The aim of this paper is to discuss the relevance of fit between HR strategy and Business strategy.
Concept of ‘fit’ in strategic HRM
Nadler and Tushman (1980) defined congruence or fit as "the degree to which the needs demands, goals, objectives and/or structure of one component are consistent with the needs, demands, goals, objectives, and/or structure of another component” (as cited in Boon, 2008).
Fit between HR Strategy and business strategy
According to U.S. Office of Personnel Management (1999), fit between HR strategy and business strategy means to integrate decisions about people with decisions about the results an organization is trying to obtain. To be able to achieve fit between HR strategy and business strategy, the HR Managers have to identify the real goals of the business, the business way, how to reach the goals and the real needs of the business from Human Resources (Luke, 2010). Some management tend to put the needs of their employees first, but this is not what the business usually asks for. Fit operates vertically and horizontally (Scribner et al, 2008). Vertical fit refers to the alignment of HR practices with the specific organizational context, and horizontal fit refers to the alignment of HR practices into a coherent system of practices that support one another (Delery, 1998).
Relevance of fit between business strategy and SHRM
The central debate about fit between HR strategy and business strategy is one of the most important to emerge in recent years (Helen Newell and Harry Scarbrough, 2002). It hinges on two broad approaches: the ‘universalistic’ and ‘contingency’ (Natalie Turner, n.d).
The universalistic perspective “best practice” argues that some HR practices are universally effective; regardless in which context they are implemented (Boom, 2008). These practices include items such as (Newell & Scarbrough, 2002), employment security, selective hiring, self-managed teams or team working, high pay contingent on company’s performance, extensive training, reduction of status differences, and sharing information (Pfeffer & Veiga, 1999). Pfeffer & Veiga believe that if these policies are followed, they would always result in organisational success. The universalistic theory is also based on the assumption that HR practices observed in high-performing firms can be transformed to other companies with the same results (Armstrong, 2009).
In contrast with universalistic thinking, contingency scholars argued that HR strategy would be more effective only when appropriately integrated with a specific organizational and environmental context (Chang & Huang 2005). This approach infers that the choice of HR strategy depends on the firm’s business strategy (Newell & Scarbrough, 2002). The approach is more akin to the idea of strategic fit because it claims that the optimal HR strategy choice depends on the unique characteristics of the individual organisation (Natalie Turner n.d), or the organisation’s strategy (Newell & Scarbrough, 2002). For instance, a cost-reduction business strategy would require a different set of HRM policies than a strategy based on innovation. “An HRM strategy to fit with cost reduction might require deskilling, management control and downward pressure on wages. In contrast, one aimed at innovation would be likely to foster employee skills, autonomy and competitive wages” (Newell & Scarbrough, 2002:28).
Other models have also emphasised the relevant of fit between HR strategy and business strategy. These include the Matching model, Life Cycle model, Harvard Model, and the behavioural perspective. The matching model argues that human resource strategies have a tight fit to the overall strategies of the business (Association of Business Executives, ABE; 2010). The basic premise of the life cycle model is that, as organisation grows and develops, human resource practices and procedures must change to meet it needs...