Human resource management (HRM) emerged out of personnel functions to become the “effective management of people and encourages the type of leadership that inspires people, draws on their talents, encourages their participation in business decisions, and recognizes their needs (Ehrlich, 1997: 85). The notion of strategy in the context of HRM grew out of the need to plan beyond immediate, short-term staffing needs and requirements. Prior to this phenomenon, it was typical to remove human resources from the strategy equation and instead replace human capital with hierarchies and divisions of labor (Youndt, Snell, Dean & Lepak, 1996). By contrast, HRM strategies take the long view of the firm and the process of specific problem solving, while the planning aspect is limited to decisions about selection and staffing (Ritson, 2000).

There are five basic components of HRM: planning, organizing, staffing, leading and controlling. In its totality, these components represent the management process of human resources. They relate to establishing goals and standards, assigning tasks and delegating authority and delineating hierarchy, recruitment and selection, maintaining morale and controlling quotas, and standards and production. The convergence of the contextual parallels of business strategy and strategic management reveal support for an integrated approach or “fit” to determining the consequences of employment practices and policies by employee management issues (Tichy, Fombrun & Devanna, 1982).

Human resource management Models

Ulrich (1997) developed a model that demonstrated the shift that must take place as HR departments move from traditional administrative and employee focused roles to more strategic and change oriented roles. Ulrich’s model metaphorically calls the traditional HR roles “administrative expert” and “employee champion”. These roles have a short-term, operational, non-strategic focus and emphasize traditional HR activities such as recruitment and selection, job analysis, job evaluation, compensation, benefits, health and safety, employee counseling, performance appraisal and discipline, HR practices, and the myriad of legislative issues that affect the HR activities of an organization. While it can be argued that some of these activities such as recruitment and selection, compensation and performance management have strategic components, the more traditional view of these activities is short-term and non-strategic.

Ulrich states that for organizations to develop a competitive advantage based upon people and firm culture, as suggested by Becker and Gerhart, the HR function must take a shift from primarily short-term administrative and employee focused activities to longer-term, strategic focused activities.

In the context of this essay, the term “HRM” is used to denote the personnel and human resource management functions within the firm. In this way, the term does not differentiate between what has been deemed “traditional” personnel departments and “modern” human resource management departments. The term is synonymous with managing human resources under the guise of recruitment and selection, pay and reward (compensation), appraisal, training and development, and industrial labor relations. It is worth noting that, while industrial labor relations has not historically been thought to be synonymous with human resource management departments of the past, the broader context of managing human resources–in which new developments and initiatives have been driven and delivered in and outside of the specialist personnel function that includes industrial labor and employee relations–warrants its inclusion in this context (Bacon & Storey, 1993). As a part of competitive advantage in the context of human resource capital specifically, and the management of human resources in general, is the notion of pursuing and developing genuine employee relationships and labor-management partnerships (Deakin, Hobbs, Konzelmann & Wilkinson, 2002; Mak & Akhtar, 2003; Taylor, 2000).

Human Resources Management Theories

Emerging research describes studies of the evolution of the human resources management function to a more strategic position in the business. However, business leaders focused on maintaining a competitive advantage are not necessarily interested in the evolution of the human resources function and the advances of the HR leader in an organization; they are focused on the bottom-line results of the collective human resources of their organization. Thus, the leadership of the human resources function has a dual responsibility: (a) making sure they possess the knowledge, skills, and ability to perform their jobs as strategic business partners, and (b) performing as experts in identifying people-related topics when formulating the human capital staffing strategy, if they are asked to participate in the strategic planning process of the organization. The new strategic role of the human resources function presents both opportunities and challenges. Human Resources Management (HRM) has the chance to profoundly impact the way organizations compete through people. On the other hand, with this opportunity comes serious responsibility and accountability (Paauwe, 2004). As Noe et al. (2006) explained, “HRM functions of the future must consist of individuals who view themselves as businesspeople who happen to work in an HRM function, rather than HRM people who happen to work in a business” (p. 83).

HRM Practices and Organizational Commitment

Storey (1995) defines HRM as a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques. Tsui and Milkovich (1987) have contrasted three theoretical perspectives used to explain the determinants of HRM policy and practice. Structural functionalism argues that HRM practices result from organizational growth and/or the need to perform activities that require specialist in the various areas of the HR department.

Potential internal factors that determine HRM policy include organizational structure and size, organizational history, traditions and past practices; top management, line management and organizational power and politics (Kane & Palmer, 1995).

Researchers have noted that there are two approaches that have been dominant in explaining the relationship between HRM practices and organizational performance – the universalistic and contextual approaches (Make & Akhtar, 2003). The universalistic approach assumes that there are HRM practices that have a strong positive impact on organizational performance, across different organizational and environmental situations (Delaney 1997; Huselid 1995). The contextual approach is based on the assumption that organizations adopting a particular strategy require HRM practices that are different from competing organizations using alternative strategies (Jacjkson & Schuler, 1995).

Effective Management of Human Capital

In 2001, Becker, Huselid, and Ulrich published the results of a study that had examined numerous human resource management quality indices. They found that the top 10% of organizations from among those studied had received a 391% return on investment in the management of their human capital.

Industrial Organization (I/O) Model

Comprising the basis of strategic management through the 1980s, the I/O model posits that an organization’s strategy should rest primarily on the external environment in which it operates and that these external factors should have a greater influence on performance than the internal decisions made by managers (Mello, 2006).

Resource-Based Model

The resource-based model (Mello, 2006) purports that the organization’s resources and capabilities, rather than environmental conditions, should be the basis for organizational decisions. Included among these resources are an organization’s human resources. Organizations gain competitive advantage through the acquisition and value of their resources. This approach is consistent with the investment perspective of human resource management.

As Hyman (1989) and Edwards (1995) contended, the extent to which employees are organized at work has a great impact on their ability to generate goods and services that can be turned into profit within a competitive market (Marlow & Patton, 2002). The complexities and sophistication of this relationship grows out of not only how employees are organized, but also the extent to which they work effectively, retain power and resist labor discipline and negotiate their terms of employment (Burowoy, 1979). Braverman’s (1974) early research on managing employees in centralized and monopoly structures typical in large enterprises, small firms, subcontractors and individual contracts on the other hand have undermined traditional labor management strategies and practices (Marlow & Patton, 2002.

Human Resource Management Practices

It is increasingly argued that intensified international economic competition during the last two decades has led to tremendous changes in markets and organizations around the world. Countries and firms are seeking new strategies to be competitive in a globalized market. Increasingly, how to manage human resources to enhance flexibility and efficiency has been identified as one of the most important strategic issues. Researchers have been investigating the impact of these economic changes on industrial relations, in particular at the firm and workplace levels. Four attributes of HRM practices are as follows: “recruitment and selection, work organization, training and development, and reward and performance appraisal”.

Strategic Human Resource Management and the Performance Relationship

As Mak and Akhtar (2003) and Dyer (1984) asserted, the litmus test is whether or not human resource management strategy produces superior outcomes than the alternatives in a given organizational setting. Most research, as articulated earlier, has focused on establishing the differences in HRM practice across different strategic contexts. Two important weaknesses of extant research have been identified: (1) Past research has failed to answer the “what if (there is a match between business strategy and HR practices)?” question, while they seem to attempt to find answers to questions like “When (integration is necessary)?” or How (to integrated HR strategy with organizational strategy)?” and (2) While there is agreement about the need to study the performance implications of internal consistency within the HRM system, no study has yet attempted to test this important proposition.

Modes of Employment in Context: Theories of Segmentation

Research has shown that labor markets are the result of much more than simple supply and demand factors. Specifically, scholars argue that the state and politics play an important role in regulating and shaping labor markets and shifting power relations between workers and employers (Peck 1996). And, while most research on the informal labor market has focused on the way in which the state and politics influence its size, state regulation and politics also impact the internal dynamics of the informal market, and in turn, the labor process and labor resistance.

Perceptions of the Role of Human Resources Management

Organizational politics may enter the strategic planning process and determine who is invited to the planning session and who is left out. Many top managers of an organization fail to realize the contributions of the human resources function. A barrier to strategic human resources is the fact that many human resources managers are unable to think strategically, given their segmented understanding of the entire business. Human resources management is a complex and everchanging function, requiring a tremendous amount of technical knowledge. Senior managers lack appreciation for the value of human resources and its ability to contribute to the organization from a strategic perspective. Many simply understand the traditional or operational function of human resources and fail to realize the contributions human resources can make as a strategic partner. In fact, according to Mello (2006), managers in an organization often perceive human resources as an unnecessary layer of bureaucracy whose function is adversarial, inflexible, and time-consuming in its demands for adherence to regulatory laws.

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