Strategic Human Resource Management: Determinants of Fit

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ABSTRACT

Previous research suggests that firms can gain sustainable competitive advantage through strategically managing their human resources, operationally exercised as strategic human resource management (SHRM). However, it remains unclear about the conditions under which a firm employs SHRM so as to achieve enhanced performance. As an important feature underlying SHRM, fit reflects the interactive role of HRM practices and their relationship with the organisational strategy. In this paper, factors facilitating fit are discussed. In the proposed conceptual framework, the individual, functional and organisational level factors that influence both types of fit are discussed. Among these factors, individual/personal factors impact both horizontal fit and vertical fit, while HR function related practices and firm level factors influence horizontal fit and vertical fit; respectively.

INTRODUCTION

Strategic human resource management (SHRM) is a strategic approach to manage human resources of an organisation. Compared with technical HRM, SHRM is considered a relatively 'new' concept, despite its continuous development over the past two decades. Although there is still no consensus on an exact definition of SHRM among scholars, broad agreement has been reached on its basic function, which involves designing and implementing a set of internally consistent policies and practices that ensure the human capital of a firm contributes to the achievement of its business objectives (Schuler & MacMillan 1984, Baird & Meshoulam 1988, Jackson & Schuler 1995). The traditional HRM function, or technical HRM activities, covers a wide range of employment practices, including recruitment, selection, performance appraisal, training and development and the administration of compensation and benefits. By combining the HRM function with business strategy, SHRM reflects a more flexible arrangement and utilisation of human resources to achieve the organisational goals, and accordingly helps organisations gain a competitive advantage.

The congruence or 'fit' between HR practice and business strategy has been emphasised in studies related to SHRM (Miles & Snow 1984, Baird & Meshoulam 1988, Wright & McMahan 1992). It is the primary logic of melding the HR function into the strategy of a firm. A great deal of conceptual illustrations assert that the employment of effective HR practices and the design of a HR system compatible with the firm strategy are imperative for the successful implementation of business strategies (e.g., Lengnick-Hall & Lengnick-Hall 1988). There are also increasing numbers of empirical studies, conducted in various contexts, on the relationship between strategic HRM and organisational performance or competitive advantage (Huselid 1995, Bjorkman & Fan 2002, Chan, Shaffer & Snape 2004). Essentially, SHRM emphasises developing the firm's capacity to respond to the external environment through a better deployment of human resources. Since the strategy of a firm is a reflection of its response to the competitive external changes, a human capital pool with a broad array of skills that are compatible with the corporate strategy, is a catalyst for fulfilling the strategic goals through promoting behavioural utility among employees.

This paper will launch a conceptual framework on the antecedents of fit for better understanding the various organisational factors that facilitate the establishment of fit of HR practices and firm strategy. The definitions for the two types of fit are first introduced, and this section is followed by a summary of the theoretical underpinnings of how they both relate. A conceptual model illustrating the determinants of both horizontal and vertical fit is then provided, together with a detailed discussion on the role of three level factors on both internal and external fit. Propositions are suggested as well in this part. Finally, the implications of the conceptual model and the directions for future research are discussed. …