Strategies refer to plans that detail the necessary actions for achieving an overall aim. In business, strategies entail measures, which firms put in place to gain a competitive advantage in their lines of operation (Hitt, Ireland & Hoskisson 2013).
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On the other hand, organizations’ human resource strategies focus on mechanisms and actions of attracting and maintaining the right human resource, which can facilitate the achievement of the established objectives and goals as set out in the business plan. In the first section, this paper discusses the reasons why it is necessary to have a close relationship between the two strategies. However, as revealed in the second section, it may be difficult to determine the impact of an organization’s human resource strategy on organizational performance.
The Need for a Very Close Relationship between Business Strategy and an Organization’s Human Resource Strategy
Organizations that operate in the global market contend that business strategies are important in ensuring that they succeed in their daily operations. The HR department within any organization is established to handle issues that relate to employees, including enhancing motivation, managing rewards, recruitment, and conflict resolutions. The noble functions of HR are inspired by the perceptions that people who work for any organization act as the source of competitive advantage, especially by noting that they cannot be optimized using economic theories in the same manner as other factors of production such as capital and land (Ollapally & Bhatnagar 2009).
Hence, human resource strategies are critical in ensuring the success of business strategies. Without mechanisms for ensuring that organizations gain the most from their human resources, competitive advantage, which is the key pillar of business strategies, cannot be realized and hence the need for a very close association between business strategies and an organization’s human resource policies.
Modern organizations are increasingly seeking unique human resource strategies and business strategies to sustain their competitive advantage. The changing technologies, workforce demographics, the changing intellectual capital, and the growing concern over the necessity of effective management of human resource assets prompts this move. Since the above essential aspects, which also define the business environment of an organization, control every organizational development decision, HR professionals play a critical role in the business strategy formulation and planning processes. Consequently, business strategists and human resource experts must work closely in developing business synergies and/or defining the necessary durable business growth initiatives.
Effective human resource strategies are incredibly important in steering the development of two-way vertical approaches to the development of organizational strategies (Armstrong 2006). Therefore, human resource strategists not only play the role of aligning HRM systems to business strategies but also participate in the formulation of their organizations’ policies. Consequently, HR personnel participates in the formulation of strategies by working as good strategic partners. Jerjawi (2011) asserts that HR personnel participate in not only strategy formulation but also in its implementation, a move that results in the development of functional business plans.
Hence, HR professionals play a proactive role in strategy formulation by establishing lasting growth by laying various premeditated alternatives. Such alternatives include fostering a change of culture, the identification of merger, the detection of possibilities for acquisitions, and tracking changes in the market in the context of future human resource needs. Therefore, any business that is seeking to succeed must have human resource strategies that are in line with its production policies.
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Experiences in the implementation of business strategies such as mergers and acquisitions highlight the significance of having a close relationship between business strategies and organizations’ human resource plans. Indeed, considering that organizations operate in a dynamic environment, the formulation of success strategies involves change. However, employees (who the HR has the mandate of managing) fear organizational change.
For instance, during mergers, they respond to organizational changes by developing fear about the uncertainties of their jobs (Jerjawi 2011). For example, to overcome employees’ fear during the formulation of a merger strategy between Westpac Corporation and St. George Bank, HR played the role of smoothening employees’ transition to the new business by embracing change. During the formulation phase of the merger strategy, this goal was accomplished through addressing questions that emanated from employees and the HR department on the implications of the merger on their jobs. The move resulted in the success of the merger’s business strategy as the mechanism for increasing the competitive advantage of the two business entities.
Difficulties in Determining the Impact of an Organization’s Human Resource Strategy on Organizational Performance
Human resource strategies focus on improving the productivity of employees by increasing their work morale. However, a challenge exists on whether a higher business performance arises from improved business operational procedures and a reduction of work cycles or due to higher expenditures on human resource development and motivational programs. The many HR practices such as recruitment and performance appraisal lack a standard way of measuring their contribution to organizational performance. Besides, monetary resources that are committed to funding HR strategies increase organizational expenses.
From the economic theory, higher expenses translate into lower profits (Taticchi, Tonelli & Cagnazzo 2010). Therefore, with all factors held constant, economists would anticipate organizations with higher expenditures on human resource strategies such as rewards and various allowances to report a lower performance.
In addition, different measurement systems for the diverse HR practices have been associated with inconclusive results that cannot depict the impact of the respective HR strategies on organizational performance (Richard et al. 2009). The challenges exist due to problems in the quantification and translation of human resource performance parameters into monetary terms, despite the fact that human resource strategies are important in increasing the performance of organizations.
For example, one of the essential paradigms of measuring McDonald’s business success is financial performance. Other companies, for instance, Apple and Samsung, will deploy different parameters such as employee’s or customers’ satisfaction as their measure of success. Organizations perform better when they make optimal profits (Barney 2007; Neely 2005). Through enhancing job satisfaction among employees, organizations develop the capacity to reduce costs that influence their financial performance such as turnover costs, absenteeism expenses, and task-associated errors. Strategies for increasing job satisfaction are important since contentment leads to excellent input from employees (Cegarra-Leiva, Sa´nchez & Cegarra-Navarro 2012).
However, not all companies are interested in adopting these HR practices. Most of them emphasize profits, despite the role of the former in enhancing the performance of an organization.
Organizational performance is also influenced by other factors such as leadership and productivity, but not necessarily HR elements alone. Hence, exemplary performance may be a function of other factors that do not include human resource policies. In determining the impact of HR practices on performance, many organizations do not deploy an integrated HR practice approach, which may help to reveal the contribution of each HR policy to the performance.
For instance, small companies are less likely to use sophisticated or integrated HR practices (Taticchi, Balachandran & Tonelli 2012). Therefore, determining the contribution of each of the aspects of human resource strategy such as rewards, appraisal, or recruitment introduces difficulties in ascertaining the overall contribution of human resource strategies on organizational performance.
The process of measuring the impact of HR practices on performance leads to a 2-way causality. For example, a question arises on whether HR strategies increase performance or whether the emphasis on performance complicates HR practices. Organizations may adopt temporary plans to enhance interim performance, rather than focus on long-standing plans such as HR strategies to increase their performance (Taticchi, Balachandran & Tonelli 2012).
Besides, over-emphasis on the relationship between business strategies and human resource policies may lead to neglecting other factors, for instance, managerial effectiveness among others. These factors equally contribute to increased organizational performance. Indeed, variations in the measurement of HR practices in both small and big companies make it hard to determine their (HR practices) impact on organizational performance.
Organizational strategies are developed with the objective of ensuring organizational success. One of the mechanisms for measuring such success is through organizational performance. The paper emphasizes the necessity of maintaining a very close relationship between business strategies and human resource approaches. Measuring the effect of a business strategy such as a merger on performance as indicated by any changes in profit margins is easily realizable.
However, determining the impact of an organization’s human resource strategy on organizational performance is incredibly difficult. While the operation of HR as a strategic partner in business strategy development is tied to the concerns of enhancing the profitability of organizations through strategies such as motivation and the setting of reward systems for employees, quantifying the outcomes of such strategies in terms of profitability is a challenge.
Armstrong, M 2006, A handbook of human resource management practice, Kogan Page Publishers, London.
Barney, J 2007, Gaining and sustaining competitive advantage, Prentice-Hall, Hoboken.
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