The Organizations Internal Environment Management Essay

Published Date: 23 Mar 2015

The main field of human resource management can be divided to three major subfields being micro HRM, strategic HRM and international HRM Boxall et. al, 2007. Beer et al. first argued that focusing and investing in the human capital will eventually lead an organization to optimal performance and success with a newly added focus on the strategic elements of HRM considering people of the organization as a highly important strategic asset (Fombrun et al., 1984; Wright et al., 1994). In terms of SHRM, the environment of the business consists both of internal and external (Jackson and Schuler, 1995, cited in Lengnick-Hall et al., 2009) that each organization has to identify, focus and exploit.

This paper examines SHRM, a complicated and individualized issue for organizations, under the prism of the internal environment of the organization. We need to put these internal elements in the context of how organization function and more particularly how those elements influence the way in which the workforce is managed under a certain SHRM design.

Strategic Human Resource Management (SHRM)

The emergence of the term 'strategic human resource management' (SHRM) is an outcome of efforts of HRM to become an integral part of business strategy (Lengnick-Hall and Lengnick-Hall, 1988; Schuler and Jackson, 2007). SHRM is defined "as the pattern of planned human resource deployments and activities intended to enable the firm to achieve its goals" (Wright and McMahan, 1992, cited in Wright, 1998). Broadly speaking, SHRM is about systematically linking people with the organization, more specifically it is about the integration of HRM strategies into corporate strategies. Strategic HRM thus links corporate strategy and HRM, and emphasizes the integration of HR with the business and its environment. It is believed that integration between HRM and business strategy contributes to effective management of human resources, improvement in organizational performance and finally success in terms of business results (Schuler and Jackson, 1999). Thus, since the traditional workforce management approach transformed by involving strategic models that focused on the internal aspects of the organization, the interest of the academics moved to more integrative and proactive HRM strategies (Baird, Meshoulam, 1984) and models such as the Warwick model oriented to the inner context of the organization and its influence on the HRM context and business strategy (Hendry, Pettigrew, 1990).

Figure 1. The Warwick HRM model (Hendry, Pettigrew, 1990)

Recognizing the internal environment elements

The literature has identified the existence of internal factors of an organization that impact on the SHRM process and the "internal fit" of business strategy and human resource strategy (Truss, Gratton, 1994). "Internal fit" represents the interconnected HRM functions and policies that are implemented by an organization and as a set bring better results than their individual implementation leading to enhanced organizational performance (Boxall et al., 2007; Jackson, Schuler, 1995).

Jackson and Schuler (1995) divide the organization environment into two categories: internal and external environment. They identified the major elements of internal organizational environment being technology, organizational structure and size, business strategy and the life cycle stages. Guest (1988, cited in Truss, Gratton, 1994) added the type of culture than an organization has which can influence and define the overall strategy of the organization. Similarly, Mello (2001) refers to structure, politics, employee skills and past strategy are key internal variables. What those internal elements have in common is their relationship with the internal environment of the organization that affects both the design of human resource strategy and business strategy (Truss, Gratton, 1994) with a different level of influence.

Organizational culture as an internal variable and a "socially complex phenomenon" (Barney, Wright, 1998), is the most used element in this sector because of its strong influence to the business strategy and the speed of adaptation to the rapidly changing external environment (Jackson, Schuler, 1995;Bratton, Gold, 2003; Easterby et al., 1995). For example, Barney and Wright (1998) recognized that Southwest Airlines' strong organizational culture of trust to employees, contributed to the financially successful presence of the company. Therefore, researchers concluded that organizational culture is considered as a strategic asset (Barney, 1986).

Another widely discussed internal element is the organization's life cycle (Baird, Meshoulam, 1988, cited in Lengnick-Hal et al., 2009). Researchers argue that different stages in an organization's life cycle need different HRM policies adjusted to each stage (Jackson, Schuler, 1995). For example, at the start-up stage the organization needs to focus on the flexibility of HRM policies while in the growth stage the emphasis will shift towards more formal HRM policies exploring their contribution to the customer life cycle and gaining competitive advantage (Milliman et al., 1991).

We can identify the nature of the internal strengths and weaknesses of an organization such as organizational culture and organization's life cycle that are mentioned above by conducting a SWOT analysis (Dessler, 2005). Strengths in HRM, for example, will allow an organization to better attract, retain and motivate quality employees transforming them to "strategic assets" of the firm.

Therefore, HRM strategies need to be developed as an integral part of an organization's overall strategy with a certain focus on those internal organizational elements that researchers on the field have identified such as organizational size and structure (Kane, Palmer, 1995), culture (Truss, Gratton, 1994; Wright, Snell, 1998), organization life cycle, leadership and communication.

Links between SHRM and internal environment

Truss and Gratton (1994) bring out five key aspects that should be present in any model explaining SHRM process. These elements are: the external environment, the business strategy that affects and is affected by the SHRM process, the internal environment as the organizational framework within which SHRM operates, SHRM comprising the HR strategy and individual HRM practices, and the outcomes of the process of SHRM. SHRM requires a holistic approach, with not only an internal integration between personnel systems (recruitment, selection, rewards mechanisms, appraisal performance management), but also an integration between those systems summarized in an HR strategy and the organization's strategy overall. Thinking holistically about HRM may lead to a greater degree of success simply because changes envisaged in one area of an organization (e.g. structures) are more likely to work because all the knock-on effects of such a change have been considered (e.g. recruitment, selection and induction policies) ( Baker, 1999).

The resource-based perspective offers a way of theorizing the contribution of HR strategy with a shift towards SHRM by focusing on the internal resources of the organization as "strategic assets" (Barney, Wright, 1998). In resource-based thinking, HRM can be valued not only for its role in implementing a given competitive scenario, but for its role in generating strategic capability (Barney, 1991), for its potential to create firms which are more intelligent and flexible than their competitors over the long haul, firms which exhibit superior levels of co-ordination and co-operation (Wright et al., 1994; Grant, 1991).

Figure 2.The relationship between SWOT analysis and the resource based SHRM model (Barney, 1991)

The model, summarized in Figure 2, suggests that organizations achieve sustainable competitive advantages by "implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralizing external threats and avoiding internal weaknesses" (Barney, 1991, p. 99). However, this internal fit model has been criticized as being inflexible for the organization and not easily applicable to diversified and complex organizations (Lengnick-Hall, Lengnick-Hall, 1990 cited in Truss, Gratton, 1994).

Barney argues that four characteristics of resources and capabilities are important in sustaining competitive advantage: value, rarity, inimitability and non-substitutability. From this perspective, the collective learning in the workplace by managers and non-managers, especially in how to coordinate workers' diverse knowledge and skills and integrate diverse information technology, is a strategic asset that rivals find difficult to replicate (Wright, Snell, 1991; Barney, Wright, 1998).

By hiring and developing talented staff and 'synergizing' their contributions within the resource bundle of the firm, HRM may lay the basis for sustained competitive advantage Any changes in the environment both internal and external must be monitored in case that adjustments must be made to the objectives, policies and practices of the organization considering the HRM strategy that needs to be flexible (Bratton, Gold, 2003).

Conclusion

An integral SHRM framework involves analyzing internal environmental elements to identify the factors which enhance the organization's performance and help achieve its objectives and goals. An analysis of the strengths and weaknesses through SWOT analysis, followed by their alignment with the HRM policies, functions and strategies,

Organizations that adopt HRM strategies and practices consistent with the demands of their internal and external environments should out-perform organizations that adopt less well-matched strategies and practices.

In summary, then, advantage is possible by finding and holding the better people and combining their talents in better processes (Boxall, 1996). Those HRM processes must be developed based on the internal elements of the organization and must be oriented to the overall business strategy and goals of the firm to sustain the competitive advantage and cope with a rapidly changing environment.