Academic journal article Academy of Strategic Management Journal

Strategic Fit among Business Competitive Strategy, Human Resource Strategy, and Reward System

Academic journal article Academy of Strategic Management Journal

Strategic Fit among Business Competitive Strategy, Human Resource Strategy, and Reward System

Article excerpt


In recent years, there has been marked increase in competition in virtually all areas of business. The ability to outperform competitors and produce above average profits lies in the pursuit and execution of an appropriate business strategy (Yoo, Lemak & Choi, 2006). This has resulted in greater attention to analyzing competitive strategies under different environmental conditions. Porter (1985) argued that the three generic strategies that require different resources, organizational arrangements, control procedures, styles of leadership, and incentive systems could translate into organizational performance and competitive advantage.

According to the resource-based view, the firm is regarded as a unit of resources and capabilities. The acceptance of this concept has prompted interest in identifying the nature of these various resources and in evaluating their potential to generate a competitive advantage (Lopez, 2005). As a result, the resource-based view provides a logical link between human resource management and strategic management. Furthermore, according to the contingency view, there is no one best way to structure an organization; it all depends on the particular circumstances facing the organization. In this case, human resource strategy must fit with specific business strategy (Porter, 1985). The concept of fit refers mainly to the close connection between human resource strategies and business strategies in ways that will help retain and motivate employees.

Employees are the human capital of an organization. Organizations have the ability to reward employees in many ways (Lawler & Worley, 2006). To attract, retain and motivate employees, the company must implement an appropriate reward systems. The objective of this reward systems is to encourage desired employee behaviors to ensure the success of human resource strategies. Therefore, designing and implementing an appropriate reward systems that complements human resource strategies and fits business competitive strategies is currently an important issue.

The deployment of a strategy requires a focus on the organization's business processes (Reidenbach & Goeke, 2007). Based on an extensive literature review, this paper cites Porter's (1980, 1985) generic strategies as business competitive strategies, and then deduces and develops three different human resource strategies. At the same time, we designate three alternatives of reward systems to fit Porter's (1980, 1985) generic strategies above. To support the human resource strategies and facilitate the implementation of generic strategy, each reward systems must be tied to some alternatives with identifiable attributes, activities or contents. We have labeled these reward systems as human capital, output, and position reward alternatives, according to different human resource strategies and business competitive strategies. The following sections describe the criterion, object, and mode of each reward systems in detail. The strategic fit concept helps firms to manage their resources more efficiently, reduce operational costs, respond to environmental change, and take advantage of new opportunities. Consequently, an effective linkage among business competitive strategy, human resource strategy and reward systems should enhance organizational performance and create competitive advantage (Huang 2001).


Competitive Strategy

A competitive strategy involves a series of systematic and related decisions that give a business a competitive advantage over other businesses (Schuler & Jackson, 1987; Dowling & Schuler, 1990). The concept of business competitive strategy is primarily derived from Porter's (1980, 1985) classifications of generic strategies. He argued that superior performance could be achieved in a competitive industry by pursing a generic strategy, which he defines as the development of an overall cost leadership, differentiation, or focus approach to industry competition. …

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