CHAPTER 4
The Competitive Environment
Learning Objectives
After studying this chapter, the student should be able to:
1. Describe the competitive environment of human resource management.
2. Identify three types of strategies and relate each to human resource management.
Chapter Outline
Opening Case: Google’s Strategy for Dominance
Sergey Brin and Larry Page met at Stanford University when both were graduate students in
computer science. At the time, Page was working on a software-development project designed to
create an index of Web sites by scouring sites for key words and other linkages. He invited Brin
Google, however, is much more than a mere search engine. Services include searches for news,
shopping, local businesses, interactive maps, and discussion groups, as well as blogs, Web-based
e-mail and voice mail, and a digital photo-management system. Brin and Page remain at the
forefront of Google’s search for technological innovation. They believe in the power of
mathematics and have developed unique algorithms for just about every form of activity in the
firm. Brin and Page have also been remarkably successful in attracting talented, creative
employees and providing them with a work environment and culture that foster the productivity
and innovation for which they were hired. Finally, although the founders avoid formal strategic
planning, they’ve managed to diversify extensively through acquisitions and key alliances.
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Introduction
Precise operations systems and control standards ensure consistent service quality, and highly
motivated people throughout the organization keep everything running according to plan. Take
I. The Competitive Environment for Human Resource Management
Figure 4.1 illustrates the framework used to describe strategic HRM. As the figure shows, this
process starts with an understanding of the organization’s purpose and mission and the influence
of its top management team, and culminates with the HR manager serving as a strategic partner
to operating divisions of the organization. Under this new view of HRM, the HR manager’s job
is to help line managers (at all levels) achieve their strategic goals.
A. A Strategic Perspective
All organizations exist in a competitive environment. There are competitors who are trying to
attract the same customers or sell the same goods and services, and each firm must fight to be
successful; that is, each firm seeks to earn higher returns for its stockholders than do its
competitors.
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Sometimes, though, a market is not large enough to support all the firms competing in it.
When a firm implements a strategy that its competitors are unable to implement (for any
number of reasons), the firm has gained a sustained competitive advantage. This, then, is the
goal of competitive advantage. If a firm can
• Hire the right people
B. The Influence of Organizational Purpose and Mission
An organization’s purpose and mission are among the most fundamental contextual forces
that define the strategic context of human resource management.
• An organization’s purpose is its basic reason for existence.
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C. The Influence of the Top Management Team
The top management team of an organization is the group of senior executives responsible
for the overall strategic operation of the firm. Common organizational positions assumed that
are assumed to be part of the top management team include:
• The chairperson of the board of directors
D. The Role of Corporate Governance
Stockholders are the true owners of a modern corporation. These people, who often represent
institutions such as pension funds, are not typically the same people who actually run the
organization on a day-to-day basis. It is possible (and even likely), however, that the interests
of the owners are different from those of the management. This produces a situation known as
an agency problem.
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II. Corporate, Business, and Functional Strategies
Top managers are responsible for the strategic operations of their firms. The key to strategic
operations, in turn, is developing and implementing effective strategies. These strategies may be
at corporate, business, or functional level, including the human resource function. In addition to
A. Corporate Strategy and Human Resource Management
There are several broad strategies that a firm might adopt at the corporate level, and each one
has different implications for HRM practices. The first three are all relevant for firms that
decide to compete in a single market.
Growth Strategy
When a business has identified a unique niche and is successfully and aggressively
expanding within that particular market niche, it is pursuing what experts call a growth
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HR in the 21st Century
Over the last several years, corporate governance has come under growing scrutiny in the
United States. First, corporate boards of directors have been increasingly linked to major
corporate scandals. Board independence has also become a source of complaint.
Retrenchment or Turnaround Strategy
Sometimes, firms are forced to adopt, at least in the short run, a strategy usually referred to
as a retrenchment or a turnaround strategy, which occurs when an organization finds
that its current operations are not effective. Major changes are usually needed to rectify
Stability Strategy
A third single-market strategy that might be adopted by some firms is a stability strategy.
This strategy essentially calls for maintaining the status quo. The organization’s goal is to
protect itself from environmental threats. A stability strategy is frequently used after a
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Diversification Strategy
A corporation that uses the diversification strategy usually makes the decision to own and
operate several different businesses.
• The various businesses owned by a corporation are usually related to one another in
some way, a strategy called related diversification. The basic underlying
assumption for using this strategy is that the corporation can achieve synergy among
B. Business Strategy and Human Resource Management
A diversified corporation must therefore develop a business strategy for each operating unit. A
variety of approaches can be used to develop a business-level strategy. One of these is the
adaptation model.
The Adaptation Model
One approach to business strategy is called the adaptation model. This model suggests
that managers in an organization should try to try to match the organization’s strategy with
the basic conditions of its environment. The three basic strategic alternatives from which
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model that any firm should emulate.
Other Competitive Strategies
The other dominant approach to business-level strategies identifies three specific
competitive strategies—namely, differentiation, cost leadership, and focus. These three are
presumed to be appropriate for a wide variety of organizations in diverse industries.
• A company that uses a differentiation strategy attempts to develop an image or
reputation for its product or service that sets it apart from its competitors. Regardless
of its basis, however, a firm that can differentiate its products or services from those
C. Functional Strategies and Human Resource Management
Functional strategies address how the organization will manage its basic functional activities,
such as marketing, finance, operations, research and development, and human resources. It is
III. Human Resource Strategy Formulation
Using the organization’s overarching corporate and business strategies as context, managers can
formally develop the organization’s HR strategy. As illustrated in Figure 4.1, this strategy
commonly includes three distinct components—a staffing strategy, a development strategy, and a
compensation strategy. These dimensions are shown in more detail in Figure 4.3.
• Staffing refers to the set of activities used by the organization to determine its future human
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A. The Impact of Organization Design
Organization design refers to the framework of jobs, positions, groups of positions, and
reporting relationships among positions that are used to construct an organization.
• One form of organization design used by many smaller or newer organizations is the
functional design (also called the U-form organization, with U representing unitary).
B. The Impact of Corporate Culture
An organization’s culture refers to the set of values that helps its members understand what
the organization stands for, how it does things, and what it considers important. Nevertheless,
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Although an organization’s culture is shaped by several different forces, one important force
is the founder of the organization. As an organization grows, its culture is modified, shaped,
and refined through other forces. These forces include symbols, stories, slogans, heroes, and
ceremonies. Shared experiences also play a role in determining and shaping the culture of an
organization. Human resource managers may find that, depending on the circumstances,
corporate culture may either facilitate or impede their work.
C. The Impact of Unionization and Collective Bargaining
Other important aspects of the workforce that affect the development and implementation of
strategy in the HRM function are unionization and collective bargaining. Labor relations is
the process of dealing with employees who are represented by an employee association,
IV. Interpersonal Processes and Strategy Implementation
The formulation of an HR strategy is clearly important and can be affected by many factors.
Interpersonal processes are especially important because of the role they play in affecting the
performance effectiveness exhibited by each employee in a firm. The starting point for
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Attitudes also play an important role in implementing strategy in an organization. If people have
positive attitudes toward their work and organization, then they will be more committed to
making contributions to organizational effectiveness and in helping achieve strategic goals.
Workers with negative attitudes, on the other hand, are less likely to make this commitment and
may be more inclined to be absent frequently or seek alternative employment.
Finally, because little behavior in organizations takes place in isolation, human resource
managers also need to consider interpersonal processes that develop from the relationships an
employee has with co-workers, supervisors, and subordinates. These processes are becoming
even more important as organizations move more and more toward having employees work as
part of a team instead of as individuals. HR managers must deal with various issues rising from
the emphasis on teams, ranging from deciding who should be part of a team to how to evaluate
the performance of team members and reward them.
V. Evaluating the Human Resource Function in Organizations
Evaluating the effectiveness of the HR function has become an important trend in recent years.
More recently, however, many organizations have become more concerned with the cost as well