Free Essay: The Link Between Business Strategy and Human Resource Management (HRM)

Published: 2022-07-15
Free Essay: The Link Between Business Strategy and Human Resource Management (HRM)
Type of paper:  Essay
Categories:  Human resources Business strategy
Pages: 7
Wordcount: 1669 words
14 min read

A business strategy refers to a business organization's plan aimed at financial performance optimization, successful competition, prioritization of business objectives, and achievement of its vision. A business strategy enables an organization to identify the direction that it intends to go as relates to the environment in which it operates with the aim of gaining a competitive advantage. As for human resource management, it is the overall organizational practices of employing, training or compensating employees and coming up with strategies and policies for managing and retaining them. Hence, the primary nexus between HRM and business strategy is that the development of a business strategy requires an efficient, well-trained and motivated human resource and that both HRM and business strategy affect organizational performance.

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One of the ways through which HRM and business strategy are interlinked or aligned is through the development of solutions and strategies. As part of a business strategy, the management team and human resource department of every organization have to work together to come up with effective programs and strategies for rewarding employees, performance appraisal, and employee development or training. The two also have to work together in finding solutions to any problems that may arise so that employees can continue working towards meeting the organization's strategic and financial goals.

Based on the resource-based theory of human resource management, business organizations have to constantly develop strategies for ensuring that their human resources can effectively provide a sustainable competitive advantage. According to the resource-based theory, firms can only realize competitive advantage when their resources too immobile and heterogeneous for competitors to imitate or buy them (Ologbo, Oluwatosin, & Okyere-Kwakye, 2012). Hence, for human resources to bring competitiveness to an organization, they have to be unique or rare, difficult to substitute, imperfectly imitable and add positive value to the organization (Sajeevanie, 2015). Hence, firms must develop their human resources as a way of realizing their business strategy of achieving a competitive edge over other firms.

Furthermore, HRM and business strategy are related in that HRM acts as a bridge between firm performance and business strategy. According to Brito and Oliveira (2016), the relationship between HRM and organizational performance is that those HRM practices which tend to promote employee abilities, skills, knowledge, effort, or motivation and provide opportunities for employee contribution ensure conditions for the development of capabilities and resources. In effect, this developed capabilities and resources help in creating value for the organization thus contributing to its good performance due to sustained competitiveness.

Hence there is a strategic significance in human resources, their behaviors, and competencies which also contribute to firm performance. This relationship may be explained using the behavioral theories. The basic assumption of these theories is that for a business organization to realize its business strategy, particular employee behaviors, skills, attitudes, and competencies are necessary since these values are necessary for realizing its objectives. Since HRM is derived from business strategy, these attitudes and behaviors have to be elicited, promoted, and retained by business strategy. However, both the resource-based and the behavioral approaches to strategic human resource management have various weaknesses. These limitations include putting too much emphasis on implementation rather than formulation of strategies, focusing on matching employees to strategy and not the other way round, assuming that strategy is less adaptable than people and relying too much on product or organization life cycles, congruence, and fit.

Moreover, the link between HRM and business strategy may be explained using the interactive theory. According to it, the relationship between HRM and business strategy is like a two-way traffic in that whereas HR managers focus on formulating personnel policies and practices, the top management team focuses on approving or rejecting and implementing or executing these policies. The available human resources of a firm thus provide it with the opportunity to achieve its strategic choices. Under the interactive theories of strategic HRM, there is also an assumption that there exists an interaction between an organization's characteristics, management choices, and environmental or external factors and human resources.

Thus, the quality of an organization's human resources significantly affects it by either constraining or enabling its capacity to come up with and implement business strategies. According to Sajeevanie (2015), other theories such as the agency/transaction cost theory, contingency, and universalistic theories also explain the nexus between HRM and business strategy. Therefore, corporate strategies such as restructuring, growth, turnaround, liquidation, and stability theories can only be understood through the application of these theoretical approaches. Also, to enable an organization to maximize its performance at the strategic level and achieve its goals and objectives, HR managers must ensure that HR strategy is aligned with the organization's overall business strategy since HR strategy influences business strategy.

Also related to HRM and business strategy is strategic HR planning. Strategic HR planning refers to the organizational management process or practice of setting an organization's priorities, analyzing its prevailing situation, and focusing its energy and resources on the achievement and maintenance of competitive advantage. Hence, one of the most important benefits of strategic HR planning is that it gives an organization direction or a path for the future. It helps define a firm's vision, mission, values, and purpose and acts as a blueprint for the realization of its goals, visions, and objectives.

Furthermore, planning promotes clarity in resource allocation and decision making. Since planning requires a firm to develop clear values and objectives, decision making and resource allocation become easy because there is already a blueprint which guides these organizational processes. It also contributes to better coordination towards the achievement of organizational goals. Planning ensures that the activities and decisions of a business organization are not made in a haphazard manner but rather in a coordinated and coordinated way in line with its set goals and objectives.

Additionally, strategic HR planning promotes efficiency in day to day decision making since it reduces possible confusion that may arise from lack of laid down plans. Decision making can only be smooth and seamless when there are plans in place to guide it. It ensures that all employees of an organization right from the lowest to the highest levels of the organization are aware of what is expected of them in terms of values, principles, objectives, and goals to be achieved. With this in place, decisions can easily be made and employees are stimulated to work harder towards the realization of the organization's success. Further, strategic HR planning promotes employees' career development and adjustment to change, hence providing an incentive for performance behaviors.

In summary, HRM and business strategy are interconnected in that they are both necessary for a firm to gain a competitive advantage and performance. Besides, an effective business strategy relies on the presence of innovative, well-trained, efficient, resourceful, and motivated human resources. Therefore, it is important for an organization - through strategic HR planning - to ensure that it puts in place effective an HRM strategy as this directly contributes to its competitiveness and business strategy.


Brito, R.P., & Oliveira, L.B. (2016). The relationship between human resource management andorganizational performance. BBR - Brazilian Business Review, 13 (3), 90-110

Ologbo, A.C., Oluwatosin, O.S., & Okyere-Kwakye, E. (2012). Strategic management theoriesand the linkage with firm competitive advantage from the human resource-based view. IRACST- International Journal of Research in Management & Technology, 2(4), 366-375

Sajeevanie, T.L. (2015). Strategic human resource management and theoretical background: A critical review perspective. Proceedings of the Third Asia-Pacific Conference on Global Business, Economics, Finance and Banking (AP15Singapore Conference).

How Firms Align Their HR Strategies with Low-Cost and Differentiation Strategies

Given the link between HR and business strategy, it has been argued that an organization's corporate strategy must lead to its HR strategy to achieve competitive advantage. According to Seyyedjavadin and Zadeh (2009), as the business environment continues to undergo rapid changes, most organizations now consider human resources as unique assets that can provide a competitive edge over other businesses. In view of this, it is important for organizations to align their HR and business strategies. Most firms align their HR strategies with the low-cost-provider and differentiation strategies. A low-cost-provider strategy refers to a pricing strategy involving a business organization offering its products at relatively low prices as a strategy for stimulating or increasing their demand. On the other hand, a differentiation strategy is an approach used by business organizations to distinguish themselves from other competing firms by coming out as unique through distinctive products or business image. Thus, firms align their HR strategies with low-cost and differentiation strategies by resourcing, rewarding, innovating, motivating, compensating, and developing their human resources.

To begin with, firms align their HR strategies with low-cost provider strategy by ensuring that their human resources or employees are well trained, innovative and compensated. This way, the organization will realize low production costs which will result in low prices of its products for the benefit of customers. Innovative and well-motivated employees are likely to work harder towards the realization of an organization's goals and good performance and hence by aligning these HR practices with low price strategy, the organization will realize the performance of its products in the market due to increased sales.

Furthermore, business organizations can align their HR strategies with a low-cost-provider strategy by promoting HR practices such as hiring employees with the desired skills and abilities, giving employees opportunities to develop and learn, promoting job satisfaction among employees, and reducing the number of unwanted employees. These practices ensure the success of a low-cost provider strategy by helping the business to grow and achieve its full potential. When an organization has employees who possess the relevant skills and competencies, a firm is likely to perform better because such employees are hard working. The HR practices result in the organization being considered a low-cost provider because it does not have to spend a lot on its human resources at the expense of improving the quality of its products.

Moreover, according to Holbeche (2001), business organizations align their HR and business strategies through effective HR planning which enable them to identify the gaps that exist in the organization.

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