Learn about defining, measuring and reporting human capital, and how HR can use human capital information to drive performance
An approach to managing human resources, strategic human resource management supports long-term business goals and outcomes with a strategic framework. It focuses on longer-term resourcing issues within the context of an organisation's goals and the evolving nature of work, and informs other HR strategies, such as reward or performance, determining how they are integrated into the overall business strategy.
This factsheet looks at how the concept of strategic HRM has developed since the early 1990s and makes a distinction between strategy and strategic planning. It then looks at strategic HRM in relation to business strategy, human capital management and business performance.
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What is strategic human resource management?
Strategic human resource management (strategic HRM) is an approach to managing people that supports an organisation’s long-term goals with an overall planned and coherent framework. This helps ensure that the various aspects of people management work together to develop the behaviours and performance needed to create and distribute value. It focuses on longer-term people issues, matching resources to future needs, and large scale concerns about structure, quality, culture, values and commitment. It's necessarily dependent on the evolving nature of work itself, which is explored in our Megatrends series and our Profession for the Future work.
There’s no single HRM strategy that will deliver success in all cases. Organisations must define their own unique strategy according to their specific context, culture and objectives. People professionals are instrumental in applying their expertise to understanding organisational circumstances, and designing human capital value chains that reflect stakeholder demands.
In their book Strategic HRM: the key to improved business performance Armstrong and Baron explained in detail the various definitions and approaches to HRM, strategy and strategic HRM. They state that strategic human resource management is a complex process that’s constantly evolving and a topic of ongoing discussion by academics and other commentators. Its definition and relationships with other aspects of business planning and strategy are not absolute and opinions vary.
The idea of strategic HRM started around the early 1990s, when academics developed definitions such as:
The undertaking of all those activities affecting the behaviour of individuals in their efforts to formulate and implement the strategic needs of business (Schuler).
The pattern of planned human resource deployments and activities intended to enable the organisation to achieve its goals (Wright and McMahan).
Boxall and Purcell describe strategic HRM as being concerned with explaining how HRM influences organisational performance. They also argue that strategy is not the same as strategic planning because:
Strategic planning is the formal process that takes place, usually in larger organisations, defining how things will be done.
Strategy, by contrast, exists in all organisations (even if it’s not written down and articulated) and defines the organisation’s behaviour and how it attempts to cope with its environment.
Strategic HRM can include a number of individual HR strategies, for example:
- to deliver fair and equitable reward
- to improve employee performance
- to streamline organisational structure.
In themselves these are not ‘strategic HRM’. Rather, strategic HRM is the overall framework that determines the shape and delivery of the individual strategies, systematically linking people with organisations by integrating HRM strategies into organisational strategies to deliver organisational success.
Strategic HRM and business strategy
A good business strategy is informed by people factors. This is driving demand for greater evaluation and reporting of human capital data (see below).
Most organisations today recognise that people are fundamental to sustainable value creation, which is why 'human capital' is often referred to as a business’ 'most important asset'. Individuals’ knowledge, skills and abilities are assets which the organisation should invest in and use to create sustainable value for the organisation and its various stakeholders. The intangible value of an organisation relating to the people it employs is gaining recognition among accountants and investors, and its implications for long-term sustained performance is now generally accepted.
So it’s too simplistic to suggest that strategic human resource management stems from the organisation’s business strategy. The two must inform one another. The way in which people are managed, motivated and deployed, and the availability of skills and knowledge, should all shape the business strategy. It's now increasingly common to find business strategies that are inextricably linked with, and incorporated into, strategic HRM, defining the management of all resources within the organisation.
Individual HR strategies may, however, be shaped by the business strategy. So if the business strategy is about improving customer service, this may translate into discrete HR strategies involving the use of training plans or performance improvement plans.
Our new Profession Map was based on key principles that govern how HR and other people professionals behave and deliver value through their work. The principles ‘Work matters, People matter, Professionalism matters’ describe clear pathways to strategic decision making to ensure value is created sustainably for the benefit of all stakeholders.
Links with workforce planning
One important area of people strategy is workforce planning. This helps organisations meet their future skills needs and support their long-term business goals. There's recently been renewed interest in this issue, largely driven by the realisation that in a fast-changing economy some degree of planning is vital to ensure the organisation is developing enough capacity to adapt to new trends and take advantage of emerging opportunities.
Workforce planning involves putting business strategy into action. It must therefore be an iterative process - feeding information upwards on the capability and capacity of the workforce to deliver - and acting on forecast need for skills and capabilities to take the organisation forward.
Strategic HRM and human capital management
The term human capital is used to describe people at work and their collective knowledge, skills, abilities and capacity to develop and innovate. Human capital management assumes that people are treated as assets rather than costs. It focuses on adopting an integrated and strategic approach to managing people, which is the concern of all stakeholders in an organisation, not just people management professionals.
Human capital management can complement and strengthen strategic HRM by:
Drawing attention to the significance of ‘management through measurement’ - the aim being to establish a clear line of sight between HR interventions and organisational success.
Providing guidance on what to measure, how to measure and how to report on the outcomes of measurement.
Underlining the importance of using the measurements to prove that superior people management is delivering superior results and to indicate the direction that HR strategy should follow.
Reinforcing attention on the need to base HRM strategies and processes on the requirement to create value through people and thus further the achievement of organisational goals.
Defining the link between HRM and business strategy.
Strengthening the HRM belief that people are assets rather than costs.
Emphasising the role of HR specialists as business partners.
Strategic HRM can be seen as the means through which human capital is converted into organisational value. Human capital evaluation is useful in that it provides information about people’s current and potential capabilities to inform the strategy. So strategic HRM could be viewed as the framework within which these evaluation, reporting and management processes take place and ensures that they are mutually reinforcing.
Find out more in our research reportHuman capital analytics and reporting: exploring theory and evidence.
Strategic HRM and business performance
Since around the mid-1990s, the CIPD and other organisations have been gathering evidence of the impact of people management practices on business performance. Much emphasis has been placed on the importance of ‘fit’. In other words, HR interventions should align with both each other and other organisational strategies for maximum impact. The main areas of practice agreed to have an impact on performance are around job design and skills development.
The ‘people and performance model’ generated from CIPD-sponsored work at Bath University was described in our Understanding the people and performance link: unlocking the black box report. It emphasised the importance of individual HR strategies fitting with each other and operating within a strategic framework that incorporates both people and business issues.
This research has also found that individual HR practices alone do not drive better business performance. For example, highly skilled individuals with valuable human capital can only generate value if they also have positive relationships with their managers in a supportive environment with strong values. All these factors will promote ‘discretionary behaviour’, that is, the willingness of the individual to perform above the minimum necessary or give extra effort. It’s this discretionary behaviour that makes the difference to organisational performance. Hence strategic HRM should take account of the need to engage individuals within the organisation. Find out more about employee engagement.
Strategic HRM and people analytics
The term people analytics is often used to describe HR analytics in organisations: the use of workforce data to drive effective decision making. As people analytics practice has become more effective, efficient and accessible to a wider community of HR practitioners, it has generated interest from all people professionals. People analytics now forms part of both operational and strategic decision making in organisations.
The quality of strategic HRM is best shown by collecting different types of outcomes data that describe the impact of strategic practices on key performance indicators - for both the HR function and the wider organisation. People analytics is crucial for understanding these outcomes, and in particular for developing insights which further drive strategic decision making. The absence of people analytics capabilities makes the delivery of effective strategic HRM difficult, and more likely to fail. So it’s crucial that HR functions aiming to develop their strategic activity should build a firm foundation of people analytics practices.
To find out more on establishing effective people analytics practice, take a look at our practitioner guide.
Books and reports
ARMSTRONG, M. (2016) Armstrong's handbook of strategic human resource management. 6th ed. London: Kogan Page.
FARNHAM, D. (2015) Human resource management in context. 4th ed. London: Chartered Institute of Personnel and Development.
KEW, J. and STREDWICK, J. (2016) Human resource management in a business context. 3rd ed. London: Chartered Institute of Personnel and Development.
MCGEE, R. and RENNIE, A. (2009) HR strategy. CIPD Toolkit. London: Chartered Institute of Personnel and Development.
Visit the CIPD and Kogan Page Bookshop to see all our priced publications currently in print.
BOXALL, P. (2018) The development of strategic HRM: reflections on a 30-year journey. Labour & Industry. Vol 28, No 1, March. pp21-30.
CASCIO, W.F. (2015) Strategic HRM: too important for an insular approach. Human Resource Management. Vol 54, No 3, May/June. pp423-426.
JIANG, K,. LEPAK, D. and TAKEUCHI, R. (2013) Where do we go from here? New perspectives on the black box in strategic human resource management research. Journal of Management Studies. Vol 50, No 8, December. pp1448-1480.
KRAMAR, R. (2014) Beyond strategic human resource management: is sustainable human resource management the next approach? International Journal of Human Resource Management. Vol 25, No 8, April. pp1069-1089.
REILLY, P. (2012) The practice of strategy. Strategic HR Review. Vol 11, No 3, pp129-135.
CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.
Members and People Management subscribers can see articles on the People Management website.
This factsheet was last updated by Edward Houghton.
Edward Houghton: Head of Research
Edward Houghton is the Head of Research at the CIPD. Since joining the institute in 2013 he has been responsible for leading the organisation's human capital research work stream exploring various aspects of human capital management, theory and practice; including the measurement and evaluation of the skills and knowledge of the workforce. He has a particular interest in the role of human capital in driving economic productivity, innovation and corporate social responsibility. Recent publications have included “A duty to care? Evidence of the importance of organisational culture to effective governance and leadership” for the Financial Reporting Council’s Culture Coalition, and “A new approach to line manager mental well-being training in banks” an independent evaluation of the Bank Workers Charity and Mind partnership to deliver mental health awareness training in the UK financial services sector.
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