New Assumptions about Strategic HRM?

I attended the Strategic Management Society annual Conference in Rome where I went to find out about what strategy academics have to say about HRM as a source of value creation.  And I’m pleased that I went if only to confirm what I’ve said in other blogs about the search for new business paradigms. Like many of the other management scholars, strategy academics have fallen out of love with business and with some of their most treasured assumptions about shareholder value.  This was evidenced by two new special interest groups that have formed in the Strategic Management Society on human capital and on stakeholder theory.

The opening plenary session given by some of the most prominent strategy academics  - Jay Barney, Russ Coff, Ed Freeman and … - raised lots of questions and some answers on the topic of ‘where strategic thinking in business needs to go’.  Jay Barney, the man most associated with what has become one of the most discussed ideas among management academics – the resource-based view of strategy (RBV) – outlined some of the assumptions/ predictions it has made with respect to human capital.   One of the most important is that firm-specific, as distinct from general (or transferable), human capital is a potentially great source of competitive advantage because it can be valuable, rare and inimitable.  This is why firms seek to engage employees to secure their identification and willingness to ‘go the extra mile’.   It also explains why firms are much more eager to train employee in the routines, processes, and ways of ‘doing things around  here’ and much less eager to give them a more general education, such as an MBA, which  they can use for their own advantage and for the advantage of other firms.  This last point, however, highlights a problem for the RBV: rational employees recognise that they do not benefit as much as firms from investing in their own firm-specific human because of what is called asymmetric power relations.  Basically, this refers to the lack of power and knowledge of individuals in relation to firms.  Thus, we are left with a distribution problem:  after all costs are paid, who should benefit from residual profits and how should this residual amount be shared?

The traditional answer, which has underpinned strategic management theory and corporate governance since the 1980s, is the normative theory of shareholder value.   Employees are paid a wage for their investment in general human capital in the firm and may gain in some of share ownership if they in invest in firm-specific human capital, but the shareholders have sole ownership rights and thus the only legitimate claim on residual profits.  Firms in the 1990s did try to limit their investment in firm-specific human capital by retrenching into employment contracts that were largely transactional rather than relational – the so called ‘employability contract’.  This, more or less stated that firms were unable or unwilling to guarantee the old style contract based on job security and firm-specific careers, but were willing to help employees develop skills (general human capital) that they could use to make them more employable in the future in return for their temporary demonstration of high commitment.  However, such psychological contracts have not proven successful, especially in attracting and engaging knowledge workers and senior managers, who often have high levels of general human capital and are capable of bargaining away much of the residual profits that would normally accrue to shareholders.  This is best exemplified by the case of premier league professional footballers and many CEOs and other star employees (who are both unique and capable of adding high value).

Russ Coff suggested the answer lay in developing a different theory of strategic management, one that is based on stakeholder theory rather than shareholder value.  This was hardly revolutionary stuff, but was positioned as such by these eminent strategy academics.  It was left to Ed Freeman, who has a new book coming out on stakeholder theory, to put the argument for a different view of what might count as useful theorising about strategy and where it may need to go.  His time seems to have come, especially given the weakening position of the US in the global economy.

I’m still stunned, however, over how large the gulf is between assumptions made by American scholars and those made by their (particularly continental) European counterparts.  However, we should be grateful for small mercies.

A Final Blog from the AOM: New Developments in Strategic Human Resource Management

I’m about to begin writing a new book exploring the links between HRM and business strategy, a conjunction of ideas which has been at the core of my work for the last few decades. So, I was pleasantly surprised to see that the AOM conference had some core tracks on this subject, the main participants of which have organized an interest group - rather unfortunately in my view - labelled ‘strategic human capital' (are we really interested in human capital or even human resources, or should we be more interested in resourceful humans?). The first conference stream dedicated to research in this field is due to take place at the Strategic Management Society annual conference in Rome in September and fields an impressive array of American scholars, including Dave Lepak, Pat Wright and Russ Coff.

During the AOM conference there were some excellent papers mapping out the field and addressing the question of what it means to be strategic in HRM. Shad Morris used this session as an opportunity to explore how organizations manage their star performers and attempt to expropriate value from them to create firm specific human capital - a very tricky problem because stars often have an inbuilt incentive and the power to expropriate value from the companies with which they deign to work to build their own general human capital. Another paper by Dana Minbaeva from the Copenhagen Business School HR team explored the bridge between the macro-micro divide. This may sound like academic jargon but is an extremely important issue for practitioners to understand.  It is not enough to have a set of so called best HR practices in place to ensure desirable individual and group attitudes and behaviour; we also need understand how these practices are implemented, the signals they send out and how these signals are perceived by individuals in particular contexts. This signalling theory approach, of which we have written about in a new book chapter, was demonstrated in another paper entitled ‘ Why are job seekers attracted to socially responsible companies? Testing underlying mechanisms’ by David Jones and colleagues from the University of Vermont. One of the insights generated by this paper is that it is not CSR in itself that attracts potential employees, but the inferences that such people make from the signalling cues of such policies. In this paper, environmental oriented CSR policies did not have as big an impact on the attractiveness of an organizational to potential employees as those policies focusing on being community-oriented i.e. signals from the corporate citizenship elements of the CSR policy were picked up by potential applicants as ‘they treat the local community well, so they must treat employees well’ and 'if they treat there employees well, I will apply to this organization'.

The third and fourth papers, however, provided even better insights into how we can conceive strategic human resource management.  A presentation by Lisa Hisae Nishii outlined a process theory of SHRM. The main contribution of process theory lies in explaining how the success of HRM is very much down to the implementation of policies, especially in meeting the valued expectations of employees, i.e. meeting psychological contract expectations. We provided a similar explanation in 2001 in a paper entitled ‘Transforming multinational enterprises: towards a process model of strategic human resource management change’ in the International Journal of Human Resource Management, but it will take someone of the stature of Pat Wright to get this idea into practice. The final and probably best paper was presented by Robert Kaše from Ljubljana. His was an attempt to map out the relationship between HRM and organizational outcomes using a social network perspective. Robert’s ideas would be the most difficult to put into practice because they highlighted the complex and multiple relationships inside and outside of organizations which have to be understood before we can predict with any certainty the impact of HRM policies. However, to get an accurate picture of HRM in organizations, such complex understandings are needed. One of the few examples I have seen of this kind of social network mapping is IBM’s attempt to capture the informal communications patterns which only become evident through tracking online social network communications. Such an activity is only made possible because the company has access to the IP addresses of all users of the company’s social networking software and can trace their communications. The patterns that emerged showed the importance of ‘mavens’ and ‘connectors’ who were critical to knowledge creation and sharing in the organization, so allowing IBM to create organizational structures which built on the bottom-up informal organization structures rather than on the top down formal structures.

If  anyone is interested in these papers, which are unlikely to be published for a year or two, the authors may be willing to share their work with you if you email them.  Most can be found using a Google search.

However, no matter how many times I attend the AOM conference – I’ve been going for a dozen or so years – I’m always amazed by the differences between business and management and HR on this side of the pond from what goes on in the USA. One example that rammed this point home to me this year was the statement by one of the leaders of the new strategic human capital interest group that I began this post with. He proposed a ‘revolutionary’ idea that US scholars and practitioners took the shareholder value perspective as given, arguing that this assumption needed to be questioned for the field to move on. Quelle surprise! I felt obliged to point out to the largely US audience that shareholder value was not a given outside of the USA, especially in some parts of Europe and Asia, and that we had recently written a 'not so revolutionary' paper on four configurations relating different corporate governance assumptions (shareholder value, stewardship theory, stakeholder theory and context-bound theory) to different sets of ethical and strategic assumptions, and through these to particular strategic HR policies. I also felt obliged that this notion was not even revolutionary among scholars in the USA. In a manner reminiscent of the love affair with Japanese management in the 1980s and 1990s, Peter Cappelli from the Wharton School and his Indian colleagues have just produced a piece of research in the Academy of Management Perspectives extolling the virtues of an Indian approach to management and what US firms can learn from them. The single most important feature they found of corporate governance among Indian companies was the ‘determination to balance the interests of the firm’s diverse stakeholders’. Being a representative of shareholders came only fourth on a list of priorities for business leaders. First was acting as a guardian for the mission driven strategy, which embodied social as well as economic goals, second was as guardians of the firm’s culture, and third was as acting as guide or teacher for employees.

Reflections on the CIPD Annual Conference and The Future of HR

I've just spend an enjoyable and highly informative two days attending the CIPD annual conference in Manchester as one of their guests. The invitation to spend time with the senior team of the CIPD was, in part, a result of my involvement as a judge on the technology and HR awards. So, first of all, I've want to congratulate the team at Intercontinental Hotels for their leadership learning portal and two extremely able guys at Beds and Bars - both of whom read this blog - who have created something new and practical in the field of e-HR and Web 2.0 with very limited resources and good use of iPhones.

My involvement, along with some good academic colleagues, was also to provide academic input and feedback into the CIPD's future initiatives and suggest ways in which the academy and HR professionals can get the best from each other. Again, this was a very welcome and excellent initiative on behalf of the CIPD. So with this last point in mind, I suggest that one of our most important jobs is to act as 'critical friends', though there are additional roles for us in helping contribute to 'thought leadership' (I'm not keen on that term), as advocates of rigour as well as relevance in producing actionable knowledge about HR , and in helping ask the right questions for the CIPDs future research and knowledge agenda. On this last point, for the most part we're typically dealing with 'wicked' problems for which there is no real solution, programme or end point; instead we are only able to resolve inevitable tensions, especially at the strategic level (see earlier post on leadership and negative capabilities) by distributing ownership to those people who have either a better grip on the issues or who have to live with the consequences.

So with the critical friend role in mind, I would like to offer some comments on two very important initiatives launched by the CIPD and one that they actively support. The first was the launch of the HR Profession Roadmap, which is one of the most important exercises in competence mapping and building HR capability ever undertaken - at least as far as I'm aware - (download here). The launch breakfast meeting was poorly attended because of heavy rain in Manchester but deserves greater publicity (which I'm sure it will get) because of its potential impact on shaping thinking and practice in HR and building current and future capabilities of the profession. My advice is that any organisation seeking to build HR capacity, and there can't be many not seeking to do so, would be well advised to take advantage of the thinking, frameworks and evidence produced by this project team. I'm working with a number of organisations on capacity building in HR projects and I know I'll be using these standards to help build strategic leadership capacity among senior HR people. Which is where I want to begin my critical friendship!

In a piece of work we completed recently on developing a model of strategic leadership for HR directors in NHS Scotland, we cautioned senior HR directors on the limitations of 'atomistic lists of competences. To paraphrase Henry Mintzberg, even when joined up in a circle (or triangle or other geometric shape)', competence models do not provide testable models of relationships among the complex range of factors that produce effective strategic leadership in HR. This is an important cautionary note for practitioners because it is really only by devising causal models (or, dare I say it, theories) of effective leadership that you can truly evaluate the impact of competences, knowledge, attitudes, EQ/ IQ etc) on performance. These causal models should show how,why and what people bring to a job, the styles of leadership they choose, the attitudes and behaviours they demonstrate, etc., result in effective performance (itself a contestable issue). In addition, practitioners also need to understand the complex range of so-called moderating factors which influence this line of sight. By moderating factors I mean how market or stakeholder context, business models of how to create value, values and leadership aspirations, HR architectures, and the capacity of the HR team to create and leverage networks for innovation, combine to influence the process of strategic leadership in HR.

Sarah Miles, Organizational Effectiveness and Development Director, and her team at the CIPD have done an excellent job in bringing us so far with the new mapping exercise but were ready to admit they don't have all of the answers. If they are able to build on what they have achieved so far by devising better causal models and setting out the full range of contextual factors organisations need to take into account when implementing them, they will do the profession an even greater favour - a direction we're certainly travelling in.

The second major initiative, discussed by Jackie Orme and Lee Sears at the conference and on a recent CIPD podcast, was the results of the Next Generation HR Study. Again this initiative is extremely important because it aims to build a picture of future strategic leadership in HR based on research into what leading firms in the UK are thinking and doing. You can read about it in People Management in the November 19th edition or download reports/listen to discussions from the above links, but basically the project has highlighted three trajectories along which organisations are moving - creating greater organisational agility for sustainable performance, (re)building a culture of authenticity and trust, and demonstrating a balanced approach to risk management.

Again, I'm really pleased to see this work because it is important for the profession to understand its role in resolving the tensions created by shaping the innovation or 'agility' agenda while focusing on the legitimacy agenda. We've been researching and writing about these agendas and tensions for some time now, and these have been the subject of a number of posts, our book on corporate reputations and HR, a forthcoming one with Ron Burke and Cary Cooper on corporate reputations, some academic papers, and a new chapter on HR's role in contributing to better staff, innovation and financial governance. Our approach has been to discuss them in terms of the wealth creation role of corporate governance (innovation by doing different things and doing things differently) while managing the wealth protection role of governance (developing corporate reputations for being excellent and trustworthy employers, providing effective and ethical leadership and governance, and exercising corporate social responsibility).

In other words, both the CIPD and our agendas seem to converge on issues that strategic HR leaders need to address, which is both comforting for us and, if they ever needed it, a degree of validation for the CIPD Next Generation project. Furthermore, I suspect our agendas are likely to become even more important because HR has not only to find ways of adding strategic value but also contributing longer term reputational value to the nowadays somewhat tarnished business sector and its senior leadership teams (at least in the eyes of many). It also has to find ways of contributing to public value in an under-threat public sector, which is having to deal with decreases in public spending because parts of the financial sector have been unable to manage the tensions between the wealth creation and wealth protection roles of governance.

I'm going to leave the third sets of comments on the engagement agenda and the McLeod report to a separate post. This one is getting far too long!

Putting People Back into HR Strategy

My apologies for the time I've had off from posting. I'vebeen very busy participating in some events which have provided me with excellent examples of how to 'put people back into strategy', the subject of some recent posts

I've recently written a paper with Paul Gollan and Kerry Grigg on HR strategy, suggesting that a strategy-as-action approach has much to teach us as practitioners and academics about strategic management in general and developing workable HR strategies in particular (see the strategy-in-action website). Over the last couple of weeks I've taken part in two health service-related events which have demonstrated the benefits of a strategy-in-action perspective, although participants didn't use this label as such.

The first was a large event run by the leadership team of Dumfries and Galloway Health Board, facilitated by an ex-postgraduate student of mine, Sharon Millar, and colleagues from the CIPD, Drs John McGurk and Jill Millar. This event was one of a series they have run aimed at developing workable strategies for building dynamic capabilities in the health board as it moves closer towards partnership working. What was impressive about this process was the volume, intensity and numbers of people involved in the leadership and strategy-making process. In other words, the emphasis at this event and the others which preceded it was very much on strategising and human resource development as much as strategic content.

The second was an event I participated in yesterday, run by the Allied Health Professions of Scotland to develop an integrated professional and educational strategy for a group of key workers in the NHS in Scotland. Drawing on a methodology to creating a consensus around the principles and content of such a strategy, it was fascinating to watch how they used inputs from internal and external speakers to develop a progressively more refined series of consensus statements. The process was driven by discussions during previous events where questions about what mattered to staff were posed by about 180 participants at all levels from all Allied Health Professions in all healthboards in Scotland. These questions were then turned over to 'experts' to write research-based papers on the issues raised by participants (of which I was one). During the actual consensus event at Murrayfield Conference Centre in Edinburgh, experts fed back their findings, which were fully discussed by the conference participants and their views were summarised in the form of a progressive series of consensus statements by a panel who acted as facilitators rather than directors of the process. Though the process may not be without its flaws, as a methodology of developing strategy for a group of rather disparate set of professional groupings - around which there was a strong need for consensus - it was a real lesson in how to put people back into strategy and in how to use the strategic journey to develop workable strategies that have much more chance of buy-in.

There are important lessons from these events not only for organisations in healthcare, which are dominated by the need to gain the consent of influential professions to survive, but also for the private sector. For example, I'm currently being asked to think about how a large multinational organisation gain insight into values that stakeholders can understand, agree on and draw on to shape their future direction and current actions. I think there are lessons from these two projects that help address this question.

Linking Employer Branding to Strategic HRM and Customer-based Reputation

I'm working on a couple of projects just now, which require me to focus on some of the problems involved in employer branding in multinational environments. I've also just finished an enjoyable exercise acting as a judge on Personnel Today's employer branding awards, which has caused me to reflect on the criteria for assessing and measuring the impact of employer brands. With both of these projects in mind, there are a couple of good sources of material that may be worth looking at if you are working in this field as a reflective practitioner ( I've got a few people in mind when writing this blog) or academic. One source I've written myself with Susan Hetrick ( I'm saying this is good but I'm not really the best judge of that); another is in the recent edition of the British Journal of Management. These works are written mainly for academics in the field but are accessible and useful for those who want to get beyond the usual homilies or lack ofevidence-based practice that characterised much of the employer branding literature.

Our piece is entitled 'Employer branding and corporate reputations in an international context' (pages 293-320) and can be found in the new 'bible' edited by Paul Sparrow on 'Handbook of International Human Management: Integrating People, Processes and Context' published by John Wiley and Sons, Chichester, UK, 2009. This chapter sets out a model of employer branding in an international context and illustrates some of the problems of negative capabilities associated with 'thinking global and acting local' using a case from the financial services sector. In the case we argue the need for authenticity in employer branding to favour the local rather than the current fashion for global. More of this in later blogs, because this issue gets to the heart of strategic HRM and employer branding in international contexts, the subject of a forthcoming paper by myself, Paul Gollan and Kerry Grigg.

The second extremely useful source is an excellent if somewhat parsimonious attempt to provide a theory of customer-based reputations (C-bR), written to explain the basis on which customers attribute positive reputations to companies and what such reputations lead to in terms of important outcomes. The paper by Walsh, Mitchell, Jackson and Beatty in the British Journal of Management current edition and the core argument is that customer satisfaction and customer trust in the organizations drive positive (and negative) customer-based reputation attributions. In turn, C-bR causes customers to be more loyal (CL) and to produce high levels of customer advocacy through word-of-mouth (WM). The authors show highly significant links among these variables, especially among C-bR and its consequences for CL and WM.


I'm sure I can learn from this parsimony in two ways, largely because my own attempts to explain the causes and consequences of employer branding are so complicated and cannot easily be tested. The first way is to ask the question: what are the workforce and HR antecedents or drivers of customer satisfaction and customer trust? This is likely to lead us into a refinement of the logic of the 'three compellings' from the Sears service-profit chain, a favourite example of many who wish to demonstrate links between satisfied employees, satisfied customers and profits. So, you might expect that employee satisfaction, employee commitment and employee engagement might by related in some way, together with the authenticity of the employer brand, to drive trust in organizations and their leaders (see CV Harquail's application of authenticity to personal branding for an idea of where I'm going).

The other use of this model is to translate the variables into employer branding language. So, you might expect that high levels of employee satisfaction, commitment and engagement, and high levels of trust on the part of employees in the organization and its leaders may drive Employee-based reputation (Eb-R). In turn high Eb-R is likely to result in key outcomes such as employee loyalty/ intention to remain and to word-of-mouth advocacy of the organization, the latter of which is so important to our current project for the NHS.

Although this line of reasoning has been pursued by Gary Davies and Rosa Chun from Manchester Business School in a number of recent articles, the ideas from the Walsh et al paper do suggest how their work could be developed.

When I've worked through some of these ideas a little more, I'll put these up for consideration in a further blog.