Study Aligns Management, HR Strategies

Newswise — A 199-year-old economic theory may provide the theoretical framework needed to — for the first time — effectively align strategic personnel policies with organization and management strategies, according to new research from The University of Alabama in Huntsville.

"Our paper is grounded in established 'rent' theories, but it takes us to places we haven't been in explaining how human resource management can influence a firm's success," says Dr. Clint Chadwick, an associate professor of management in UAHuntsville's College of Business Administration.

"This research is getting a lot of play because it has the potential to solve problems for people who heretofore haven't had good tools for solving those problems. This can tell me which kind of strategic HR system will work best within a firm or even within different parts of a firm. Nobody has done a good job of linking strategies and HR systems in a specific way.

"This is relatively unexplored territory relative to other areas in business."

This research by Chadwick and Adina Dabu at HEC School of Management in Paris has been published on-line and will be in the February 2009 edition of the journal Organization Science.

The underlying problem has been that strategic human resource management (SHRM) research has been phenomenon rather than theory driven, Chadwick said. "We need good theories so we can know what to do with the data."

That and the shortage of hard data make it difficult to study cause-effect relationships between SHRM and corporate success or failure.

"If you look at what most firms say about their people being their most important assets, that's mostly hot air," he said. "Everyone understands that employees are important to competitive advantage, but there's been little specific guidance for capturing that importance. We know there is smoke but we don't know what the fire is or how to start it."

Chadwick and Dabu propose solving the theory problem by dipping into economics for "rent theories," the first of which was formulated by David Ricardo around 1809. (It is "rent" theory because Ricardo was studying why certain farm land was worth more rent than other land.)

In economics there are three kinds of "rents." Knowing which kind of rent relates to the employees in an organization might help managers align their HR strategy to an organization's goals because different rents require different HR policies.

In rapidly evolving industries, for instance, where it is important to gather and use employee knowledge to develop or improve goods and services, Chadwick said, "I can change my compensation system to reward sharing information. On the other hand, if you put in cross-discipline management teams but don't reward people for the team's productivity, you've blown it."

There are challenges in applying rent theory to human resources: "HR is unique because employees have free will. We don't have to worry about keeping a piece of real estate engaged and fulfilled. That's not true with people. If you don't engage people, it's easy to screw things up."