Strategic Human Resource Management: 37 Years in Academia, How Many in Practice? A Focus on Large Companies

Abstract

In the fast-changing global workplace of today, maintaining competitive advantage has become imperative to survival. Employees matter today more than ever since they become non-imitable sources of firm uniqueness that can deliver value to every stakeholder. Based on this, the field of Strategic HRM has gained a special interest among researchers and practitioners since it employs a strategic approach to the role of employees within the organisations. However, looking at the business world results, it looks like there is a divorce between academia and practitioners and that they are operating in a parallel way. With the aim of evidencing this gap and echoing this issue, this chapter is structured as follows. It starts with a summary of the research conducted under the SHRM field in the last two decades. It follows with a section that evidences the gap between research and practice showing the results of global companies’ surveys related to people management. In the third section a special focus on big companies is done due to their importance when legitimizing managerial trends. The chapter finishes with some conclusions and thoughts for future managers.

1. Introduction

It is assumed that the birth year of the Strategic Human Resource Management (SHRM) field was 1984, 37 years ago, when two pioneering books were published: Strategic Human Resource Management by Tichy and colleagues in 1984 (see [1]) and Managing Human Assets by Beer and colleagues in 1984 (see [2]). These authors were motivated by the industrial situation at that time in the USA: (i) USA companies were losing competitiveness compared to their Japanese and German rivals, and (ii) the utilization of human resources was conceived as an area of inefficiency and missed opportunity in USA companies [3]. In this context, a need for a strategic approach to HRM appeared.

SHRM was conceptualized like “the pattern of planned HR deployments and activities intended to enable an organisation to achieve its goals” [4]. Conceptually, SHRM is one of the subdomains of the broader Human Resource Management (HRM) field. SHRM addresses how different HRM systems (i.e. set of HR practices) are shaped and how they affect Organisational Performance (OP). An HRM system can be defined as a combination of HR practices that are advocated to be internally consistent and reinforced to achieve some overall results. Research focuses on the effects of HRM systems rather than the effect of individual HR practices. The logic is that employees are exposed to a system rather than to a single practice on at a time. These practices are supposed to be complementary or synergistic generating a coherent and consistent message within the organisation.

There can be found different conceptualizations of HRM systems within the literature. The most known are the High Performance Work System (HPWS) (see for example Huselid’s proposal in [5]), the High Commitment Work System (HCWS) (see Arthur’s work in [6]) and the High Involvement Work System (HIWS) (see Lawler’s proposal in [7]). Among these, there are certain differences in the orientation of the practices. For example, the HCWS may include more practices fostering commitment and the HIWS employs more involvement practices. However, the abovementioned three working systems include high-commitment and high-involvement employment models and they reside in the same logic: work autonomy is regarded as one of the central parts of these systems [8]. We understand these systems as “advanced” HRM systems that employ a strategic approach to the contribution that empowered employees might make to organisations.

According to the literature the five key practices that compose (advanced) HRM systems are [9, 10]: (i) selective recruitment and selection, (ii) appraisal and performance management, (iii) compensation, (iv) training and development, and (v) employee participation or involvement. To date, there is no consensus about which is the most appropriate conceptualization of HRM systems (see for example an extensive review in [10]) and for the sake of simplicity, the general term of (advanced) HRM system covering all the variations will be employed along this chapter.

Continuing with the history of USA companies introduced at the beginning of the chapter, one decade later the birth of SHRM, in the nineties, USA researchers focused on carrying out empirical studies, which would demonstrate the role of HR generating value for organisations [11]. Researchers wanted to empirically demonstrate the performance effect of HRM systems to develop the field as a true discipline. A turning point occurred when Huselid published a paper in 1995 demonstrating a positive correlation between the degree of sophistication of HR practices and market value per employee.

Building on this study, different authors started conducting empirical research focusing mostly on HR practices bundles (i.e. HRM systems) and performance relationships (e.g. [6, 12]). Paauwe and Richardson in 1997 (see [13]) summarized the findings of the empirical studies conducted until that point and they concluded that these could be classified into two types. The first type of study analysed the association between HR practices and employee related outcomes such as satisfaction, engagement, motivation, turnover and commitment. The second type of study analysed the association between the employee related outcomes and organisational outcomes such as productivity, quality, sales, and market value. They concluded that HRM activities give rise to HRM outcomes, which in turn influence OP. This contributed to a call for more theoretical insights that could explain (i) what was understood by HRM activities (ii) what was understood by performance and (iii) what the linking variables between them were [14]. The linking variables (i.e. HRM outcomes) turned to be known as the big unknown: The Black Box.

To date, a great effort has been made to theoretically argue the paths through which HRM systems influence both employee and organisational outcomes. The most widely applied theories for explaining the Black Box have been the human capital theory [see more information in references [15, 16] and the behavioural perspective [see more information in references 17, 18].

Human capital theory concentrates on the impact of HRM systems on employee Knowledge, Skills and Abilities (KSA) gained through training and work experience (see Figure 1). It assumes that these attributes of the workforce will have a positive impact on OP. Organisational investments in advanced HR practices such as strategic personnel selection, training and development contribute to the human capital of the workforce which in turn influences organisational performance. Human capital is essential for employee performance. HR systems can enhance employee KSA that are specific to the company and allow the generated human capital pool (i.e. aggregated KSA) exploit it for the benefit of the company. There are empirical studies that demonstrate that human capital pays off. For example in the study conducted by Crook and colleagues (see [19]) they showed that one standard deviation increase in human capital, measured as work experience of the managerial board, translates into an improvement of 80% in Return On Assets (ROA).

Figure 1.

Human capital framework.

The behavioural perspective, on the other hand, assumes that the purpose of the practices are to elicit and control employee attitudes and behaviours such as engagement and proactive work behaviour [4]. What is important is not how much knowledge we have in the company, but how much our employees are willing to apply this knowledge and how much effort they put into it (see Figure 2).

Figure 2.

Behavioural perspective.

The behavioural perspective lies under Social Exchange Theory (SET). SET explains human behaviour in relations. The relations are understood as an exchange relationship where a person feels the obligation to reply to the input of the other in the relationship. This is understood as the norm of reciprocity defined by Gouldner [20]. Following this, the sociologist Blau stated that employees can feel this need of reciprocity with the organisations. When organisations offer employees social exchange relations such as attention, growth or trust that exceeds the expectations of employees, employees feel the obligation to return to the company with extra effort [21].

HR practices usually employed under advanced HRM systems such as autonomous or self-managed teams, employee participation and cross-functional collaboration projects are motivational drivers for the desired work attitudes and behaviours. Investment in HRM systems demonstrates to employees that the company values them as a source of competitive advantage and this in turn might generate a greater sense of organisational attachment and engagement [20, 22].

Employee engagement can be defined as a positive and fulfilling emotional state of work-related wellbeing characterized by vigour, dedication and absorption [23]. A meta-analytical study conducted by Harter and colleagues (see reference [24]) demonstrated that engagement had a significant impact on employee performance which is a predictor of productivity. In addition, other studies conducted across industries have found that higher engagement levels of employees are related to positive financial outcomes such as profitability or Return on Assets [25] and lower absenteeism levels [26].

The first empirical evidence that demonstrated the value of implementing HR practices from a strategic perspective is considered to be that published by Huselid in 1995 (see [27]). Nowadays, almost 40 years after this publication there is no doubt that investment in HRM systems pays off. The field has been fed with evidence of positive relationships (see Figure 3 for a summary). Meta-analysing the research in SHRM supports the idea that HRM systems have a significant effect on performance (see for examples the studies in references [28, 29, 30]).

Figure 3.

Summary of three decades of trajectory of the field of SHRM.

Not only scientific papers support the positive effect of employees on OP. The internationally recognized consulting company Gallup, in their report of State of the global workplace [31] concluded that those companies that make a strategic investment in employee development (for example, implementing advanced HRM systems) report 11% greater profitability and are twice as likely to retain employees.

It is clear what research says, but, (i) are the companies nowadays implementing these HRM systems, and, (ii) are the companies consequently benefiting from them? The following section focuses on what studies reveal about these issues.

2. Figures evidencing divorce between research and practice

Starting with the focus on the employees, according to the last global report of Gallup [31] only 15% of the global workforce is engaged. The global aggregate from Gallup was calculated based on data collected in 2014, 2015 and 2016 across 155 countries. This data also showed that 18% of global employees were actively disengaged.

We have seen what engaged employees mean for an organisation in the previous section. The antagonistic, not engaged employees, can be seen as unattached people to their work that lack passion and energy and that are not likely to go the extra mile. So, considering these definitions we can say that numbers are worrying, how is it possible to have a higher number of disengaged employees rather than engaged ones? Is the problem in the employees? Does these mean that nowadays employees do not want to work? That they are not motivated?

We suspect the answer is NO. Based on the logic of SHRM, we should change the perspective and see employee engagement because of the working system implemented. The challenge usually resides in the way employees are being managed in our organisations. When achieving greater engagement from employees, Peter Senge [32] suggests thinking in more biological terms rather than mechanical; i.e., to act more like gardeners and less like mechanics. The nature of the seed is to grow and give fruits if it has the right conditions to do so. Therefore, the gardener needs to ensure the appropriate environmental conditions that make possible the growth of the plant. It is in the hands of the gardener to ensure proper light, water and work the soil. If these aspects are correctly worked the plant grows and gives its fruits.

Following this metaphor, it is in people’s nature to get involved and engage themselves at work. However, the work environment needs to make this possible. In certain organisational contexts people choose to engage and unleash their energy for the benefit of the organisation. Engagement is a voluntary act and an employee will be engaged if the organisations give them reasons to do so. This means that the key to achieving employee engagement lies in the way people are managed at the organisations. As an example, HRM systems increase employee’s task-related resources [30, 33] and this leads to an enhancement in employee engagement [34]. Moreover, these systems empower employees and empowered employees tend to be more engaged [35].

On the other hand, the numbers of employee engagement are even worse if we look at Europe. On average, only 12,5% of the workforce reported to be engaged (10% in western Europe and 15% in Eastern Europe) [31]. We can relate these figures to the results of another report published by Eurofound, the European Foundation for the Improvement of Living and Working Conditions. This report revealed that only one fifth of European companies (EU27) offer comprehensive training and learning opportunities to their employees, offer comprehensive or selective variable pay, provide direct involvement opportunities and have direct employee representation structures [36]. These practices are part of the advanced HRM systems so we can conclude that the lack of correct implementation of these systems may be behind the low numbers of European employee engagement percentages reported by Gallup. Inconsistencies between intended (e.g. employees’ needs centred) and implemented (e.g. employers concerns driven) set of practices may also pay.

The figures presented along this section evidence the existing divorce between academia and practitioners. It looks like European organisations are not consistently deploying HRM systems and that therefore they are not fully benefiting from them as research shows they would.

This research-practice gap is not new, and it has been widely criticised (for example, see [37, 38]). Several reasons have been explained as sources for this divorce such as: the theoretical and academic approach followed by researchers when writing journal articles, the lack of understanding of the real problems of managers from scholars, and the scarcity of collaborative situations between academicians and practitioners [37, 39]. The strict requirements of scientific journals make academics focus on highly elaborated theoretical justifications and very complex statistical analysis making the results very complex and difficult to understand. In addition, sometimes it seems that there are two parallel worlds and that academics research more based on what the literature is investigating than on the needs of companies.

On the other hand, long-established ways of working are a powerful force for inertia. Although some managers may be working under ineffective working systems, they might feel threatened by the idea of empowering employees to exercise discretion in their daily routine and take a leading role in decision-making. Some organisations assume that employees at the frontline cannot be trusted to make decisions or manage their work. As a shield against this fear, one typical sentence that we can heard from managers when explaining these ideas about the positive effect of HRM systems on both employee wellbeing and OP is that “everything holds up on paper but that is not valid for my organisation”. Managers may say that these systems are not valid for their workforce, that these ways of managing people and organizing work are useful for start-ups or small companies but not for big corporations. This thought is risky because big corporations can make these systems legitimate and fashionable. Managers are usually more interested in benchmarking “best practices” of legitimate and big companies than in finding out what science says [39]. Therefore, considering this, it is interesting to zoom in on how HRM systems are being implemented in large companies.

3. What can we say about large companies?

The problem of employee wellbeing and engagement becomes more pressing in large companies. How many of you have ever heard the expression “they treat us as numbers and not as people”? This sentence is more usual from people that work in large companies than those working in small and medium enterprises. Studies reveal that employee commitment and engagement is usually lower in big companies (for example, see [40]).

However, it should be noted that the problem does not lie in the company size itself. Large companies do not have to bear the social cost and expect lower levels of engagement necessarily. Theoretically, large companies, due to economies of scale, have more capital to invest in HRM systems, they are more trained and have the possibility of having expert advice in this field. In fact, there are studies that demonstrate that the implemented levels of HRM systems are more sophisticated in large companies than in small companies [41].

However, the counterintuitive results of lower employee commitment and engagement levels in big companies may be explained basing on the way organisations are organizing and structuring their growth. This way might be incompatible with the logic of autonomy that resides in the HRM systems.

When we are talking about structure, we refer to the way employees within the organisation are coordinated. Implementing HRM systems is not sending employees to training courses, giving informative talks and involving them in interdisciplinary improvement teams. It goes beyond that. Probably, when asking managers about the implementation of these advanced HR practices, managers of big companies say they invest more than managers of small companies. There can be several reasons for this, such as familiarization with terminology (i.e. small companies normally employ more informal employment arrangements), slack resources, pressure from unions, etc.

However, as it has been explained in the first section of this chapter, the relation between employers and employees and the implementation of HRM systems is based in the norm of reciprocity [20]. The employee needs to believe that the company is trusting them, that they are part of the totality and that they are empowered and that they can decide. However, there are aspects in the structuring of big companies thar can be incompatible with this message. As much as individual and group level factors influence employee work attitudes and behaviours, it is important to highlight that organisational structure can be an even more powerful influence over them.

We can highlight 3 parts of organisational structure that directly influence how employees feel about the company and therefore their perception of HRM systems: centralization, hierarchical levels and formalization [42]. As you might suspect, the bigger organisations are, the more their structure becomes centralized and formalized [40].

Starting with centralization it is reflected in the level where decision making is concentrated. The higher level the decision making takes place, the higher the centralization is. This is a typical practice in big corporations because it makes sense from the point of view of standardization and efficiency. However, as you can imagine, this issue disempowers employees and therefore, employees perceive lower levels of procedural fairness. This generates inconsistency in combination with HRM systems that foster employee commitment and involvement. If you want employees to be involved, you must give them the power and autonomy to decide. Every employee prefers doing what they have decided to do than what they have been imposed to. Engagement towards our own decisions is always bigger.

Continuing with hierarchical levels, a deep-rooted idea has been that of “the more people to be managed, the more hierarchical levels”. A basic assumption in companies is that hierarchies are common sense since you need somebody in charge. This is the logic that has been applied in traditional management and it is the principal reason of the inherited organisational structures. Simplifying, organisations can be structured in a tall way or in a flat way. In tall organisations, the more hierarchical level an organisation has, the one at the lowest level does not feel as someone important for the organisation. The mere fact that there is a pyramid in the organisational structure gives a certain status to the one at the top and a very different one to the one at the bottom. These status issues and ego problems directly affect the person. Management layers put distance between the people who think (the ones at the top) and the people who do (the people at the frontline) disempowering those at the lower levels and generating an implementation gap. In addition, the communication process becomes more difficult and slower meaning that employees are more often informed by rumours than by official announcements. The information is in the hands of those at the top of the pyramid making them powerful, important, and indispensable. That is why in a big company with a tall structure, it is very difficult that the employee believes in practices that are encompassed within HRM because the system under which they are structured is not reflecting that they are important to the company. The way of structuring organisational growth is in the hands of big companies, it does not have to be hierarchical in an imposed manner. Flat organisations are more in line with the philosophy of HRM systems since they rely on a decentralized approach. People are structured under a mutual coordination approach based on self-management and employees take responsibility for outcomes.

The third aspect of structure is the formalization. This reflects the extent to which rules, regulations, policies, procedures, etc. are explicitly articulated. This kind of system controls employee attitudes and behaviours making them somehow predictable. This can make sense from the perspective of standardizing way of doing things. Big companies may be interested in standardizing processes across different businesses for being more efficient or for ensuring the brand image in front of the customer for example. When implementing HRM system an organisation must break this paradigm of standardizing rules and procedures because these systems seek to empower people and formalization just makes the contrary: it restrain people in a way that all are supposed to act in the same way, going this against human nature. Lower-level employees are constrained by severe rules that offer a limited number of acceptable responses.

When an organisation reaches a considerable size, centralization, formalization and hierarchical levels appear in a natural way. Therefore, employees do not perceive they have the opportunity to do what they do best or to learn and grow (limited by the formalization), to decide about how to reach a specific customer (limited by the centralized decision making) or to have the information about how the company is operating compared to its competitors (limited by the hierarchical levels, those at the top have the information). The three aspects of organisational structure that are related to the growth of the company hinder a good implementation of HRM systems and therefore has a negative influence in people well-being and engagement levels.

These issues point out to another strand of literature in which the implementation of HRM systems and their results need to be understood dependent on not only managerial work but also on organisational forms and structures.

4. Conclusion and final thoughts

Companies are facing unprecedented times of change. The challenges are more global and more technological and the ability to reinvent themselves has become imperative for survival and success.

However, managers cannot deal with these challenges alone in an attempt at heroism, they need the potential and involvement of all people of the organisation. We live in a society of knowledge, and economic development depends increasingly on the acquisition of new knowledge. Within this context, employees contribute to organisational success through knowledge development, dissemination, and innovation. Today, human intelligence has become essential in business. More precisely, we are referring to intelligence understood in its broadest sense, including, beyond cognitive abilities, emotions, and motivation. The challenge is to create working environments where people who owns knowledge and skills are willing to use them for the benefit of the organisation.

Looking at the evidences presented along this chapter, one might say that there is little reason to argue why organisations would not invest in HRM systems. Those organisations that invest in these systems benefit both socially (i.e. increased engagement and well-being levels) and economically (i.e. better organisational results). However, it is typical to find managers searching urgently for solutions to pressing problems of competitiveness of their organisations and applying methods that are minimally effective and have unintended (social) consequences.

This is partly due to the existing bridge between research and practice. This gap and possible solutions need to be echoed now more than ever due to the importance of human resources for the current society.

The HRM overall effectiveness depends on both, the HRM systems quality (e.g. ‘best fit practices’) and its implementation [43]. HRM implementation is a dynamic process in nature which involves different individuals pursuing certain practices normalization [44]. Related to this, scholars need to make research in order to address the real organisational problems managers are facing and disseminate results in an understandable and applicable way so that they have the needed tools and knowledge. For researchers, translating knowledge intro practical implications requires constant engagement to understand what research questions hold practical relevance at the same time of having theoretical value for academia [45]. Therefore, from the academic side, more collaborative situations, more applied research and less statistical perfection (without losing scientific rigor) would help on the way to reduce the gap between research and practice.

On the other hand, managers should change their mentality and if employees are truly the key asset of a company, caring for them and fostering their development should be a managerial priority. This issue should place a focus on the next generation of managers so that they can create the best working conditions needed for this to happen.

The message is clear, to ensure the competitiveness of future companies, management systems must harness the potential of the entire workforce by involving and empowering them. Managers should become the champions of employee empowerment working systems (i.e. advanced HRM systems). They are responsible for aligning people towards organisational goals and deal with inherited structures and traditions that may get in the way of this imperative transition.