The authors present guidelines for developing proactive human resources managementsystems that tap the organization's full complement of human capabilities whilesupporting — if not driving —the formulation of new business strategies.

Designing Strategic HumanResources Systems

36

Raymond E. MilesCharles C. Snow

op executives of many U.S. corporations aregiving renewed attention and accordingadded status to human resources functionsand specialists. This new emphasis, we be-lieve, has two prime sources. First, promptedlargely by the Japanese challenge, U.S. man-agers are focusing on improved human re-sources management as a means of restoringthe competitive position of their companiesin an increasingly challenging global market-place. Second, farsighted managers are rec-ognizing the crucial role of human resourcesmanagement as the United States moves fur-ther into the complex and changing new

world of a high-technology, service-basedeconomy.

As part of this renewed emphasison human resources management, human re-sources specialists have begun to stake aclaim on the strategic planning process, argu-ing that participation in the "front end" ofbusiness planning is essential to meeting thelong-run needs of the enterprise. Human re-sources planners have started to learn thelanguage and techniques of strategic plan-ning, have assumed a more proactive stancein promoting strategic thinking in the humanresources area, and have extended the per-

sonnel function well beyond the limits of itstraditional activities.

Despite these encouraging signs,however, very few companies are actuallypracticing strategic human resources man-agement today. To assist the process, thisarticle gives a conceptual framework thatlinks product-market strategies and humanresources management systems. The ideasand guidelines offered here come largelyfrom our research on business strategies andfrom the application of these research find-ings in Canadian Pacific, a company that haswrestled with and solved several key strategichuman resources issues. Essentially, we arguethat the human resources management sys-tem must be tailored to the demands of busi-ness strategy. In multibusiness firms, thismay require the human resources depart-ment to be polydextrous —able to offer ser-vices to a wide variety of strategic businessunits. In addition, we believe that human re-sources units should have staff with profes-sional consulting skills, particularly in thearea of organization design and develop-ment. Last, we speculate about the humanresources department of the future and con-clude that it will probably be called on toperform many different roles, including thatof broker among various specialized groupsboth within and outside the organization.

In the following sections, we firstdiscuss the historical evolution of businessstrategies and their associated organizationstructures and human resources managementsystems. Next, using examples drawn fromthree well-known companies, we identify thekey human resources implications of somefamiliar competitive strategies. Third, we de-scribe Canadian Pacific as a company thatexhibits most of the elements of a strategichuman resources management system. Final-ly, we present our conclusions.

BUSINESS STRATEGIES

Beginning in the early 1970s, we have investi-gated the competitive strategies of severalhundred companies in more than a dozenwidely different industries. In almost everystudy, we have encountered impressive andsometimes dramatic competitive strategiesand tactics. Over time, however, we becameconvinced that all of these competitive ap-proaches revolve around a few fundamentalbusiness strategies that appear to be present,to a greater or lesser extent, in every indus-try. Put simply, we have either observed, orhave had described to us, three basic types ofstrategic behavior and supporting organiza-tional characteristics that we have called theDefender, Prospector, and Analyzer. Briefly,these types can be described as follows:

• Defenders have narrow and relativelystable product-market domains. Top man-agers in this type of organization are highlyexpert in their organization's limited area ofoperation but tend to search outside of theirdomains for new product opportunities. As aresult of this narrow focus, these organiza-tions seldom need to make major adjust-ments in their technology, structure, ormethods of operation. Instead, they devoteprimary attention to improving the effici-ency of their existing operations. Defendercharacteristics include a limited product line;single, capital-intensive technology; a func-tional structure; and skills in production effi-ciency, process engineering, and cost control.

• Prospectors continually search for prod-uct and market opportunities and regularlyexperiment with potential responses toemerging environmental trends. These or-ganizations often are the creators of changeand uncertainty to which their competitorsmust respond. However, because of theirstrong concern for product and market inno- 37

Raymond E. Miles is professor QJ business ad-ministration and dean of the School of Busi-ness Administration at the University of Cali-fornia, Berkeley. A main theme of his researchand writings over the past 15 years is thechanging nature of managers' own theories andl)hilosovhies of management. His early workfocused on the effects of alternative theories ofmanagement on relationships and performancewithin the superior/subordinate work team.More recently, his work has focused on theways it: which organization strategy and struc-ture are influenced by managers' theories ofmanagement. He has done research in or con-sulted with a wide variety of public and pri-vate organizations. His published works in-clude four books and more than 30 articles.His most recent books are OrganizationalStrategy, Structure, and Process with CharlesC Snow (McGraw-Hill, 1978) and Organiza-tion by Design with Mariann jelinek andJoseph Litterer (Business Publications Incorpo-rated. 1981).

the other changing. In their stable areas,these organizations operate routinely and ef-ficiently through use of formalized structuresand processes. In their more innovativeareas, key managers watch their competitorsclosely for new ideas, and then they rapidlyadopt those that appear to be the mostpromising. Analyzer characteristics include alimited basic product line; search for a smallnumber of related product and/or market op-portunities; cost-efficient technology forstable products and project technologies fornew products; mixed (frequently matrix) struc-ture; and skills in production efficiency, pro-cess engineering, and marketing.

Knowledge industry observers typi-cally find it relatively easy to characterize thebasic strategic orientations of key firms in anindustry as Defender, Prospector, or Analy-zer. We have also used the typology withtop-level executives in sessions designed toformulate or review business strategy. In ourexperience, successful firms display a consis-tent strategy supported by complementaryorganization structures and managementprocesses. We have designated as Reactorsthose firms in which strategy-environmentinconsistency exists, or in which strategy,structure, and process are poorly aligned.There is some evidence that, except in highlyregulated industries. Reactors perform lesswell than the other three types.

38

vation, ihese organizations are usually notcompletely efficient. Prospector characteris-tics include a diverse product line; multipletechnologies; a product or geographically di-visionalized structure; and skills in productresearch and development, market research,and development engineering.

• Analyzers operate in two types of prod-uct-market domains — one relatively stable.

HISTORICAL DEVELOPMENTS

Why are these three competitive strategiesfound in so many industries? And why arethey apparently so robust? Alfred D. Chand-ler Jr.'s description of U,S. business history,we believe, provides a basis for the answersto these questions. Writing about the periodfrom approximately 1850 to 1960, Chandlerchronicled major developments in business

Charles C. Snow is associate professor of or-ganizational behavior in the College of Busi-ness Administration at The Pennsylvania StateUniversity. He holds a Ph.D. from the Univer-sity of California. Berkeley, and did postdoc-toral research at Stanford University. He haswritten many articles on strategic managementand organization design. He is the director ofPenn State's Management of Managers Programand is a frequent lecturer in other executive de-velopment programs both in the United Statesand abroad.

Strategy, organization structure, and man-agement process. Owner-managed companieswere predominant during the 1800s. Theseorganizations were often limited to a single-product line and a structure in which allmajor decisions were made directly by theowner-manager. The chief executive attemptedto monitor all activities, and the staff servedmerely as an extension of the top executive'swill. (We have referred to these organizationsas using an "agency" structure to reflect thebasic relationship between owner-managersand their key subordinates, who acted asagents of the owner-managers in solvingproblems without the clearly defined func-tional specialization found in today's organi-zations. See Exhibit 1 for the evolution ofstrategic forms.) Such organizations couldmove quickly and forcefully in limited areas.

constrained primarily by the expertise andenergy of their chief executives. Size andcomplexity were, of course, the natural ene-mies of organizations built around a singlestrategic decision maker, particularly onewhose entrepreneurial instincts might leadaway from ongoing operating problems.

Organizations that moved beyondthe agency form usually did so by developingor attracting professional managers whotried to rationalize the allocation of resourcesaccumulated by owner-managers. Rationali-zation took the form of dividing the organi-zation's task so that they could be managedby career administrators with specializedskills. The end point of these efforts was thefunctional organization structure: separatedepartments of production, sales, financeand accounting, and so forth, all of whichwere controlled centrally through a masteroperating plan and budget. The functionalorganization, which appeared around theturn of the century, usually produced a lim-ited line of related products with a commonproduction technology. Growth occurredchiefly through vertical integration (primar-ily by acquiring suppliers to guarantee inputsfor a stable production process) and marketpenetration. The structure of functional or-ganizations proved to be a cost-efficient andprofitable means of providing standardizedproducts on a high-volume basis to a limitednumber of growing markets.

However, as Chandler pointed out,the rigid, vertically integrated structure didnot allow easy movement into new market orproduct areas. By dividing activities alongfunctional lines, such organizations fosteredspecialists rather than generalists. Only atthe top of the management hierarchy wasthere reason or the wherewithal to evaluatethe system as a whole or the information andexpertise to coordinate its parts. Moreover,members of top management tended to ap- 39

proach problems from the viewpoint of theirprevious functional specialty.

Even successful functional com-panies eventually found their growth con-strained as their traditional markets becamesaturated. They had the financial resourcesand technologies to expand their productlines, but each succeeding product or marketinnovation became increasingly difficult toadminister within the confines of the special-ized functional structure. It was against thisbackdrop —the desire to diversify thwartedby administrative complexity—that thesearch for yet another organizational formbegan.

Chandler described the almost si-multaneous evolution of divisional struc-tures in four pioneering firms during the1920s and 1930s: General Motors, Du Pont,Standard Oil of New Jersey, and Sears, Roe-buck. In each of these firms, a financial oroperating crisis served to speed up tentativeplans for reorganization that were alreadyunder way. That is, diversification effortshad led each firm into situations in whichoverburdened top managers had lost controlover funds, inventories, key entrepreneurialdecisions, and so forth. The move to place aseries of general managers in charge of self-contained product or regional divisions,which could then be evaluated on the basis ofprofit performance, was viewed as essential ifcontrol were to be maintained and expansioncontinued. Each division could be directedtoward a particular market, could design andproduce its own product or service, andcould make the operating decisions necessaryto coordinate its own functionally structuredcomponents. In a sense, each division facedthe same set of problems that the largerparent organization had failed to solve, butnow the magnitude of these problems was re-duced to more manageable proportions.

40 At the corporate level, officers could

devote their time to decisions about capitalexpenditures, relationships with competitorsand constituencies, movement into newmarkets, and so forth. In addition, top man-agement could use the profits of the operat-ing divisions to maintain corporate staff spe-cialists who, unencumbered by day-to-daydemands, could guide the firm's efforts to ex-tend the state of the art in its product or ser-vice area. Thus, for example, research anddevelopment could occur both at the divisionlevel {focused on specific products and mar-kets) and at the corporate level (focused onmore basic, industry-advancing problems).

By the 1950s it was clear that thedevelopment of the divisional structure pro-vided not only a means of managing the or-ganization's current diversification, but alsoa clearly understandable mechanism for fur-ther growth. New product or service divi-sions could be formed easily, subject only tothe availability of capital from the corporateoffice and limited in number only by thethen-distant danger of overloading the totalsystem. But during the 1960s and 1970s,many companies were being drawn or pushedout of their existing structures by simultane-ous market demands for efficiency (thestrength of the functional structure) and re-sponsiveness (the strength of the divisionalstructure). Functionally structured firmsseeking to improve their capacity for productdevelopment (or their ability to respond togovernment contracts for prototypes) ap-pended project structures to their basic form.Conversely, divisionalized firms sought tomatch the cost efficiency of their single-prod-uct competitors by centralizing some operat-ing units {for example, manufacturing) andallowing them to serve several divisions. Inaerospace, the need to allocate human re-sources to both standardized and customizedproduct groups pulled firms in opposing di-rections. The result of these pressures, com-

Exhibit 1

EVOLUTION OF ORGANIZATION FORMS

Product-marketstrategy

Organizationstructure

Governanceprocess

1H0Q »

Singleproduct

Local/regionalmarkets

Agency

Personalcontrol

Limited standard-ized productline

Nationalmarkets

Functional

Control by masterplan and budget

Diversified prod-uct line

National/interna-tional markets

Divisional

Control by perfor-mance (profitcenter)

Standard andinnovativeproducts

Stable andchangingmarkets

Mixed (forexample.Matrix)

Control byperson.plan, and/or marketperformance

bined with diversification opportunities, wasthe development of today's "mixed" organiza-tion forms, the most visible being the matrixstructure.

Strategies New and Old

Chandler's historical discussion of strategyand structure suggests that today's organiza-tions are essentially products of their ances-tors. Note, for example, that those organiza-tions we have called Defenders have limitedproduct or service lines, functional struc-tures, and centralized planning and controlsystems focused heavily on cost efficiency —much the same form exhibited by large, ma-ture U.S. companies before the 1920s. Simi-larly, Prospectors correspond in many waysto the divisionalized organization thatemerged in the 1920s and 1930s and prolif-erated in the 1950s. That is. Prospectors seekto develop broad, diversified product lines,and they tend to structure these productgroups into decentralized operating divisions.

Analyzers appear to have more orless deliberately adopted a form combiningelements of both the functional and division-al structures. Small Analyzers are alert to di-versification opportunities but tend to limittheir expansion activities to those that can behandled by the present production technol-ogy and organization structure (typicallyfunctional). Larger Analyzers create semiau-tonomous divisions to handle major diversi-fication efforts but tend to do so only whenthose products and markets are viewed asrelatively stable and manageable. Typically,large Analyzers use matrix structures to han-dle market and product innovations untilthese can be incorporated into the establishedproduction system.

Perhaps it should come as no sur-prise that today's business strategies repre-sent variations and improvements on previ-ous strategies. Although the language may benew —low-cost producer (Defender), productdifferentiator (Prospector), focused opera-tion or nichemanship (Analyzer) — the over- 41

all strategic orientations are essentially thesame. Therefore, it seems logical that thesethree basic strategies would be both lastingand widespread in U.S. industry. Further-more, the organizational arrangementsneeded to support these strategies have alengthy history, from the early agency andfunctional structures to today's divisionaland matrix structures. Thus, until new or-ganization forms are invented and refined,managers are likely to rely on structures andprocesses in which they have experience andconfidence.

Unfortunately, as many companiesare realizing today, a major barrier to the de-velopment and implementation of new strat-egies and structures is designing the appro-priate human resources management system.

THE HUMAN RESOURCES FUNCTION

Historically, personnel departments did notexist in agency organizations. Owner-man-agers hired, fired, trained, developed, and re-warded their own assistants (agents) and, inthe larger organizations of this type, first-linesupervisors had virtually complete controlover their own work crews. Personnel de-partments first arose in functional organiza-tions, and they performed a fairly broad setof services. These services grew out of a tra-dition of improved work methods associatedwith Scientific Management, the rise of tradeunionism during the later 1800s and early1900s, and the presence in some companiesof so-called social or welfare secretaries(managers concerned with such employeematters as housing, medical care, education-al facilities, recreational activities, and soforth). The establishment of a labor depart-ment at the National Cash Register Companyin 1902 is generally recognized as the first

42 formal personnel department. By 1917, there

were ten employment managers' associationsthroughout the United States with over onethousand member companies. Although theservices performed in these early personneldepartments varied somewhat across com-panies, they typically included recruiting, se-lection, recordkeeping, training, time-and-motion studies, welfare, and union relations.Historically, top management expected thesepersonnel activities to maintain employeemorale and cooperation. However, the con-cept of personnel contributing to the acquisi-tion and development of valued human skillsbegan to emerge in the post-World War Iperiod.

One of the great managerial achieve-ments of functional organizations was theapplication of specialization, standardiza-tion, and synchronization to a variety oftasks. To maximize the benefits of these effi-ciency concepts, it was necessary to attract,select, and hold the "right" kinds of employ-ees and to train them for their predefinedjobs. Personnel thus came to perceive itsbasic role as that of acquiring, training, andmaintaining the various specialists needed byfunctional organizations. In this sense, thepersonnel function was well suited to thestrategic objective of the functional organiza-tion, which was to produce a limited line ofproducts or services in as efficient a way aspossible.

The modern personnel departmentappeared with the rapid spread of division-alized organizations in the 1950s. These de-partments retained expertise in job analysis,selection, training, and other activities devel-oped by their predecessors. In addition, theybecame more professional and sophisticatedby hiring highly qualified human resourcesspecialists at the corporate level while decen-tralizing basic maintenance activities to theoperating divisions. In this way, more elab-orate pay and incentive packages, and to

some extent human resources philosophies,could be developed and standardized acrossdivisions. Other activities, such as manage-ment development programs, staffing plan-ning, and job rotation, could be tailored tosuit the needs of a particular division (orgroup of divisions). Finally, corporate spe-cialists in leadership training, employee rela-tions, assessment centers, and other areascould serve as in-company consultants to thevarious divisions.

Thus, the personnel departments inmany divisionalized companies became rec-ognized for their developmental and consult-ing roles as well as their acquisition, training,and maintenance roles. The primary focus ofpersonnel activities began to shift from theemployee to the middle manager, from theshort to the intermediate term, and from em-ployee skills training to managerial educa-tion and development. All of these activitieshelped to support the divisionalized organi-zation's basic strategy, which involved havingenough qualified executives to manage thevarious businesses generated by diversification.

With the proliferation of mixed-form organizations (project and matrix-likestructures) during the 1960s, and their de-mands for the efficient lateral allocation ofscarce technical specialists, personnel (nowcalled human resources) departments wereoften asked to perform three new tasks: (1)assisting in locating competent project man-agers and starting their teams, (2) aiding inthe internal career progression of membersmoving between two or more project groups,and (3) helping to select managers as headsof strategic business units. The mechanics ofthese newer structures now called for humanresources units to accentuate planning andallocation roles in addition to their previous-ly defined roles. Clearly, these structures rep-resent the most vivid instances of the impor-tance of linking these two vital processes:

strategic planning and human resourcesplanning.

HUMAN RESOURCES SERVICES, ROLES,

AND STRATEGIES IN THREE COMPANIES

The basic services provided by human re-sources units are well known and common tomost organizations. These specialized ser-vices can be classified according to the or-ganization forms and human resources rolesdiscussed earlier (see Exhibit 2 for a partialbut representative list of human resourcesservices). Although most organizations needthe services listed in Exhibit 2, the prioritiesassigned to each and the manner in whichthey are performed may, and in many in-stances should, vary in accordance with theorganization's strategy.

To illustrate the basic business strat-egies a human resources unit might be askedto support, let us, as suggested previously,take a brief look at three companies that arevery different in terms of strategy, organiza-tion structure, and management process, butat the same time are leaders in their respec-tive industries.

Lincoln Electric

Lincoln Electric is a classic Defender. Lincolnhas carved out a niche in the electrical prod-ucts industry (the manufacture of electricarc-welding generators, welding equipment,and supplies) and has "defended" it for over70 years through continuous efforts to im-prove production processes and productquality, cut costs, lower prices, and provideoutstanding customer service. Lincoln is bestknown for its incentive system that pays offfor high-quantity, high-quality output withtotal wages and bonuses for employees thatregularly average over twice the nationalaverage for comparable work classifications. 43

Exhibit 2

EVOLUTION or HUMAN RESOURCES MANAGEMENT SYSTEMS

Role of human

resources man-agement system

Human resourcesstrategy

Human resourcesservicesEmphasis in

funclionalform

Emphasis indivisionalform

Emphasis inmatrix form

Agency Functional

Informal Acquisition/training/process maintenance

None Building humanresources

Informalprocess

Recruitment andselection

TrainingPerformance appraisalWage and salary

administration

Divisional

Development/consulting

Acquiring humanresources

Recruitment andselection

TrainingPerformance appraisalWage and salary

administrationPerformance-based

rewardsManpower planning

and developmentJob rotationPlanned interdivi-

sional transfers

Mixed Forms(for example. Matrix)

Planning /allocation

Allocating resources

Recruitment andselection

TrainingPerformance appraisalWage and salary

administrationPerformance-based

rewardsManpower planning

and developmentJob rotationPlanned interdivi-

sional transfersCareer planningAssessment centersOrganization

developmentJob enrichmentTeam buildingLateral skills

allocation

NOTE: Particular practices have appeared in a variety of organizations and spread quickly among forms. This tablereflects our view of the principal new fiRM demands of both new organizational forms and the periods in which theyemerged.

44

Less well publicized is the completefit of Lincoln's human resources managementsystem with the company's strategy. BecauseLincoln has created a secure market sharewith moderate, steady growth, it relies heav-ily on internally developed human resources.Employees are carefully selected, placed, andtrained, and they are expected to be with the

company for much, if not all, of their careers— tied to the organization by guaranteed em-ployment and rewards clearly linked to per-formance. The reward/performance relation-ship is not left to chance; the entire work sys-tem is designed to give individual employees(or small teams) responsibility for both paceand quality of output, as well as responsibil-

ity for tools and supplies. While some Lin-coln leadership attitudes and behaviors arecarryovers from an earlier era, job and work-flow design are closely in line with modernjob-enrichment practices emphasizing respon-sibility, self-direction, and self-control.

Similarly, at the management level,Lincoln tends to "grow its own." Most man-agers, engineers, and sales representativesspent time on the shop floor and learned theproduct and manufacturing process fromfirst-hand involvement. The administrative/technical organization is as lean and hard-working as the production system, and long-term personal development is rewarded byslow but relatively certain internal promotion.

The appropriate role for the humanresources department at Lincoln is implied inthe organization's description. Selection,placement, appraisal, and long-term trainingassistance are key services. In addition, thehuman resources department must constant-ly maintain the fit between job design andthe incentive system. Lincoln is a tightly inte-grated company that requires predictable,planned human resources inputs and thenonly regular maintenance. The overall hu-man resources strategy at Lincoln and otherDefender companies can therefore be charac-terized as building human resources. (A simi-lar categorization, "skills building," is em-ployed by Canadian Pacific.)

Hewlett-Packard

The second well-known company is Hewlett-Packard (HP). HP began with the notion thathigh returns were possible from movingproducts as rapidly as possible from basic de-sign to the market. It is a company wellsuited to the rapid expansion of a growing in-dustry — a true Prospector — with small,changing product divisions as its basic or-ganizational building blocks (the company

today has over 60,000 employees in morethan 60 divisions or units). A new productidea or offshoot is evolved, a self-containeddivision created, and a market pursued aslong as HP has a distinctive design or techno-logical advantage. When products reach thestage where successful competition turns pri-marily on cost, HP may move out of thearena and turn its attention to a new designor an entirely new product.

In organizations characterized byrapid growth and constant resource rede-ployment, particularly of management andtechnical personnel, human resources unitstake on a very different set of activities andpriorities than at Lincoln. At HP, the princi-pal reward is that of promotion to broadenedresponsibility and, given the structure, thereare many positions of major responsibility ator near the top of the 60 plus divisions.Human resources units at both the divisionand the corporate level have the constanttask of starting new groups, and finding anddeploying managerial and technical resources.Talent is quickly sought, both inside and out-side the organization, and while the organi-zation is concerned if valued managers leave,it is expected that some will if they find theirdevelopmental expectations stalled or blocked.

In such a setting, human resourcesunits perform an essentially entrepreneurialrole, helping to identify and quickly develop(through rapid movement and alternative as-signments) crucial human resources. At HP,key human resources are brought from theoutside and invested in myriad units and di-visions, as well as developed internally. Thusthe overall human resources strategy atHewlett-Packard and other Prospector com-panies can be characterized as acquiring hu-man resources.

As the Lincoln and Hewlett-Packardexamples suggest, human resources unitscarry out a similar set of services but with 45

major differences in strategy and priority. AtLincoln, the human resources departmentcan and should plan carefully for fairly pre-dictable replacement and growth needs. Se-lection, training, and appraisal techniquescan be improved over time with readily avail-able performance criteria. Because growth islikely to occur predictably through marketpenetration and through selected develop-ment of international markets, human re-sources personnel can work closely withbusiness strategists in determining human re-sources needs and deployment. At HP, onthe other hand, long-range planning is madedifficult by rapid transfer and replacementrequirements. Technicians and managersmust be appraised, but elaborate techniquesmust often give way to judgment. Frequently,managers must prove their capabilities on thejob. Moreover, at HP, human resources unitsare much more concerned with organizationdesign and development than at Lincoln(where the basic structure remains stable forlong periods) and relatively less concernedwith long-range programs for refining stan-dard human resources techniques.

Texas Instruments

Texas Instruments (Tl) also operates in theelectronics industry, covering some of thesame product territory as HP. It, too, has anumber of operating divisions, though not as

many proportionately as HP, and it alsoviews itself as a leader in product design anddevelopment. However, Tl believes that itcan compete not only in the early phase ofproduct development when the emphasis ison uniqueness, but downstream as well whenthe competitive race goes to the most effici-ent mass producer. Tl prides itself on its abil-ity to shift organization structure and man-agement processes to match the phases ofproduct life cycles; thus it largely playsthe role of an Analyzer. New products arecarried through the design and early market-ing phases in division or project structures,just as at HP. However, their development ismuch more closely planned, and the processof allocating resources to such developmentsis closely monitored. Moreover, from the be-ginning of a new product, its potential forbeing synergistically produced and marketedis constantly evaluated. As soon as a newproduct is firmly entrenched, its course iswell charted. Prototype structures and pro-cesses give way to more formal organizationaland managerial systems emphasizing effici-ent production.

At Tl, management claims as itsdistinctive competence the ability to plan forand allocate key human resources not onlyacross products but across different types ofproduction processes. For mature productsand production processes, human resourcesunits play the training and maintenance role

46

T l prides itself on its ability to shiftorganization structure . . . to match the phasesof product life cycles; thus it largelyplays the role of an Analyzer. n

appropriate to a Defender (for example, ap-plying accurate placement and appraisal de-vices); for innovative developments, theseunits play a more developmental role (for ex-ample, designing flexible and enriching teamstructures and processes). Generally, the fun-damental strategy is to assist management inthe coordination of people and managementprocesses at the interface of the two types ofbusiness activity. Thus, allocating human re-sources characterizes the approach of Analy-zer companies that frequently have to "buy"as well as "make" key human resources.

STRATEGIC HUMAN RESOURCES MANAGEMENT

SYSTEMS

The experiences of Lincoln Electric, Hewlett-Packard, Texas Instruments, and other suc-cessful companies suggest that a strategic hu-man resources management system can beconstructed using the following designprinciples:

1. Top managers of the human resourcesdepartment should possess at least concep-tual familiarity with all of the services neededto acquire, develop, allocate, and maintainmanagers and employees. In practice, how-ever, the human resources units of a givenfirm will most likely emphasize some ser-vices more than others (as illustrated by thethree examples above).

2. The human resources department shouldhave a comprehensive understanding of thelanguage and practice of strategic planning.Further, appropriate human resources repre-sentatives must continually participate in theplanning process to assess the probable de-mand for their units' services and to help lineexecutives trace the human resources impli-cations of their strategic decisions.

3. The human resources department shouldpursue appropriate strategies of its own to

match the organization's business strategies.In some companies, this will require humanresources units to be prepared strategically tobuild (Defender), acquire (Prospector), andallocate (Analyzer) human resources.

4. The human resources departmentshould act as a professional consultant toline units. In addition to their expertise instrictly personnel matters, human resourcesspecialists should be knowledgeable aboutorganization structure, management pro-cesses (communications, controls, rewards,and so forth), and organizational change anddevelopment.

In one company with which wehave been associated, Canadian Pacific (CP),the corporate human resources group has laidthe foundation for a sophisticated link be-tween strategic and human resources plan-ning. CP, a very large conglomerate with ma-jority positions in rail and air transportation,recognized that its many subsidiaries operatein a variety of strategic modes, the bulk ofwhich could be broadly characterized as De-fenders and Prospectors. Working with thesetwo polar strategy types in mind, the CPgroup developed the major components of atailored human resources management system.

The fit developed by CP betweenbusiness strategy and the human resourcesmanagement system is illustrated in Exhibit3. (Note that CP uses Type A to refer to theDefender strategy, Type B to refer to theProspector strategy, and Type AB to refer tothe Analyzer strategy.)

The Canadian Pacific example is ofinterest not because this company's approachis unique or complete, but because it is rela-tively advanced. Other organizations andscholars are only discussing the fit betweenstrategy and human resources management.It is important to emphasize, however, thatfar more is involved than merely selecting orplacing managers in terms of some presumed 47

Exhibit 3

BUSINESS STRATEGIES AND HUMAN RESOURCES MANAGEMENT SYSTEMS

Organizational/

ManagerialCharacteristics

Product-marketstrategy

Research anddevelopment

Production

Marketing

Organizationstructure

Control process

Dominantcoalition

Business planningsequence

Type A(Defender)

Limited, stable productline

Predictable marketsGrowth through market

penetrationEmphasis: "deep"

Limited mostly to productimprovement

High volume-low costEmphasis on efficiency

and process engineering

Limited mostly to sales

Functional

Centralized

CEOProductionFinance/accounting

Plan-*Act-*Evaluate

Type B(Prospector)

Broad, changing product line

Changing marketsGrowth through product

development and marketdevelopment

Emphasis: "broad"

Extensive, emphasis on"first-to-market"

Customized and prototypicalEmphasis on effectiveness

and product design

Focused heavily on marketresearch

Divisional

Decentralized

CEOProduct research and

developmentMarket researchAct-*Evaluate-*Plan

Type AB(Analyzer)

Stable and changingproduct line

Predictable and chang-ing markets

Growth mostly throughmarket development

Emphasis: "deep" and"focused"

Focused, emphasis on"second-to-market"

High volume, low cost;some prototypical

Emphasis on processengineering andproduct or brandmanagement

Utilizes extensivemarketing campaigns

Functional and matrix

Mostly centralized, butdecentralized in mar-keting and brandmanagement

CEOMarketingProcess engineering

Evaluate-*Pian^Act

48

strategy-personality fit {for example, finding

"growers," "caretakers," and "undertakers" to

head different strategic business units)—a

topic of widespread interest at the moment.

It is, in fact, the total human resources man-

agement system that determines fit, rather

than a single manager.

From this perspective, CP believes

that it should take specific actions to main-

tain the strategic orientation of its human re-

sources management approaches. First, the

corporate human resources group should

continually evaluate personnel policies and

programs to determine which should be cen-

tralized and applied uniformly across stra-

tegic business units and which should be de-

Exhibit 3 (continued)

Human ResourcesManagementSystem

Basic strategy

Recruitment,selection, andplacement

Staff planningTraining and

development

Type A(Defender)

Building humanresources

Emphasis: "make"Little recruiting above

entry levelSelection based on weed-

ing out undesirableemployees

Formal, extensiveSkill buildingExtensive training

programs

Type B(Prospector)

Acquiring humanresources

Emphasis: "buy"Sophisticated recruiting at

all levelsSelection may involve pre-

employment psychologicaltesting

Informal, limitedSkill identification and

acquisitionLimited training programs

Type AB(Analyzer)

Allocating humanresources

Emphasis: "make" and"buy"

Mixed recruiting andselection approaches

Formal, extensiveSkill building and

acquisitionExtensive training

Performanceappraisal

Compensation

Process-oriented proce-dure (for example,based on critical inci-dents or productiontargets)

Identification of trainingneeds

Individual/group perfor-mance evaluations

Time-series comparisons(for example, previousyears' performance)

Oriented toward positionin organizationhierarchy

Internal consistencyTotal compensation

heavily oriented towardcash and driven bysuperior/subordinatedifferentials

Results-oriented procedure(for example, managementby objectives or profittargets)

Identification of staffingneeds

Division/corporate perfor-mance evaluations

Cross-sectional comparisons(for example, other com-panies during same period)

programsLimited outside

recruitment

Mostly process-orientedprocedure

Identification of train-ing and staffing needs

Individual/group/division performanceevaluations

Mostly time-series,some cross-sectionalcomparisons

Oriented toward performanceExternal competitivenessTotal compensation heavily

oriented toward incentivesand driven by recruitmentneeds

Mostly oriented towardhierarchy, someperformanceconsiderations

Internal consistency andexternal competi-tiveness

Cash and incentivecompensation

Source: Adapted from Canadian Pacific Ltd,, © 1980, 49

centralized to the various operating units.Centralized programs tend to be only thosethat involve economies of scale (for example,group insurance and pensions) or compliancewith legislative requirements (for example,employee rights).

Second, the corporate human re-sources group should develop its ability toprovide assistance to operating divisions toensure that (1) these units have human re-sources programs that fit their business strat-egies, (2) there is sufficient consistency acrosscertain divisions to permit interdivisionaltransfer of managerial talent, and (3) theunits comply with legal human resourcesrequirements.

Finally, it is CP's belief that the cor-porate human resources department shouldbe organized, and should view itself, as amanagement consulting firm competing fordivisional business with major outside con-sulting firms. In addition, the group main-tains a network of academic and other con-sultants who can be called upon to providespecialized advice and technical assistance.

CONCLUSIONS

Despite the forward-looking efforts of Ca-nadian Pacific and other companies, the de-velopment of human resources managementsystems has tended to lag behind develop-ments in strategy and structure. This can beexplained, in part, by the fact that in mostorganizations the demand for human re-sources services derives from strategic con-siderations. Human resources departments,therefore, have added new services only afterthe need has become obviously apparent,and in some areas this has produced lags ofseveral years. In addition, human resourcesdepartments themselves have traditionally

50 been technique-oriented — simply adding spe-

cialists and methods that permit these unitsto do a better job of what they are alreadydoing. It has been rare for human resourcesdepartments to act (or be allowed to act)strategically. Seldom are they allowed to par-ticipate proactively in the planning processby conceptualizing and helping to design or-ganizations that tap the full complement ofhuman capabilities while supporting —if notdriving —the formulation of new businessstrategies.

Top Management's Role

On the basis of the current state of practice,two bold short-term actions are required toincrease the value of human resources de-partments to the organizations they serve.First, top management must believe that hu-man resources departments and their leadersare competent in all aspects of the human re-sources function. It is not uncommon todayfor top executives to complain about and/orshort-circuit their human resources depart-ments, yet be unwilling to take the necessaryactions to upgrade these units. Top managers'perceptions need to change, followed quicklyby appropriate funding and staffing of thehuman resources department.

Second, and even more important,human resources departments themselvesmust not only possess the requisite knowl-edge and skill to perform the full range ofservices commonly expected from human re-sources groups (see Exhibit 2), they need toenhance substantially their capability todiagnose, design, and help implement man-agement systems that complement differentbusiness strategies. Historically, top manage-ment relied on its own insights (or those ofoutside consultants) to design structures andprocesses to support strategies, and has notlooked to tbe human resources departmentfor major inputs in solving these design

problems. Increasingly, however, human re-sources departments are being viewed as tbelogical repositories of a growing body ofknowledge and skill in the area of designingand changing organizational systems. If hu-man resources is to take its rightful placealongside such other functions as marketing,finance, and production as a full partner inthe strategic planning process, top manage-ment must be able to turn to the human re-sources department with questions about or-ganization design, just as it would turn to theengineering group with a technical questionconcerning mechanical design.

New Organizational Forms

Interestingly, even if human resourcesgroups, with the full support of top manage-ment, succeed in transforming themselvesinto full-service professional designers andconsultants, developments in strategy andstructure are currently underway that mightonce again leave human resources strategieslagging behind business strategies. Our spec-ulation is that future organization forms willbe characterized by far less vertical integra-tion than in today's organizations, and thatthey will also be less tightly coupled acrossthe system. To take advantage of rapidlyemerging technologies for producing and dis-tributing new high-technology products andservices, organizations of the future willmake much heavier use of such devices asfranchising and subcontracting. With mecha-nisms such as these in mind, one can easilyimagine companies in which one group of ex-perts designs products or services, othergroups apply their engineering and produc-tion skills, a third group offers specializedstaff services, and a fourth set of experts actsas a broker for all these groups.

For a current example of such aloosely coupled system, one need not look

further than the prestige "designer" productsthat are conceived and designed by onegroup, produced by another, marketed by athird, and all brought together by variousagents performing a brokerage function. Fur-ther, this type of organizational arrangementbecomes even more dramatic as it crosses na-tional boundaries with product designs origi-nating in one country, "franchised" manufac-turing operations carried out in a secondnation, and so on. Finally, increasingly onecan see similar mechanisms being used toloosen the couplings of units up and downthe organization hierarchy. Self-managingwork teams, for instance, will soon be cap-able of operating as subcontractors insidefirms, and various staff groups already offertheir services on fee-for-service basis.

What is the role of the human re-sources department in these futuristic sys-tems? Of course, it will continue to performall of the services traditionally needed to ac-quire, develop, and allocate human talent.Moreover, it will act as an in-company con-sultant to top management on issues of or-ganization design and development. But,perhaps most importantly, the state-of-the-art human resources department will be ableto perform the role of broker—putting man-agers, work teams, and independent organi-zations in touch with each other and withappropriate outside agencies to obtainneeded advice and technical assistance. Suchhuman resources departments will be morefully equipped than most of todays manage-ment consulting firms, and they will offertheir services on the open market as well asto their parent organizations.

As we have noted earlier, it is ourview that new organizational forms createnew roles for and usually result in enhancedstatus for human resources management(HRM). It is easy to speculate that chief exec-utives in truly outstanding organizations rec- 51

ognize earlier than their competitors the new

responsibilities and rewards appropriate for

HRM. We suspect, for example, that the cen-

tral position accorded the personnel depart-

ment at Sears in the 1940s was a major factor

in their domestic success. Ultimately, key

HRM practices tend to become part of the

"required technology" among a group of

competing organizations.

Thus, just as we are confident of

the direction future organization forms will

take, we have little doubt that human re-

sources practices as diverse and sophisticated

as those described here will be common-

place. The central question facing most com-

panies today is how to reduce, if not elimi-

nate, the lag between the emergence of new

strategies and structures and their appropri-

ate human resources management systems.

In our view, human resources executives

would be more helpful as leaders than fol-

lowers in this process.

SELECTED BIBLIOGRAPHY

52

James Walker called for a better link between stra-tegic business planning and human resourcesplanning in an article that appeared in Human Re-source Planning, Spring 1978, Other articles haveanswered this call; these include Mary AnneDevanna, Charles Fombrun, and Noel Tichy's"Human Resources Management: A Strategic Per-spective" {Organizational Dynamics, Winter1981); Eddie C. Smith's "Strategic Business Plan-ning and Human Resources: Parts I and II" (Per-sonnel }ournal. August/September 1982); and"Wanted: A Manager to Fit Each Strategy" (Busi-ness Week, February 25, 1980).

There are many sources on strategic de-cision making and planning. For an historical dis-cussion of strategy and structure, see Alfred D.Chandler. Jr.'s Strategy and Structure (Doubleday1962). For a discussion of current competitivestrategies see Raymond E, Miles and Charles C,Snow's Organizational Strategy, Structure, andProcess (McGraw-Hill, 1978) and Michael E. Por-ter's Competitive Strategy (Free Press, 1980), Fora description of the strategic planning process,see James Brian Quinn's Strategies for Change(Richard D. Irwin, 1980),

A concise history of the evolution of thepersonnel function can be found in John B, Minerand Mary Green Miner's Personnel and IndustrialRelations, 2nd edition (Macmillan 1973). To ourknowledge, none of the current personnel text-books reflects a strategic human resourcesperspective.

ACKNOWLEDGMENTS

The authors are grateful to Canadian Pacific forinformation about its human resources manage-ment system and to Bruce Anderson, RogerLamm, and Thomas Mathers for their helpfulcomments and observations on an earlier versionof this article.

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