Reconsidering the link between human resource management and firm strategy for firms at the beginning and end of the organizational life cycle.

• Author: Harkins, Jason

1. INTRODUCTION

   Organizational theorists generally hold that strategy, defined as a pattern in a stream of decisions (Mintzberg, 1978), drives structure (e.g. Chandler, 1962). The human resource management (HRM) field (for a review see Boxall, Purcell and Wright, 2007; Lengnick-Hall, Lengnick-Hall, Andrade and Drake, 2009) has extended this logic, and rests almost exclusively on the premise that an effective human resource management (HRM) strategy must stem from a company's strategy (Schuler and Jackson, 1989, 2005; Arthur, 1992; Wright and McMahan, 1992; Lepak and Snell 1999). While it is limited, some research has argued a unidirectional perspective whereby firm strategy drives HRM strategy is too simplistic and that the relationship between firm strategy and HRM strategy is more complex within the context of a dynamic firm (e.g. Hall and Saias, 1980, Golden and Ramanujam, 1985).

   The majority of HRM scholarship has implicitly or explicitly adopted the context of mature firms with a formal human resource management function (Huselid, 1995). The focus of this literature has traditionally been on the overall design and execution issues of HR practices and policies by business units and companies, with the underlying theme of measuring and linking management of labor with performance (Lengnick-Hall et al., 2009). However, this literature has tended to take a static view of the firm and firm strategy wherein the firm does not significantly grow or shrink, in spite of the fact that there is ample evidence that firms do evolve over a lifecycle (e.g. Miller & Friesen, 1984, Hanks, Watson, Jansen & Chandler, 1993, Cardon and Stevens, 2004).

   Accordingly, a relatively new stream of research has focused on exploring the role of HR in the various organizational lifecycle stages (For example, special issues in Human Resource Management in 2003 and in Human Resource Management Review in 2006 discussed informal versus formal HRM, simple versus complex HR systems, types of HR problems they face with an emphasis on recruitment and selection as the central concern for growing a firm). For the most part, this literaturehas focused on either contrasting small, birth and growth stage firms with mature firms (Buller & Napier, 1993; Jack et al., 2006) or on specific HRM challenges that firms face through the lifecycle (e.g. Cardon, 2003; Ciavarella, 2003; Rutherford et al., 2003). This focus on HRM challenges and practices, however, begs the question what is the relationship between HRM and firm strategy in the different lifecycle stages?

   Both of these streams of research have generally built their arguments on the assumption that firms have a strategy without acknowledging that firm strategy is not always set. This is particularly true for firms in the birth and decline stages, where firms are experiencing great change to try to adapt for survival (e.g. Chandler, Honig and Wiklund, 2005; Ferris et al., 1984) For instance, firms in the birth stage tend to not have a deliberate strategy at all (Mintzberg and Waters, 1982), and, for firms in the decline/revival stage, firm strategy can require a significant change to attempt to revive the firm's fortunes (Barker and Duhaime, 1997). Few papers have explored the relationship between firm strategy--HRM strategy for firms in the birth and decline/rebirth stages, when firm strategy is least likely to exist.

   Thus, our goal in this paper is to shed light on the relationship between HR strategy and firm strategy for firms in the birth and decline lifecycle stages. Drawing on upper echelon, HRM, and lifecycle literatures, we develop a prescriptive model of the firm strategy--HR strategy link. We offer specific propositions regarding the link between firm strategy and HRM strategy within the birth and decline stages. We conclude our paper by highlighting how we extend current theories in both the field of SHRM and entrepreneurship research.

2. CONCEPTUAL BACKGROUND

   There are a number of different life cycle models that have been proposed, which look at the evolution of firms (e.g. Rutherford et al., 2003; Adizes, 1979; Hanks and Chandler, 1994; Kazanjian, 1988; Churchill and Lewis; 1983). Each model is based on some argument that organizations cycle go through similar, predictable stages. In each of these stages, different problems gain primacy in the organization, and they require diverse management skill sets (e.g. Adizes, 1979; Kazanjian, 1988).

   The HRM literature has looked at the role of HR in the organization across the lifecycle or within a particular stage in the lifecycle. While the number of stages adopted in the HRM literature varies, recent work has focused on 4 or 5 stage models (e.g. Cardon, 2003, Rutherford et al., 2003) in the same way that the broader lifecycle literature now primarily focuses on 4 or 5 stage models (e.g. Lester and Parnell, 2008; Bonn and Pettigrew, 2009). Almost all of the commonly accepted models at this point begin the organizational lifecycle with the birth or start-up stage and have a decline/revival stage at the end of the lifecycle.

   Most of the existing literature that has endeavored to utilize the organizational lifecycle model in HRM has focused on either the value of specific HR practices or HR systems in organizations throughout the lifecycle (e.g. Cardon, 2003; Ciavarella, 2003; Rutherford et al., 2003; Griffeth et al., 2006; Leung, 2003; Jack et al., 2006). The idea has been to understand the value of HRM to organizations. However, this literature generally ignores the relationship between HRM and firm strategy, and relies on the commonly held assumption that HRM has to be aligned with the existing firm strategy (e.g. Baird et al., 1988). This logic, built from the strategy-structure-fit argument, presumes firms have existing strategies and HRMs role is to make sure the firm has the employee capabilities demanded by the extant strategy fostered through a set of HR practices.

   This logic rests on two fit arguments that support organizational success. First, firms align their internal talent (i.e. human resources) and HR management activities (i.e. practices) with the firm's strategy in a vertical fit fashion (Dyer, 1985). That is, the strategic goal of the firm influences decisions for managing talent. Second, these HR activities should be horizontally aligned, meaning that management uses the firm's strategy as a guiding framework wherein each HR practice is designed to support and match other HR practices to assure consistency for managing human capital, which assures congruency (Baird and Meshoulam, 1988). For example, a collaborative culture has to hire team-minded applicants, offer team skill training (conflict resolution and team building) and team-based reward compensation elements. Both vertical and horizontal fit alignments are efforts to maximize organizational outcomes (Huselid, 1995; Wright & McMahan, 1992), based on the firm's strategy. However, startups and emerging firms generally have no firm strategy from which HRM could be based on (Mintzberg and Waters, 1982), and for firms in decline, firm strategy typically needs to change in order to avoid the death of the firm as has been observed by the actions of many Fortune 500 businesses, including Coke, Sprint, and Apple.

   There are a few authors that have endeavored to look specifically at the relationship between firm strategy and HRM using a lifecycle perspective (Rutherford et al., 2003). Based on the assumption of cost, market and employee-role-behavior similarities, scholars initially took a highly condensed approach to lifecycles stages (Starbuck, 1965; Lorange and Murphy, 1983). Schuler (1989) offered a contingency framework for understanding the HR practices and policies a company is likely to adopt based on the current lifecycle stage of the organization. Drawing on an HRM perspective, Schuler (1989) assumed a pre-existing firm strategy and outlined key behaviors believed to help drive a particular strategy (e.g. cost, quality enhancement or innovation) at a particular lifecycle stage. In contrast, Lengnick-Hall and Lengnick-Hall (1988), drawing on the human capital perspective, took a different approach and mapped out a 2x2 SHRM framework focusing on a firm's growth expectations and the organizational readiness of its human capital. They delineated four different typologies based on two dimensions: organizational strategy and organizational skills.

   Both Schuler (1989) and Lengnick-Hall and Lengnick-Hall (1988) provided a starting point from which we depart. Schuler (1989) assumed that the firm's strategy is a given regardless of the lifecycle. In contrast, Lengnick-Hall and Lengnick-Hall (1988) assumed that the firm's strategy is not fixed, but rather that management of human resources contributed directly to firm's strategic formulations in a growth stage. However, our central contention here is that the relationship between firm's strategy and HRM doesn't fit within the prevailing theory in the birth and decline lifecycle stages.

   1.2 Firm Strategy--HR Strategy Literature

   The notion of "HRM strategy" has been defined in different ways. Some scholars have emphasized a management approach that involves "the pattern of planned resource deployments and activities intended to enable an organization to achieve its goals" (Wright and McMahan, 1992: 298). That is, it is the systematic deployment of HR practices, policies and systems to drive key employee behaviors that would contribute to execute the firm's strategy (Messersmith and Guthrie, 2010; Huselid, Jackson and Schuler, 1997; Schuler and Jackson, 2005). Others have deemphasized the management angle and focused on the human capital--the talents/knowledge, skills and abilities (KSA's) of the workforce as part of HR strategy (Erhardt, Martin-Rios and Way, 2009; Lepak and Snell, 2002; Lepak, Bartol and Erhardt, 2005; Martin-Rios and Erhardt, 2008; Way and Johnson, 2005; McMahan, Virick and Wright, 1999). The human...