competent employees due to which the HRM strategy might be unsuccessful in delivering competitive advantage. Therefore, failure to pay employees according to their expectations will not only de-motivate them but will also escalate labour costs due to poor employee retention (Gomez-Mejia & Balkin, 1992). Hence, the cost minimisation objective underlying the business strategy is difficult to achieve as it fails to formulate and integrate an effective HR policy.
Similarly, one of the key HR policy objectives for organisations pursuing a differentiation strategy is the achievement of long term goals through attraction of highly co-operative and qualified staff that possess distinctive capabilities (Prahalad and Hamel, 1990). However, when short term goals are given greater priority by the top management, the employees tend to deviate from organisation’s mission and perform inefficiently. According to Miller (1986), when goal setting and achievement of long term objectives is not consistently emphasised, the outcome is poor collaboration with the human resource function. In this context, human resources appear to be underutilised by the management due to divergence from long term strategic goals and objectives. Consequently considerable problems emerge in aligning the HR function and strategy with the business strategy employed (Tichy et al, 1982)
Lack of Collaboration from Top Management. The treatment provided to employees by top management is a crucial attribute in determining their contributions towards achieving strategic objectives defined by the particular business strategy. Research provides evidence that lack of management collaboration leads to weakly motivated employees which hinders the effective integration of business and HR strategies (Dyer, 1984; Arthur, 1992). Organisations confront difficulties in developing a valuable employment contract or relationship with their people due to failure of the top management to collaborate effectively with employees (Misa & Stein, 1983). Most often, employees are not rigorously involved in the strategic decision making process due to which appropriate HR and business policies cannot be formulated; even if they were implemented, the strategies would not be coherently linked and would be detached from one another (Dyer, 1984).Problems arise due to the workers’ low involvement and reduced control over their working practices; they become de-motivated and less committed towards achievement of targets set (Pfeffer and Veiga, 1999). In this context, research suggests that when human resources are not efficiently utilised by organisations and more attention is diverted towards technological and financial resources, the outcome is an unproductive HR strategy that does not assimilate business objectives (Beer et al., 1984). Ineffective collaboration with employees deteriorates performance and staff turnover translating into poor alignment of HRM practices and strategy pursued. Therefore, the major challenge for organisations is to develop a collaborative working environment which entails meaningful challenges for employees and seeks to enhance their dedication towards organisational goals and objectives.
Lack of Clear Management-Employee Communication. Research provides evidence that organisations with inferior management-employee communication, adversely impacts employee motivation and creates difficulties in implementing the desired business strategy (Huselid, 1995). In most cases, management is unable to communicate the strategic vision, mission and objectives, to existing employees, that hinders the alignment of business and HR strategies. Disparities in management-employee communication arise due to the inappropriate nature of mechanisms that are implemented to support such communications (Kochan et al., 1986). Because the type and methods of communicating with employees have changed in the previous years, there are considerable challenges organisations confront for developing valuable HR practices that not only sustain other business functions, but most significantly, is aligned with the underlying strategic objectives. In a turbulent environment, where the business strategy is not effectively communicated to all levels within an organisation, the HRM policies devised are unproductive in surviving the ‘organisational change’ process and internal and external factors are not integrated in a meaningful context (Johnson and Scholes, 1993). It is inferred that most organisations confront problems when the top management does not take responsibility for communicating strategic objectives to employees; if at all vision, mission and objectives of the business strategy are communicated, problems arise because management fails to take relevant steps for addressing the most crucial human resource concerns (Butler, 1988). In this context, lack of communication clarity is a major factor contributing towards misinterpretation of strategic information due to which employees do not effectively engage with the business strategy. Consequently, inferior communication processes leads to a distortion in performance of internal (employee related) variables which are unable to align themselves with the external (organisational) factors.
Therefore, inferior information communication between the management and employees hampers the HRM function which deteriorates the level of employee involvement and contributions in achieving strategic targets.
Inappropriate workforce management policies. According to Hendry and Pettigrew (1992), when inappropriate personnel practices and policies are forged by an organisation’s management, it deteriorates effectiveness with which the workforce is managed. Based upon Fomburn (1986), for internal and external factors to be aligned successfully, the managerial approach towards employees ought to be positive. In an organisational context, various market and cost factors manipulate the compatibility of different personnel policies adopted. Based upon Schuler and Jackson (1987), product life cycle stages must be scrutinised for implementing appropriate HR policies so that the business and HR strategies are effectively aligned. It is therefore, inferred that organisations confront problems when they fail to manage their workforce in conjunction with the product life cycle stages. For instance, when organisations are unable to attract talented staff for providing creative ideas while in the growth phase, it deteriorates employee participation and hampers the strategic process within the organisation. In a similar context, some organisations do not incorporate human resource issues during the strategic decision making process which translates to inconsistent workforce performance and practices that do not correlate with the intended business strategy. Because organisations tend to give lower attention to personnel policies pertaining to reward and incentive systems, employee development, promotion appraisal, the internal and external organisational factors do not coincide. Based upon Fomburn et al (1984), very few firms actually adopt a workforce planning approach. For instance, with poor reward and incentive systems in place, employees tend to focus on short term business objectives and compromise long term goals which hinder the alignment of Business and HR strategic objectives. Similarly, inadequate measures adopted for employee development and appraisals results in unsatisfied workforce which is more difficult to manage. In this scenario, inducing‘strategic thinking’ behaviour in employees becomes extremely difficult which renders the entire business strategy as unproductive (Beer et al., 1984).
Lack of a Leadership culture and middle management. Based upon Sleeth et al. (1996), competent leadership links an organisation’s people and their tasks in a meaningful way. It is deduced that significant problems are confronted in aligning Business and HR strategy when the leaders within an organisation depict a more ‘autocratic’ behaviour where tasks are not explicitly defined and explained to the workforce, rather they are ‘dictated’ in an ineffective manner (Beatty et al, 1992). Therefore, absence of a people’s person makes it difficult to communicate the ideal mission and vision of the underlying business strategy, to employees. Organisation with a lack of conducive leadership culture on behalf of the senior and middle management, adversely effects HR policies/practices implemented as they will be inefficient in delivering the desired results in context of the business strategy pursued (Hitt et al., 1996), thus, demoralising the strategy formulation process. Drawing upon Katzenbach (1996), when leaders fail to connect with the hearts and minds of employees, the outcome is poor teamwork due to increasing dissatisfaction among the workforce. Consequently the disruptive leadership behaviour can lead towards mismanagement of human resources and the strategy formulated will be difficult to align with the HR function (Beer and Eisenstat, 1996).
Lack of compatible Skills and Development. Organisations recruiting employees with incompatible level of skills and talent, is perceived as another major obstacle in aligning the business and HR strategic objective (Kerr and Jackofsky, 1989). In this context, inappropriate selection, recruitment and training procedures leads towards poor human resource development and reduces the extent of their valuable contributions towards the business goals. Identification, attraction, management and retention of skills that are compatible with the business strategy formulated, is a crucial challenge for organisations which can contribute towards a better strategic fit between internal and external factors (Chorn, 2004). Organisations often confront problems in devising effective training systems that not only deteriorates cost savings, but also results in underutilisation of the actual human resource potential. Due to a lack of internal skill development systems, human resources tend to deviate from the strategic objectives. When the level of skills of organisations employees is not compatible with business requirements, it becomes difficult to align the business and HR strategies (Hambrick and Mason, 1984). Organisations with a short term focus on training and development of its employees might be able to align its strategic objectives, but in the long term, this alignment will become inefficient (Schuler and Jackson, 1987).
Conclusion
From the above critical assessment of problems confronted by organisations in aligning their business and HRM strategies, it is concluded that the malfunctioning of the HR function coupled with ineffective HR policies and practices, deviates focus from achievement of long terms strategic objectives. It is inferred that human resources are an important source of competitive advantage for organisations which can only be sustained if the internal (employee) factors are monitored and managed effectively to work in collaboration with the strategic objectives pursued. In this context, organisations must develop a culture where employees and top management share and strive towards a common mission and vision, appropriate employee management systems are developed with consistent contributions towards employee training and development so that the resultant HR strategy addresses the business strategy. For effective strategic coalition, all such factors need to be given due consideration by the organisations management so that the competency level of existing human resources is enhanced.
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