The Essential Link Between Business Strategy and HR ManagementPosted in : HR Updates ROI on 27 February 2020
The business of HR is an increasingly interesting and often complex environment. The level of time and resources allocated to the HR function within an organisation varies dramatically. This article explores a few different aspects around the connection between a company’s Human Resource Management policies and the organisations business strategy.
An increasing number of studies demonstrate the importance of linking business strategy with deployment of human resources within an organisation. A company’s pool of human resources and talent are arguably some of its most valuable assets. A company which links it HRM with its strategic business plan stands to gain a strong competitive advantage in the marketplace.
Strategic decision making is about considering both the internal and external factors and the context around them. The internal factors could be the company’s mission statement, the organisational structure and whether it is a large multi divisional organisation or a smaller single product company. This would usually impact on how the selection, appraisal and development of employees is structured. The external factors could be the political, cultural and economic force which may impact the business.
The human dimension of the Company’s strategy refers to the key subject of employees and employment relations. This resource represents the potential value of workers for achieving goals and gaining organisational success. Management of this includes decision making, implementation and taking actions aimed at employee attitudes and behaviours to achieve the organisational goals.
Strategic HRM can be very effective in organisations when implemented correctly. It benefits the organisation in several ways. It can be a very useful tool to help identify and analyse both internal and external threats as well as opportunities. It also helps to provide a clear business vision and strategy. It is an important influence in the approach to the recruitment and selection process to get the right people with the right skillset into the most effective positions to maximise their potential within the organisation.
A key component of linking business strategy to HRM is a culture of clear communication and trust within an organisation. When employees are encouraged to become involved in various aspects of the business strategy it develops higher levels of trust and respectability between employees and the management team. This trust is built on the knowledge sharing which allows employees to also share in the vision and goals of the organisation. The right strategy therefore helps to retain talent and develop highly competent employees.
The Michigan model is often referred to in discussion around strategic HRM. The model is based on strategic control, organisation structure and people management processes. While it focuses on reward systems for motivating employees it also concentrates on managing human resources to achieve strategic goals. Therefore, having the right structure in place ensures issues are addressed in a timely and effective manner. Most importantly it gets ‘buy in’ from employees as they feel involved in contributing to the overall strategic plan of the organisation. This can result in higher levels of productivity from a high performing workforce.
It takes strong leadership and commitment to consistently maintain the link between HR practices and the strategic plan of the business. There are some barriers such as varying levels of financial support towards the implementations and follow up of HR, development and training policies. There may also be market pressures due to economic difficulties which make it difficult to recruit the preferred talent for specific roles within the organisation. The presence of Trade Unions and threats of industrial action can also have an adverse effect on an organisation’s development and performance in relation to the implementation of Strategic HR Management.
A significant number of Multi-National Corporations base their operations in low cost economies to increase their profit margins. Therefore, the effect of globalisation is also a significant factor affecting business strategy and HRM. As both social and business relationships in distant regions are now instantly linked by advances in communication it is much more sustainable to manage a global workforce. However, while multinationals often locate to economies which may have lower operating costs and an attractive corporation tax rate, the strategy will only be successful if the pool of talent with the relevant skillset is available. In summary, this can result in an even more competitive market around recruitment for organisations which demonstrates the challenges around linking business strategy with HRM. It is important that an organisation builds and maintains a strong capacity to recruit and retain high performing employees. Through ongoing training and development these employees would acquire a broad range of knowledge, skills and attitudes throughout their careers.
The importance of strong teamwork and collaboration between various stakeholders at the senior levels within an organisation is crucial to the success of any strategy. When leaders can demonstrate their willingness to buy in to the combined business strategy and HRM processes of their organisation and openly share this with their teams it can be a very powerful and dynamic tool in gaining competitive advantage in the marketplace.
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The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.