® The Academy of Management EXECUTIVE, pp. 207-219
1987, Vol. 1, No. 3,
Linking Competitive Strategies with Human Resource Management Practices Randall S. Schuler and Susan E. Jackson New York University
ver the past several years there has been increased recognition that there is a need to match the characteristics of top managers with the nature of the business. According to Reginald H. Jones, former chairman and CEO of the General Electric Company,
The result of such human resource staffing practices has been rather significant:
When we classified. . . [our] . . . businesses, and when we realized that they were going to have quite different missions, we also realized we had to have quite different people running them.^ Within academia there has been similar growing awareness of this need. Although this awareness is being articulated in several ways, one of the most frequent involves the conceptualization and investigation of the relationship between business strategy and the personal characteristics of top managers.^ Here, particular manager characteristics such as personality, skills, abilities, values, and perspectives are matched with particular types of business strategies. For example, a recently released study conducted by Hay Group Incorporated, in conjunction with the University of Michigan and the Strategic Planning Institute, reports that when a business is pursuing a growth strategy it needs top managers who are likely to abandon the status quo and adapt their strategies and goals to the marketplace. According to the study, insiders are slow to recognize the onset of decline and tend to persevere in strategies that are no longer effective; so, top managers need to be recruited from the outside.
Growth companies that staffed 20% of their top three levels with outsiders exceeded their expected return on investment by 10%. Those that relied on inside talent fell short of their goals by 20%. The same holds true for companies in declining industries: companies with outsiders in one out of every five top managements jobs exceeded expected returns by 20%; those with a low proportion of outsiders fell 5% short.* Outsiders, of course, are not always helpful. When a business is pursuing a mature strategy, what is needed is a stable group of insiders who know the intracacies of the business. The results of the Hay study suggest that the staffing practices of top management be tied to the nature of the business because different aspects of business demand different behaviors from the individuals running them. The implication, then, is that selecting the right top manager is an important staffing decision. Another perspective holds that top managers are capable of exhibiting a wide range of behavior, and all that is needed is to match compensation and performance appraisal practices with the nature of the business. Peter Drucker, commenting on the relationship between compensation and a strategy of innovation, observed that:
Recruiting outsiders as a part of strategy has been successful for Stroh Brewing Co., once a small, family-run brewery in Detroit. Some 20% of its senior management team of 25 executives, including President Roger T. Fridholm, have been brought into Stroh since 1978. They've been instrumental in transforming it into the third-largest U.S. brewer.^
/ myself made this mistake [thinking that you can truly innovate within the existing operating unit] 30 years ago when I was a consultant on the first major organizational change in American history, the General Electric reorganization of the early 1950s. I
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advised top management, and they accepted it, that the general managers would be responsible for current operations as well as for managing tomorrow. At the same time, we worked out one of the first systematic compensation plans, and the whole idea of paying people on the basis of their performance in the preceding...