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STRATEGIC ASPECT OF HUMAN POTENTIAL MANAGEMENT

Jelena Djordjevi Boljanovi, Jelena Vukasinovi
Singidunum University, Belgrade, SERBIA, E-mail: jelenav777@gmail.com


Summary: In todays knowledge-based economy, strategic approach to study of human resource management is
necessary. It implies the necessity of observing this function in an organization, not as ancillary or
administrative function, but as a function of strategic importance for the organization. Strategic human resource
management is a form of planned deployment of human resources and activities that should enable the
organization to achieve its goals. In that sense, the integrative connection based on continuous interaction of the
function of strategic planning and function of human resource management should be a rule and not an
exception in the operation of modern organizations. This is the subject of this paper.

Keywords: human resources, strategic human resource management.



1. INTRODUCTION

In order to talk about human resource strategic management, the term strategic management in general
will be first briefly explained. The task of strategic management is to enable an organization to
rationally and timely react to changes in the environment it performs its business and wider activity. In
that sense, strategic management includes: strategic analysis, formulation of strategy and its
implementation.[1] In a nutshell, if we do not know where we are going, we cannot know when we
reach there. Therefore, everything starts with a decision on what an organization wants to achieve in
foreseeable period. Previously, standard business practice implied planning in the long run, and today,
in changeable business reality, most organizations are planning for a shorter term, three or maximum
five years. [2] The significance, but also difficulties related to the implementation of strategies, is
confirmed by results of an interesting survey Strategy Implementation Survey Findings 2012,
conducted by consulting house Bridges Business Consultancy Int. Pte Ltd, with 130 respondents,
managers of companies operating in the area of IT technologies, public administration and pharmacy
in the territory of the USA, many of which employ more than 10,000 employees. According to the
results of the survey, 80% of the leaders find their companies good at the formulation of the strategy,
but only 40% at its implementation. Only 2% of the leaders are convinced that their companies will
achieve 80-100% of their strategic goals. Data indicating that 70% of the leaders spend just one day
per month on considering the strategies is worrying, as well as the data indicating that 5% of the
leaders basically understand the corporative strategy of their organizations. [3]
Human resource strategic management is therefore a form of planned deployment of human resources
and resources and activities that should enable the organization to achieve its goals [4], i.e. a group of
decisions and activities aimed at designed development of human potentials in order to ensure the
competitive advantage of an organization and strategic business goals as the response to challenges
from the environment [5]. This paper will refer to the connection of human resource management with
the strategy of the organization.



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2. STRATEGIC HUMAN RESOURCE MANAGEMENT

Strategic human resource management implies the formulation and implementation of policies and
practises of human resource management, which should lead to competences and behaviour of
employees which the organization need to achieve its strategic goals. [6] In that sense, strategic human
resource management clearly emphasises the interactivity between the external strategy and decisions
of human resource management. External strategy of a company includes chosen, formulated manner
of realization of competitiveness. Internal strategy provides organization, implementation, motivation
and control of internal resources. Internal and external strategies must be aligned with each other.
Aligned internal and external strategies imply also the implementation of appropriate methods and
techniques of strategic management. [7]
If human resource management is not a strategic partner in the organization, there is no integration of
business strategy with people who will implement that strategy. [8]. So, if there is no such integration,
strategic plans will not be realized for several reasons: 1. strategic plans need to be clear to employees
so that they can implement them in the life of the organization 2. managers and employees need to
have the common vision and common understanding of the mission of the organization in order to
transform the strategy into organizational goals, 3. strategic plans might require changes in recruiting
and selection, organizational structure, compensation system, performance evaluation methods, and
training and development programmes. Therefore, human resource management strategies should be
directly related to business strategy as a part of managerial thinking, planning and action. [9]
Actually, the question is whether an organization can build and maintain its competitive advantage
through human resource oriented strategies. Numerous studies have shown that answer to this question
is affirmative. Specifically, the comprehensive study conducted by consulting house Watson Wyatt
Worldwide has shown that organizations with superior of human resource practices create higher
shareholder value. The study has found which human resource practices largely contribute to increase
of market value of a company. They are classified in five categories: [10]
1. Excellence in recruitment of future staff. Companies should fill vacant positions as quickly as
possible in order to reduce the downtime and lost productivity. Organizations that have quickly filled
vacant positions (in two weeks) have achieved better results by 48% than the organizations in which it
took more time (about seven weeks).
2. Development of employees. Companies should apply a balanced approach when hiring people for
the positions that require possession of work experience, filling about a half of all positions by people
from the company. Such practice resulted in total shareholder return of 56%.
3. System of total awarding. Companies with higher rate of total shareholder return had above average
level of salaries and benefits than the rest of the market. Companies that best operated reached
decisions on paying employees based on significant differences in their performance. The best
employees in companies were rewarded as they merited.
4. Management of employee turnover. Companies should optimize the employee turnover rate.
Companies with moderate turnover rate (15%) had higher shareholder return rate than companies with
higher and lower turnover rate.
5. Communication. Companies that have developed internal and external communication flows in
different departments in their companies had higher shareholder return rates.
The conclusion that arises from the above stated study is that superior human resources practices may
contribute to improvement of financial results. Organizations that invest in their human resources can
achieve a significant competitive advantage and superior shareholder return, and substantially improve
their competitive position. In brief, human resource management must be a strategic partner in an
organization and by all its activities support the business strategy and achievement of business goals of
the organization.


3. HUMAN RESOURCE MANAGEMENT AS A STRATEGIC PARTNER IN
ORGANIZATION

Authors Noe, Hollenbeck, Gerhart and Wright [11] are of the opinion that there are four levels of
connection between human resource management function and strategic management function in
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modern organizations: administrative connection, one-way connection, two-way connection and
integrated connection.
ADMINISTRATIVE CONNECTION. Administrative connection is the lowest level of integration.
The attention of human resources is focused on daily activities, and therefore human resource
managers do not have an opportunity to have a strategic approach to human resource issues. On the
other hand, the function of strategic business planning of organization exists without the input of
human resources department. As it can be seen, at this level of connection, human resources
department is completely separated from any part of strategic management process, regardless of
whether it is the formulation of strategy or its application.
ONE-WAY CONNECTION. At this level of connection, human resources department shall be
notified about already formulated business strategy of the organization. Human resource managers are
to formulate systems and programmes for the implementation of strategic plans, and therefore many
wrongly believe that this connection is strategic human resource management. Even though this type
of connection is an improvement comparing to the previous one, it, however, prevents and limits the
organization to consider important human resource issues in formulating the strategy. As it might be
assumed, this level of connection most often results in strategic plans which the organization cannot
successfully carry out.
TWO-WAY CONNECTION. This type of connection enables to consider human resource issues
during the process of strategy formulation. This integration is carried out in two phases. In the first
phase, strategic planning team informs the function of human resource management about different
strategies considered by the organization. Then, in the second phase, human resource managers
analyze the impact of different strategies on human resources and deliver results of those analyses to
strategic planning team. In the third phase of this process, following the strategic decision-making, the
strategic plan is delivered to the human resource manager who develops programmes for its
implementation. In this type of connection, function of strategic planning and function of human
resource management are mutually dependant.
INTEGRATED CONNECTION. This type of connection is based on continuous interaction of the
function of strategic planning and function of human resource management, and is therefore very
dynamic and multidimensional. In most cases, in this type of connection, human resource manager is a
member of the team of top managers in charge of strategic planning and decision making. In that
sense, the function of human resource management in the case of integrated connection is a constituent
part of the formulation of strategy and process of its implementation. This type of connection of
strategic function in the organization and function of human resource management should be a rule
and not an exception in operation of modern organizations, and therefore the following part of this
paper will consider particularly these characteristics of the functioning of these two important and
inextricably linked organizational functions.
The conclusion that arises is that in strategic human resource management the function of human
resource management should be included both in the formulation of the strategy and its application.
On one hand, after the strategic orientation is defined, it is necessary to provide human resources that
will be able to maintain the set course, with regard to their knowledge and skills. On the other hand, all
practices of human resource management should be complied with business strategy of the
organization in a way to maximally engage the employees in achieving their full potentials.


4. ROLE OF HUMAN RESOURCES IN THE PROCESS OF STRATEGIC MANAGEMENT

As it has been previously agreed, human resources are the basis of competitive advantage of
organizations today and in that sense they have an important role in the formulation and application of
the strategy and strategic control. Actually, it is necessary to talk about human resource management
as a strategic partner in the organization. Results of the study conducted by Deloitte in 2013 among
150 executive managers showed that human resource issue is of invaluable importance of the strategy
of organizations. Motivating the employees is crucial for mobilisation of talents in the organization.
Over 90% of respondents think that maintaining staff morale at high level is of invaluable importance
for the organization, especially in circumstances of uncertainty and economic crisis. [12]
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The elaboration of strategic plan of the organization implies identification and analysis of
opportunities and establishment of balance between external opportunities and dangers on one side
and internal strengths and weaknesses on the other. Strategic plans should use the opportunities and
strengths of the organization and reduce or eliminate dangers and weaknesses. [13]. In that regard, it is
necessary to emphasise the necessity of evaluation of human resources in conducting the analysis of
internal strengths and weaknesses of the organization, which most often is conducted through SWOT
analysis. If the organization fails to conduct this analysis, it is reasonable to expect that formulated
strategy will be difficult to follow. For instance, if the organization opts for the strategy of leadership
in costs through technological improvement and introduction of information system in statistical
control, and then it additionally finds out that its employees are not able to work with new equipment
for the lack of appropriate knowledge and skills, this strategy will be doomed to failure. Therefore, it
is extremely important to consider all human resource issues when formulating the strategy and, if
possible, to adopt already mentioned integrated level of connection.
Talking about key issues needed to be considered in this phase, the primary reference is to the
following: [14]
What are the strengths and what areas of concern when it comes to the current employees?
Which employees will retire in the following period?
Who are the key employees in the organization?
Does the projected growth and development of the organization imply additional employments?
Which skills and abilities technical, administrative, managerial, leadership are needed for
uninterrupted performance of the given task?
Is there a gap in the existing skills and what needs to be done to keep the step with new strategic
orientation of the organization?
After the selection of appropriate strategy, it is necessary to implement that strategy in daily life of the
organization. In that sense, the role of human resources is extremely important. In the implementation
of the strategy, it is necessary to consider five variables: [15] organizational structure, task design,
selection, training and development of employees, reward system and types of information and
information systems. As it can be concluded, human resource management is directly responsible for
three of five variables: task design, selection, training and development of employees, and also reward
system, and indirectly for remaining three.
In the phase of strategic control, the strategy is assessed from the aspect of successfulness of its
application. It is of immense importance for the organization to constantly monitor the effectiveness of
the strategy and its application in order to be able to observe possible problems in this process or
undertake necessary corrective measure. The control in the function of successful application of the
strategy should be the balance between the autonomy and control of participants in its application. [16]
On one hand, knowledge workers expect a high level of autonomy in their working environment and
established models of behaviour. Only in such conditions can their creativity and innovativeness come
to the fore. On the other hand, knowledge-based organizations require the existence of certain level of
control so that they can be confident in economic feasibility and expediency of activities of their
employees. The achievement of the stated balance is one of the main challenges of knowledge
organization.
In a nutshell, the idea behind strategic human resource management is very simple. In formulating the
policies and activities of human resource management, the goal of the employer must be the creation
of skills and behaviour of employees which the organization needs in order to achieve its strategic
goals. So, the management formulates the strategic plan. That strategic plan requires certain human
resources. When the stated requirements are set, human resource management formulates appropriate
human resource strategy which will lead to creation of certain skills, competences and behaviour.
Finally, human resource manager identifies the criterion of assessment of necessary level of skills or
competences or time needed for their achievement (e.g. number of training hours on computer per
employees or productivity per employees, etc).





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5. CONCLUSION

In the conditions of modern business which is factually focused on people and their potentials, it is an
imperative to create a business strategy that includes the integrative connection with human resource
management in the organization. The benefits which the organization has from investing in its
employees directly depend on strategic human resource management. Surely, human resource should
imply not only individual but also collective skills, talents and abilities existing in the organization.
Planned and carefully conducted process of strategic human resource management results in clearly
defined key organizational abilities, motivating leadership, managerial competences, efficiency of
employees and cooperation among them. To succeed in achieving such important goals, human
resource management should have strategic vision, shared with the strategic vision of the organization
as a whole. Only in this way it is possible to achieve strategically set business goals.


REFERENCES


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