The word strategy is originated from Greek language but was not used in the same meanings as it is being in use now a days. Today, dictionary defines strategy as a systematic plan of action or an action plan that has been intended to attain a particular goal. Here, the meanings show the importance of this strategy in various fields of life and business is among one of them. A business also requires strategy based planning to run its operations in a smooth manner. As we know that large firms divide their business into different operational parts like Human Resource, Marketing, Finance and IT etc. each of that operational part also requires an individual strategy to help add some value for the business overall.
First of all, a strategic analysis is to done for this purpose whose aim is to gather the relevant information. This process consists of internal and external strategic analysis for the classification of primary strategic issues and subsequently evaluating of options and selection among one of the option that fits best with the organizational setting (Campbell, Stonehouse and Houston, 2002).
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Human resource means the human capital available to work on the various organizational positions. Human resources are the people with capabilities, skills and experiences that are beneficial for the organization. The field with the help of which human capital of an organization is managed is called Human Resource Management (HRM). Human Resource Management is defined as developing systems to make sure that human resources of an organization are being used effectively to attain the goals and objectives of the organization (Jackson and Mathis, 2008).
Therefore, the process of managing human capital in an organization also requires developing of sharp plans that are useful to effectively utilize the skills and expertise possessed by the human capital. Developing the action plan is the core objective of strategy as elaborated through its definition. We can configure that developing an HR strategy is essential for the organization in order to recruit, utilize and retain skillful employees that in the long run, would be able to help organization achieve its long term objectives. In this section we will discuss in detail, the process of strategic planning, HR process and models and how an organization can develop and apply HR strategy to achieve long term success.
The strategic process
Mintzberg and Quinn (1992) defined strategies in the form of five Ps that are plan, play, pattern of behaviors, position as compared to that of competitors and perspective. In addition, Chandler (1962) defines strategy as the process of developing the action plan to recognize and achieve long term goals and objectives of an organization. The process of developing an action plan cannot be accomplished without resources. A business firm can have four types of resources that are categorized as financial resources, human resources, physical resources and intellectual resources (Campbell et al, 2002). There are five commonly used and most agreed upon approaches to strategy. Planning approach requires a long term planning to create a fit between strategy and external environment (Andrews, 1987). The competitive positioning approach is developing a strategic fit between organization and environment and taking advantage of it through a five forces model of competitive strategies (Porter, 1980, 1985). Learning approach believes that there is always a gap between planned and actual situation so the organization should be dynamic and favor learning due to the volatility of the environment in which it operates (Mintzberg et al 1995). Knowledge based approach is considered as a part of competitive strategies most of the time.
The process of strategic management involves four steps that are scanning of internal and external environment, strategy formulation in shape of mission, objective and policies, implementation of the strategy through standard operating procedures, programs and budgets and subsequently controlling and evaluation of performance results. Feedback is taken from all key stakeholders throughout the course of process. Environmental scanning is done through scanning the important variables present in the task and societal environment of the enterprise e.g. social, technological, political, etc. Issue priority matrix, Porter's approach to industry analysis, industry matrix, value chain analysis and PEST analysis are tools mostly used to scan internal and external environment of the firm. SWOT analysis, review of organizational mission and objectives, SFAS matrix, TOWS matrix, BCG matrix approach, GE business screen and portfolio analysis are considered in the strategy formulation stage. Managers of the firm implement the strategy through procedures, budgets and programs.
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Structure of the organization plays a vital role in determining who should implement what level of strategy. Recruiting the manager then training him according to strategy implementation skills is crucial. In evaluation and control, managers of the firm determine what needs to be measured and develop performance standards. They monitor the performance, identify the gap between actual and desired performance and try to fill out the gap by taking corrective actions like training and development of the employees or human capital of the firm in order to equip them with essential skills that are required to complete the task. Control can be implemented in the form of input and behavior control. Feedback plays an important role in determining the appropriate measures for each stage (Wheelen, Hunger and Rangarjan, 2004).
Human Resource Management
The process of human resource management is related with the management of human beings working in the firm. There are five core activities of human resource management that are recruitment, selection, training and development, reward and compensation and finally performance appraisals. A thorough job analysis is also required before recruiting the people in the organization. Carrying out human resource best management practices is necessary for the organization because it is aimed to reduce the employee turnover ratio, hire best people for the positions, requires people to perform at their level best, number one choice of talented people to work and to reduce the chances of law suits for discriminating and unfair human resource treatment. Human resource management is evolving continuously. Thus the firm needs to be aligned with current trends of human resource management. Globalization for instance is an emerging concept in recruitment and selection that allow selected people from remote areas to work for the firm without the need of bringing them physically to company's physical location (Dessler, 2008).
The HR Process
The human resource process involves various steps to complete the HRM cycle for example HR planning, recruitment and selection, training and development, compensation management, performance appraisal and management and maintaining relationships with employees. We discuss these elements individually below.
HR planning involves determining the need of organizational staffing by categorizing the managerial positions and number of skilled labor required. This task is accomplished through doing job analysis and preparing detailed job descriptions. Job analysis task is accomplished by conducting interviews, filling out questionnaires, long observations and maintaining logs. Some quantitative techniques are also available. Resources available on Internet can play a positive role in conducting job analysis. Job descriptions are developed after the job analysis. These are the statements about general tasks and responsibilities of a certain position. Job description also states the performance standards and working conditions. It states the relationship of position with other positions in the enterprise (Dessler, 2008).
Recruitment and Selection
Through the recruitment process, a firm creates a pool of qualified candidates. In the selection process, it selects the most appropriate person from the pool generated by recruitment process. Recruitment is a very critical process. It involves careful planning and strict human resource policies because it leads to the development of employer brand. HR planning should be done in detail in order to successfully go through the recruitment process. There are two main sources of recruitment i.e. internal recruitment and external recruitment. External recruitment can be accomplished through advertising, employment agencies and Internet. While internal recruitment is done through employee referrals which is the largest source of recruitment for business firms in the world. Final selection process is completed by selecting most appropriate candidate by testing him with the help of established tools like written test, interviews, psychological and personality tests and physical examinations (Mejia, Balkin and Cardy, 2009).
Training and Development
Training of an employee starts right after its selection. This is called orientation. Orientation is carried out at first to introduce the employees with culture, core business, background and operations of the organization. The purpose of training and development is to improve the performance and skills of human resources of the organization. Garavan, Costine, and Heraty (1995) categorized it into training, education and development. Training can be of any type like technical or job related or interpersonal. Trainings on career development are also conducted for the employees. Issues related with training and development are nature, subject, cost and time required for conducting training and development programs. Training can be both internal and external. Online training programs are also gaining rapid importance now days (Jackson and Mathis, 2008).
Compensation and Rewards
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Compensation and rewards are of many types. Compensation can be divided in categories of basic pay or wages, variable pay and benefits. Reward is a broad terminology. It can be both monetary and non monetary. There are two main philosophies of compensation division. One is entitlement philosophy which states that employee is entitled to pay rise if he worked another year irrespective of the performance standards that employee exhibited during last year. Another one is performance philosophy which believes that pay should only be raised only if there is a difference between employees' previous and current performance. Maintaining internal and external equity is important for the organization while deciding the pay for various positions. In addition to monetary rewards, firm should strategically plan giving non monetary rewards like appreciation and employee of the month programs. They help to increase the motivation level of employees (Jackson and Mathis, 2008).
Performance Management and Appraisal
In this process, standards, goals and objectives are designed for the employees at the beginning. Employees have to meet the goals and objectives remaining in the certain standards set for completing the tasks. At the end of the working year the actual performance is compared with goals and objectives set at the start of the year. If the performance matches the set criteria, new goals and performance standards are established for the New Year. But if there is a gap in actual and desired performance, the reasons for this gap are identified and tried to be eliminated.
There could be many reasons for the gap like lack of employee competencies and skills or lack of resources allocated etc. There are established methods through research to measure the performance and take the feedback from employees. Some of them are Graphic Rating Scale, Alternation Ranking Method, Paired Comparison Method, Forced Distribution Method, Annual confidential Report (ACR), Critical Incident Method, Narrative Forms, Behaviorally Anchored Rating Scale and Management by Objective (MBO). Computerized and web based performance appraisal programs are also gaining importance in the business world gradually. Main questions of appraisal are nowadays that who should do the appraisal and how to overcome the problems rising from using different appraisal methods mentioned before (Dessler, 2008).
Managing Employee Relations
Most important thing for managing employee relation is that the firm should have a sound know how of the employment laws and regulations of the country in which the company is doing business. Laws related to wages, work hours, industrial relations, harassment and gender discrimination are also important to consider. Taking care of employee work safety and health issues, ethical behavior in the workplace, discipline and privacy issues and union management issues is also equally imperative (Mejia et al, 2009).
Strategic Role of HR
Results of the research of Yang (2008) suggested that HR capability positively impacts the Customer Relationship Management (CRM). Importance of less response time of employee to customers and well informed and correct response is necessary for firm to succeed. Yang (2008) argued that this can be achieved by increasing HR capability by raising the skills and productive capacities of the workers. This study shows the strategic role of managing human resource for organizational success. When a company gives weight to the training and development of the workforce, it results in the long term benefit of the organization. There should be a "fit" between corporate and business strategy and HR strategy which is a functional level strategy (Holbeche, 2009).
Background for Strategic HR
Why firms want to strategically plan HR? simple answer to this question is that because of rapidly changing business (Economic, Social and Legal) environment, globalization as expected by Ohmae (1985) that it will have effect on all dimensions of life, volatility in consumer demands and rapid and enormous changes in technology. For these reasons a firm has to think strategically on every business aspect in order to succeed. The organization is in great need of developing strategic HR because human resource is the asset who formulate and execute other strategies of the firm ultimately leading to success or failure (Dessler, 2008).
Developing HR Strategies
HR strategy is a functional level strategy. It must be developed in accordance with business and corporate level strategies. From this we mean that HR strategy must be aligned with upper level organizational strategies in order to be beneficial for the firm. This argument is consistent with that of Holbeche (2009) who also argued that HR strategy and business strategy must be contingent. For creating the "fit" or match between corporate and business strategies and HR strategies which we will call development process of HR strategies can be broke into following steps (Holbeche, 2009).
Analyze the structure of organization e.g. divisional or functional and determine its culture and management style e.g. flat
Determine the skills, competencies and expertise of the people working in the organization
Determine and analyze the human resource management system and policies
The HR strategies should be developed than to reflect other organizational policies and objectives. HR strategies can be made on various HR issues like whether the firm should hire low cost less skilled labor (as of China) or hire high cost but experienced and skilled labor. Whether it should hire individuals for permanent work or hire teams on projected tasks. Whether it should hire permanent employees or lease them from some other agencies because fringe benefits are not to be paid to employees that are leased or hired temporarily. It is also a significant issue of now days due to globalization that whether a firm should induce diverse workforce or people of the same race (Wheelen et al, 2004). According to the study of Richard (2000), the firms with higher work force diversity is more productive than firms with comparatively low racial diversity.
When an inimitable and effective HR strategy is developed, it creates competitive advantage for the firm. For instance, in Toyota the workforce diversity is considered to be an advantage that is necessarily achieved by developing competent HR strategy. Today, Strategic HR is faced with three challenges I.e. continuous improvement, supporting productive corporate strategy and increasing human element in design as well as in execution and formation. High performance work systems should be established in order to accomplish the strategic HR role (Dessler, 2008).
Strategic management has taken vital part of business planning at all levels recently. HR is at lowest strategic level requires more attention than any other functional area to develop strategies carefully because it deals with human capital of the organization which deal with and are responsible for overall success or failure of the organization. Managing human resource strategically means taking as much benefit from them as possible and aligning it with the corporate strategy. So the firm should adopt a sound HR strategy in order to compete in the modern business environment.