STRATEGIC HUMAN RESOURCE MANAGEMENT

1 STRATEGICHUMAN RESOURCEMANAGEMENT iiiiMichael ArmstrongLondon and PhiladelphiaSTRATEGICHUMAN RESOURCEMANAGEMENTA GUIDE TO ACTION3RD EDITIONP ublisher s noteEvery possible effort has been made to ensure that the information contained in this book isaccurate at the time of going to press, and the publishers and authors cannot accept responsi-bility for any errors or omissions, however caused. No responsibility for loss or damage occa-sioned to any person acting, or refraining from action, as a result of the material in thispublication can be accepted by the editor, the publisher or the published in Great Britain in 1992 as HUMAN RESOURCE MANAGEMENT : Strategy and ActionSecond edition published as STRATEGIC HUMAN RESOURCE MANAGEMENT : A Guide to Action2000 Third edition 2006 Apart from any fair dealing for the purposes of research or private study, or criticism orreview, as permitted under the Copyright, Designs and Patents Act 1988, this publication mayonly be reproduced, stored or transmitted, in any form or by any means, with the priorpermission in writing of the publishers, or in the case of reprographic reproduction in accor-dance with the terms and licences issued by the CLA.

2 Enquiries concerning reproductionoutside these terms should be sent to the publishers at the undermentioned addresses:120 Pentonville Road525 South 4th Street, #241 London N1 9 JNPhiladelphia PA 19147 United Michael Armstrong, 1992, 2000, 2006 The right of Michael Armstrong to be identified as the author of this work has been assertedby him in accordance with the Copyright, Designs and Patents Act 0 7494 4511 4 British Library Cataloguing-in-Publication DataA CIP record for this book is available from the British of Congress Cataloging-in-Publication DataArmstrong, Michael, 1928 STRATEGIC HUMAN RESOURCE MANAGEMENT : a guide to action / 3rd bibliographical references and 0-7494-4511-41. Personnel MANAGEMENT . I. 01--dc222005024402 Typeset by Saxon Graphics Ltd, DerbyPrinted and bound in the United States by Thomson-Shore, 1 THE FRAMEWORK OF STRATEGIC HUMAN RESOURCEMANAGEMENT1 HUMAN RESOURCE management3 HUMAN RESOURCE MANAGEMENT defined 3; Models of HRM 4;Aims of HRM 6; Characteristics of HRM 8; Reservations aboutHRM 13; HRM and personnel MANAGEMENT 162 Strategy: concept and process19 Strategy defined 19; The concept of strategy 20; Thefundamentals of strategy 22; The formulation of strategy 243 STRATEGIC HUMAN RESOURCE MANAGEMENT : concept and process29 STRATEGIC HRM defined 29; The meaning of STRATEGIC HRM 30;Aims of STRATEGIC HRM 30; Approaches to STRATEGIC HRM 31; Limitations to the concept of STRATEGIC HRM 35; Conclusion 354HR strategies37HR strategies defined 37; Types of HR strategies 38.

3 Criteria foran effective HR strategy 42vPART 2 STRATEGIC HUMAN RESOURCE MANAGEMENT INACTION5 Formulating and implementing HR strategies47 Fundamental process considerations 48; Characteristics of theprocess 49; Developing HR strategies 52; Setting out thestrategy 64; Conducting a STRATEGIC review 65; Implementing HRstrategies 696 Improving business performance through STRATEGIC HRM71 How HR impacts on organizational performance 72; How HRMstrategies make an impact 75; How STRATEGIC HRM conceptsimpact on practice 777 Roles in STRATEGIC HRM79 The STRATEGIC role of top MANAGEMENT 79; The STRATEGIC role offront-line MANAGEMENT 79; The STRATEGIC role of the HR director 81;The STRATEGIC role of HR specialists 81 PART 3 HR STRATEGIES8 strategies for improving organizational effectiveness89 strategies for improving organizational effectiveness 90; strategies for organizational development 91; strategies fororganizational transformation 95; strategies for culturemanagement 99; strategies for knowledge MANAGEMENT 106;Commitment strategy 110; strategies for developing a climateof trust 112; Quality MANAGEMENT strategies 114; Continuousimprovement strategies 115; Customer service strategy 1159 Resourcing strategy117 Resourcing strategy defined 117; The objective of resourcingstrategy 117; The STRATEGIC HRM approach to resourcing 118;Integrating business and resourcing strategies 118; Bundlingresourcing strategies and activities 119; The components ofemployee resourcing strategy 120; HUMAN resourceplanning 120; Resourcing plans 123; Retention strategy 126;Flexibility strategy 130; Talent MANAGEMENT strategy 13010 Learning and development strategy133 STRATEGIC HRD 133; strategies for creating a learningculture 136.

4 Organizational learning strategies 137;vilContentsLearning organization strategy 138; Individual learning strategies 13911 strategies for managing performance141 Performance MANAGEMENT 142; Performance managementdefined 142; Purpose of performance MANAGEMENT 143;Performance MANAGEMENT concerns 143; The scope ofperformance MANAGEMENT strategy 144; The process ofperformance MANAGEMENT 145; Conclusion 14712 Reward strategy149 Reward strategy defined 149; Why have a reward strategy? 149;Characteristics of reward strategy 150; The structure of rewardstrategy 150; The content of reward strategy 151; Guidingprinciples 154; Developing reward strategy 155; Effectivereward strategies 157; Reward strategy and line managementcapability 15813 Employee relations strategy159 Employee relations strategy defined 159; Concerns of employeerelations strategy 160; STRATEGIC directions 160; The backgroundto employee relations strategies 161; The HRM approach toemployee relations 161; Policy options 163; Formulatingemployee relations strategies 163; Partnership agreements 164;Employee voice strategies 166 References169 Further reading179 Author index185 Subject index189 ContentslviiPrefaceThis third edition of STRATEGIC HUMAN RESOURCE Managementhas been substan-tially revised to incorporate the latest research and thinking.

5 A number ofchapters such as those concerned with STRATEGIC HRM in general in Parts 1and 2 have been almost completely rewritten, as has Chapter 12 on rewardstrategies. A new chapter on enhancing organizational effectiveness hasbeen included and revisions made to all the other book is set out under the following headings: Part 1: The framework of STRATEGIC HUMAN RESOURCE an introduction to HRM, the general concept of strategy andthe process of STRATEGIC HRM. Part 2: STRATEGIC HUMAN RESOURCE MANAGEMENT in describes theformulation and implementation of hrm strategies , the impact ofstrategic HUMAN RESOURCE MANAGEMENT , the STRATEGIC contribution of theHR function, and roles in STRATEGIC HRM. Part 3: HR strategies . This covers each of the main areas in which HRstrategies are developed, namely: enhancing organizational effectiveness,resourcing, learning and development, managing performance, rewardand employee 1 The framework of strategichuman resourcemanagement11 HUMAN resourcemanagementIn this chapter, the concept of HUMAN RESOURCE MANAGEMENT (HRM) isdefined initially and the various models of HRM are is then given to its aims and characteristics.

6 The chapterconcludes with a review of reservations about HRM and the relationshipbetween HRM and personnel RESOURCE MANAGEMENT DEFINEDH uman RESOURCE MANAGEMENT is defined as a STRATEGIC and coherentapproach to the MANAGEMENT of an organization s most valued assets thepeople working there who individually and collectively contribute to theachievement of its Storey (1989) believes that HRM can be regarded as a set of inter-related policies with an ideological and philosophical underpinning . Hesuggests four aspects that constitute the meaningful version of HRM:la particular constellation of beliefs and assumptions;la STRATEGIC thrust informing decisions about people MANAGEMENT ;3lthe central involvement of line managers;lreliance upon a set of levers to shape the employment OF HRMThe matching model of HRMOne of the first explicit statements of the HRM concept was made by theMichigan School (Fombrun et al, 1984).

7 They held that HR systems and theorganization structure should be managed in a way that is congruent withorganizational strategy (hence the name matching model ). They furtherexplained that there is a HUMAN RESOURCE cycle (an adaptation of which isillustrated in Figure ), which consists of four generic processes or func-tions that are performed in all organizations. These are:lselection matching available HUMAN resources to jobs;lappraisal(performance MANAGEMENT );lrewards the reward system is one of the most under-utilized andmishandled managerial tools for driving organizational performance ; itmust reward short- as well as long-term achievements, bearing in mind that business must perform in the present to succeed in the future ;ldevelopment developing high-quality framework of STRATEGIC HRM Selection Rewards Development Performance MANAGEMENT PerformanceFigure HUMAN RESOURCE cycle (adapted from Fombrun et al, 1984)The Harvard frameworkThe other founding fathers of HRM were the Harvard school of Beer et al(1984) who developed what Boxall (1992) calls the Harvard framework.

8 This framework is based on the belief that the problems of historicalpersonnel MANAGEMENT can only be solved:when general managers develop a viewpoint of how they wish to seeemployees involved in and developed by the enterprise, and of what HRMpolicies and practices may achieve those goals. Without either a centralphilosophy or a STRATEGIC vision which can be provided onlyby generalmanagers HRM is likely to remain a set of independent activities, eachguided by its own practice and his colleagues believed that today, many pressures are demandinga broader, more comprehensive and more STRATEGIC perspective with regardto the organization s HUMAN resources . These pressures have created a needfor: A longer-term perspective in managing people and consideration ofpeople as potential assets rather than merely a variable cost.

9 They were thefirst to underline the HRM tenet that it belongs to line managers. They alsostated that: HUMAN RESOURCE MANAGEMENT involves all MANAGEMENT deci-sions and action that affect the nature of the relationship between the organ-ization and its employees its HUMAN resources .The Harvard school suggested that HRM had two characteristicfeatures: 1) line managers accept more responsibility for ensuring thealignment of competitive strategy and personnel policies; 2) personnel hasthe mission of setting policies that govern how personnel activities aredeveloped and implemented in ways that make them more mutually rein-forcing. The Harvard framework as modelled by Beer et alis shown inFigure to Boxall (1992) the advantages of this model are that it:lincorporates recognition of a range of stakeholder interests;lrecognizes the importance of trade-offs , either explicitly or implicitly,between the interests of owners and those of employees as well asbetween various interest groups;lwidens the context of HRM to include employee influence , the organi-zation of work and the associated question of supervisory style;lacknowledges a broad range of contextual influences on MANAGEMENT schoice of strategy, suggesting a meshing of both product market and socio-cultural logics.

10 Lemphasizes STRATEGIC choice it is not driven by situational or environ-mental RESOURCE managementl5 The Harvard model has exerted considerable influence over the theory andpractice of HRM, particularly in its emphasis on the fact that HRM is theconcern of MANAGEMENT in general rather than the personnel function OF HRMThe overall purpose of HUMAN RESOURCE MANAGEMENT is to ensure that theorganization is able to achieve success through people. As Ulrich and Lake(1990) remark: HRM systems can be the source of organizational capabil-ities that allow firms to learn and capitalize on new opportunities. Specifically, HRM is concerned with achieving objectives in the areassummarized effectiveness Distinctive HUMAN RESOURCE practices shape the core competencies thatdetermine how firms compete (Cappelli and Crocker-Hefter, 1996).