Why Is It Important to Have a Very Close Relationship Between Business Strategy and And an Organisation’s Human Resource Strategy?

Why is it important to have a very close relationship between business strategy and and an organisation’s human resource strategy? Why might it be difficult to determine the impact of an organisation’s human resource strategy on organisational performance?

Introduction

Human resource management probably is one of most historic management in human history. However, its value has been experiencing a significant change in these few decades – from the traditional and administrative role becomes a strategic partner in organisation (Diana Deadrick,2014). Numbers of the literature reveals there is the positive impact when human resources strategy more align to business strategy and same time they also raise their difficulties or limitations in determining the impact of human resource strategy in their studies. This article would like to discuss the reasons and principles behind these views.

Definition and Objective of Business Strategy and Human Resource Strategy

There is no sole and absolute definition of business strategy and human resource strategy but in general concept, former can be thought of the way an organisation to competes in their particular market (Schendel and Hofer,1979) and latter is a strategy to secure and maintain the kind of human resources which are necessary for the organisation’s viability (Peter Boxall,1998).

A well-known strategist Michael Porter believes the organisation should aim to obtain a competitive advantage for standing out from competitors through three generic strategies - Differentiation, Cost Leadership and Focus (Michael Porter, 1985). Another theory from Resource-based view (RBV), explains the way to obtain competitive advantage is seeking the resource which fulfilled VRIO - Valuable, Rare, Inimitable, non-substitutabl(Amit & Schoemaker, 1993；Jay Barney, 1991). Although the strategies in above theories are different, it can still be seen that organisation is required to obtain a competitive advantage to strength the viability, and that is the aim of both business strategy and human resource strategy, and thus the degree of alignment between two strategies will decide the result of organisation performance.

Relationship between Business Strategy and Human Resource Strategy

 Lots of literature present effective human resource strategy is essiential to improve organisation performance to obtain competitive advantage. Anecdotal evidence of showing more organisations has designed their human resource strategies to match business strategy (Seibert, Hall, & Kram, 1995). It is necessary to understand how human resources strategy can align business strategy.

Regarding the rapid development of technology and globalization phenomenon, employee as the organisation resource has been valued in the modern organisation. From Resource-based view as mentioned above, human resources is able to archieve VRIO , which recognizes human resource is a source of obtaining sustainable competitive advantage (Jay Barney,1991). Pfeffer (1998) also advocates treating employee as a most valuable resource in organisation because of it superior organisation performance and lead the success of the organisation (Pfeffer, 1998). This statement has been further verified in real stuidies - Hitt, Bieerman, Uhlenbruck & Shimizu (2006) find that service organisations which value human resource gain the competitive advantage. As higher attention on the value of human resources, it influences the organisation’s business strategy and putting employee-related elements inside, Human resource management as an employee personnel unit, spontaneously is the most suitable,unreplaceable and distinct role to involve by using series of policies and practices, and this reflects the unbreakable interrelationship between these two strategies.

Boswell believes the employees' understanding of how to contribute to the organization's, strategic goals was more important than understanding those goals itself(Boswell et al., 2006). A framework of creating ‘Line of sight” refers to an employee's understanding of the firm's strategic goals as well as the actions necessary to accomplish the goals (Boswell et al., 2006), examined the importance of business and human resource strategy (Paul F. Bullera, Glenn M. McEvoy, 2012).

Effective human resources strategy can smoothen the implement of business strategy, and in fact not few scholars suggest human resources management should not be only a role in implementing, but also involve to design, develop, monitor the achievement of business strategy (Ulrich, 1998; Jay Barney,1991). “Best fit” approach argues human resources strategy should be direct response, linked to the top organsation business strategy from employee personnel. This vertical integration is due to varied business strategy, may frequent change depends on organsation different development phase and external factors. For example, Porter noticed organisation requires to innovate rapidly to fit the world which technology is constantly changing (Porter and Van der Linde 1995). To adopt this idea into business strategy, it is necessary for human resource department to change their current practices to ensure the employee fully understand the new business strategy.

 Another “fit” which is horizontal integration, emphasize the consistency of all human resource strategies. The human resource strategy in “Best fit” practice and bundle the “fit” in vertical and horizontal, which can ensure the employee ‘s behaviours, abilities and interests can match organisation strategy (Delery & Doty, 1996；Wright & Snell, 1998). On the other hand, different business strategies require different skills. Hence, human resource department can assist to seek the skills from employee or department through practice. (Wright, Smart, McMahan, 1995).

For this, it can be seen that human resources strategy aims to help implement business strategy through human resources policies or practices, and furthermore, human resources policies or practices which are consistent with the organisation ‘s strategy are more effective (Michie & Sheehan, 2005). The firm can thus obtain a

competitive advantage and thus achieve superior performance (Kelliher & Perret, 2001).

As human resource department will be able to monitor and assess the individual and department performances, it can provide complete, thoroughly internal organisation picture to redefine the business strategy (Som,2006). This can lower the possibilities of inappropriate strategy happens, also can help explore the extent of business strategy. Well-organized HRM practices are a prerequisite for a successful business strategy (Boxall & Purcell, 2003; Michie & Sheehan, 2005)