For this homework assignment, you will develop a supporting human resource (HR) plan for an organizational strategy. In a paper of three to four pages (750-1000 words) of text, offer your ideas fo

Strategy - HR fit: does it really matter?

Citation metadata

Author: Patrick M. Wright

Date: Dec. 1, 1998

From: Human Resource Planning(Vol. 21, Issue 4.)

Publisher: Human Resource Planning Society

Document Type: Article

Length: 1,776 words

Abstract:

Researchers on human resource management that failed to provide proof on productivity gains from linking business planning with human resource strategies were using inappropriate parameters. The effectiveness of human resource strategies may be assessed from the vantage point of goals and principles, motivation schemes, key competencies gained by employees and encouragement of innovation. Focusing on just one of these aspects would result in skewed findings.

Since the formal advent of the field of Strategic Human Resource Management (HRM), probably with the publication of Devanna, Fombrum & Tichy's (1981) article titled "Human Resources Management: A Strategic Perspective," academics, consultants, and executives have assumed the need to "fit" HR to the strategy of the firm. Even prior to this article, authors such as Walker (1978) called for a better link between business planning (though not specifically strategy) and human resource planning. In fact, in large part, this need to find ways to fit HR to the strategy of the firm formed the foundation for the creation of The Human Resource Planning Society (Dyer, personal communication).

The basic theory behind "fit" is that the effectiveness of any HR practice or set of practices for impacting firm performance depends upon the firm's strategy (or conversely, the effectiveness of any strategy depends upon having the right HR practices). Academic definitions and theories of Strategic HRM clearly emphasize the link between HR and strategy (c.f. Fombrum, Tichy & Devanna, 1984; Ulrich, 1998; Wright & McMahan, 1992). Consulting models emphasize the need for congruence between HR and strategy, and HR executives spend a large part of their time trying to ensure an alignment between HR and strategy. Given the assumption of a need for a link and the preoccupation with attempting to develop it, one would think that the efficacy of fit between HR and strategy has found overwhelming empirical support. Think again.

Over 10 years ago, after reviewing the earliest Strategic HRM research, Lengnick-Hall and Lengnick-Hall (1988: 468) concluded, "There is little empirical evidence to suggest that strategic HR directly influences organizational performance or competitive advantage." In 1995 Dyer and Reeves reviewed four studies of the effects of "bundling" HR practices on firm performance and stated that there was "no convincing evidence that more effective HRM practices are those that fit the business strategy." Gerhart, Trevor, and Graham (1996) argued that there was little empirical evidence supporting the value of achieving synergy between strategy and HR practices. Both Delery and Doty (1996) and Huselid (1995) found much more support for a best practices approach (high-performance HR practices that are related to performance regardless of strategy) than for the benefit of fitting practices to strategy. Finally, Wright and Snell (1998) recently reviewed all of the studies attempting to demonstrate that fit between HR and strategy resulted in increased firm performance. They found that while some studies provided minor support for the efficacy of fit, overall the results were far from conclusive.

Reviews such as these have led to the question of whether, in fact, fitting HR to strategy really matters. For example, while Becker and Gerhart (1996) found considerable evidence that HR practices were related to firm performance, little evidence existed that these relationships were contingent on strategy. Pfeffer (1994; 1998), after reviewing the lack of empirical evidence in support of fitting HR and strategy, concluded that there is a set of HR practices that, if properly implemented, will universally positively impact performance across all strategies.

If we stop now, one might conclude that the Strategy-HR fit model is outdated, and that we can go back to developing the best in HR practices without the tiresome burden of trying to understand the business. However, this results in two problems. First, from a practical perspective, try telling your CEO that your HR systems do not need to be tied to the firm's strategy and see how long your employment lasts. Second, from a theoretical/empirical perspective, just because those of us in academe have failed to prove something true in no way makes it false. An old scientist friend used to advise, "If the facts don't fit the theory, fix the facts." This describes the recent work on fit in Strategic HRM.

Becker and Gerhart (1996) provide the first step toward understanding how to begin fixing the facts. In addition, recent examinations by Wright and Sherman (forthcoming) and Delery (forthcoming) have further clarified how the level of abstraction at which HR is conceptualized helps in creating an "architectural" approach to reconciling the best practice vs. fit debate. Becker and Gerhart proposed that the system architecture forms the highest level abstraction, and consists of the guiding principles. For example, IBM's move from an "entitlement" culture to a "performance" culture implied a change in the guiding principles for the development of HR systems toward ones that reward performance. Notice that at this level of abstraction, little reason exists for thinking that the effectiveness of such principles might vary across strategies.

At the next level of abstraction one finds the policy alternatives - in essence, the different techniques or practices through which the guiding principles can be promoted. So if the firm seeks to develop a performance culture through rewarding performance, it has a plethora of incentive mechanisms available for achieving this. The system could include stock options, merit pay, performance bonuses, piece-rate pay, gainsharing, profit sharing, etc., or any combination of these. At this level of abstraction, one sees how fit with strategy might take on importance. For example, if a firm is strategically seeking fast growth, then stock options might be more beneficial than simple merit pay.

The next level of abstraction might be referred to as the "product" level. This refers to the immediate product the HR practices aim to produce. For example, Wright and Sherman (forthcoming) note that a policy alternative of incentive pay may differ by the aspect of performance to which the pay is tied: One could use bonuses to produce cost cutting (if the finn is competing on cost), new product development or innovation (if the firm is competing via differentiation), or revenue growth (for a firm seeking growth). Similarly, most competency-based models of leadership depict this level of abstraction. For example, Debbie Smith, SVP of HR at Merck, noted that the company sought to identify the competencies Merck would need in its leaders given the firm's strategies for the next five to 10 years. The company then developed HR systems aimed at producing those competencies among its existing executives and high potentials. Thus, at this level, a strong need to tie HR to strategy exists.

Finally, Becker and Gerhart (1996) identify practice-process as the lowest level of abstraction. This level refers to the best-in-class implementation and/or technique of the principles, practices, and product systems. For example, a firm might seek to create a performance culture (principle) by instituting a bonus plan (policy alternative) to promote innovation (product). However, the plan might fail because of a lack of good measures of innovation, or because the plan is not supported by other HR practices (e.g., other reward practices promote cost cutting, or training and staffing systems do not result in the firm having innovative people - this issue of internal fit will be left for a future article).

This architecture approach provides insight as to the lack of empirical support for fit. Most research testing the "fit" effect has used measures of HR that are at the guiding principle level of abstraction. These measures might ask firm respondents to indicate the percentage of employees who are covered by performance-based pay, are given formal performance appraisals, are hired with valid selection systems, or are provided with more than 40 hours of training each year. Readers of this journal probably agree that such practices, if implemented correctly, will benefit organizations regardless of the strategy. Thus, one should hardly find results failing to support the need to fit such practices to strategy surprising.

So, how will the facts be fixed in the future? Becker and Gerhart (1996) called for Strategic HRM researchers to bear such distinctions in mind in future research. More specifically, Wright and Sherman (forthcoming) called for researchers to develop better theoretical models for how different strategies might imply differences in HR, and then to be much more specific in their development of the measures of HR. For example, they argued moving from simple measures of performance-based pay to assessing the aspects of performance to which pay is tied. Also, Delery (forthcoming) advocated the development of more valid measures of HR practices, paying significant attention to the level of abstraction at which these practices should be measured given the specific research question.

Thus, while empirically, the jury might still be out on research demonstrating conclusively the need to fit HR practices to the strategy of the business, considerable theoretical and practical evidence exists for making such a link. Given the considerable attention paid to the critical examination of past research and calls for refining future measures, our empirical knowledge base should soon achieve much more consistency with our theoretical and practical beliefs.

References

Becker, B. & Gerhart, B. 1996. "The Impact of Human Resource Management on Organizational Performance: Progress and Prospects." Academy of Management Journal, 39: 779-801.

Delery, J. Forthcoming. "Issues of Fit in Strategic Human Resource Management: Implications for Research." Human Resource Management Review.

Delery, J. & Doty, H. 1996. "Modes of Theorizing in Strategic Human Resource Management: Tests of Universalistic, Contingency, and Configurational Performance Predictions." Academy of Management Journal, 39: 802-835.

Dyer, L. Personal communication, November 19, 1998.

Devanna, M., Fombrum, C. & Tichy, N. 1981. "Human Resources Management: A Strategic Perspective." Organizational Dynamics, Winter: 51-67.

Gerhart, B., Trevor, C. & Graham, M. 1996. "New Directions in Employee Compensation Research." In G.R. Ferris (Ed.) Research in Personnel and Human Resource Management, Vol. 14, 143-204. Greenwich, CT: JAI Press.

Huselid, M. 1995. "The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance." Academy of Management Journal, 38: 635-672.

Pfeffer, J. 1994. Competitive Advantage Through People. Cambridge, MA: Harvard Business School Press.

Pfeffer, J. 1998. The Human Equation. Cambridge, MA: Harvard Business School Press.

Walker, J. 1978. "Linking Human Resource Planning and Strategic Planning." Human Resource Planning, Vol. 1.1: 1-18.

Wright, P., & Sherman, S. Forthcoming. "Failing to Find Fit in Strategic Human Resource Management: Theoretical and Empirical Problems." P. Wright, L. Dyer, J. Boudreau & G. Milkovich (Eds.) Research in Personnel and Human Resource Management: Supplement. Greenwich, CT: JAI Press.

Wright, P., & Snell, S. 1998. "Toward a Unifying Framework for Exploring Fit and Flexibility in Strategic Human Resource Management," Academy of Management Review, 23: 756-772.

Ulrich, D. 1998. Human Resource Champions. Cambridge, MA: Harvard Business School Press.

http://www.nyhrps.org/

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