SOLUTION: University of Michigan Daily Operations of A Human Resource Function Discussion

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The role of strategic groups in
understanding strategic human
resource management
Judie M. Gannon
The role of
strategic groups
513
Oxford School of Hospitality Management, Faculty of Business,
Oxford Brookes University, Oxford, UK
Liz Doherty
Business School, Sheffield Hallam University, Sheffield, UK, and
Angela Roper
School of Hospitality & Tourism Management, University of Surrey, Guildford, UK
Abstract
Purpose – This article aims to explore how understanding the challenges faced by companies’
attempts to create competitive advantage through their human resources and HRM practices can be
enhanced by insights into the concept of strategic groups within industries. Based within the
international hotel industry, this study identifies how strategic groups emerge in the analysis of HRM
practices and approaches. It sheds light on the value of strategic groups as a way of readdressing the
focus on firm and industry level analyses.
Design/methodology/approach – Senior human resource executives and their teams across eight
international hotel companies (IHCs) were interviewed in corporate and regional headquarters, with
observations and the collection of company documentation complementing the interviews.
Findings – The findings demonstrate that strategic groups emerge from analysis of the HRM practices
and strategies used to develop hotel general managers (HGMs) as strategic human resources in the
international hotel industry. The value of understanding industry structures and dynamics and
intermediary levels of analysis are apparent where specific industries place occupational constraints on
their managerial resources and limit the range of strategies and expansion modes companies can adopt.
Research limitations/implications – This study indicates that further research on strategic
groups will enhance the theoretical understanding of strategic human resource management and
specifically the forces that act to constrain the achievement of competitive advantage through human
resources. A limitation of this study is the dependence on the human resource divisions’ perspectives
on realising international expansion ambitions in the hotel industry.
Practical implications – This study has implications for companies’ engagement with their
executives’ perceptions of opportunities and threats, and suggests companies will struggle to achieve
competitive advantage where such perceptions are consistent with their competitors.
Originality/value – Developments in strategic human resource management have relied on the
conceptual and theoretical developments in strategic management, however, an understanding of the
impact of strategic groups and their shaping of SHRM has not been previously explored.
Keywords Strategic groups, Strategic human resources, Strategic human resource management,
International human resource management, Hotel and catering industry, International business
Paper type Research paper
The authors would like to express their thanks to the organisations who participated in the
research and the reviewers and Editors who provided insightful and excellent feedback on early
drafts.
Personnel Review
Vol. 41 No. 4, 2012
pp. 513-546
q Emerald Group Publishing Limited
0048-3486
DOI 10.1108/00483481211229401
PR
41,4
514
Introduction
Most developments in strategic human resource management (SHRM) and
international human resource management (IHRM) have drawn heavily on the
strategic management literature (Becker and Huselid, 2006; Schuler and Jackson, 2007).
Some of the earliest models associated with SHRM (such as Fombrun et al., 1984; Beer
et al., 1984; Hendry and Pettigrew, 1986 and Guest’s (1989) model) provide insights into
how leading HRM thinkers have approached the strategic dimensions of HRM. Such
insights have focused on the links or fit between strategy and HRM, environmental
analyses as the basis for strategic management informing (and in some cases informed
by) HRM, and borrowing concepts and theories with their origins in the strategic
management literature, such as organisational and product life cycles, and competitive
strategies (Schuler and Jackson, 1987; Sanz-Valle et al., 1999; Miles and Snow, 1984).
Despite the advances made in both areas there has been minimal consideration of the
ways that strategic groups, not only industries and firms, influence HRM strategies
and practices in the pursuit of competitive advantage (Boxall, 2003). Strategic group
research identifies how groups of firms engage in similar strategies in order to compete
effectively within industries and shape industry structure and competition. Panagiotou
(2006 p. 440) defines strategic groups as:
[. . .] those groups of firms within an industry, which are characterised by similarities in their
structure and competitive beliefs as well as their tendency to follow similar strategies along
key strategic dimensions in a specific operating environment.
The performance differences between strategic groups are the focus for much of this
research, but mobility between groups and the structural dimensions of industries
have also received attention (Ferguson et al., 2000; Leask and Parker, 2006; Porter,
1980; Reger and Huff, 1993). As such strategic group research has developed as a
central research theme in strategic management. One of the most notable aspects of
strategic groups research is that it highlights and reinforces the importance of
particular industry contexts. This is an important consideration for the development of
SHRM research as there is now growing recognition of the value of industry and sector
specific SHRM research where the nuances and structural dimensions of industries are
emphasized (Boselie et al., 2009; Paauwe, 2008; Paauwe and Boselie, 2008; Tyson and
Parry, 2008).
The aim of this study is to explore how the strategic group concept can inform
SHRM approaches. Specifically it sets out to identify how strategic groups can help us
understand why companies struggle to achieve sustainable competitive advantage.
This aim is achieved by initially investigating the strategic group literature and
evaluating where it adds insight and value to the SHRM approaches literature.
Thereafter the findings from an in-depth empirical study of the HRM practices and
strategies deployed across a global industry are used to highlight the role of strategic
groups in constraining companies’ capacities to differentiate their SHRM approaches
and practices. Accordingly this article also satisfies the demand for more sector led
SHRM research (Paauwe, 2008; Paauwe and Boselie, 2008; Tyson and Parry, 2008).
This article unfolds as follows. Initially an evaluation of the strategic group
literature is provided followed by an analysis of the contemporary debates in SHRM
(Boxall and Purcell, 2000, 2003, 2008; Boselie et al., 2002, 2003). The limitations of the
SHRM literature are reflected on in light of the strategic group literature and the
potential contribution this field towards a more nuanced understanding of SIHRM
approaches and practices. The research design for the study is subsequently outlined
alongside an overview of the context of the research, the global hotel sector. The
qualitative data analysis is then considered with the HRM practices and approaches
which are found to be common across the whole industry, similar across particular
strategic groups and distinctive to specific companies explored sequentially. The
implications of these various layers of HRM practices and strategies, and specifically
the strategic group dimension, are then discussed in relation to the extant research. Of
specific note is the way such findings reinforce the challenges companies face when
pursuing competitive advantage through human resources and how the national,
industry and strategic group pressures for assimilation limit opportunities to develop
idiosyncratic and integrated HRM interventions and strategic human resources.
Literature review: building bridges between strategic groups and SHRM
approaches
Strategic groups
The strategic group concept emerged within strategic management as an attempt to
better understand the competitive backdrop and demands faced by companies
operating in an industry (McGee et al., 1995; Porter, 1980; Short et al., 2007). Strategic
management analysis has typically taken place at the level of the firm and the
industry, and has omitted the interface of firm and industry competitor behaviour.
Originating from the broader field of industrial organization economics in the 1970s,
strategic groups were identified as clusters of companies within industries (Porter,
1980). Such divisions arise because industries are not collections of heterogeneous
companies but subsets of firms separated by mobility barriers limiting movement
between groups (Ferguson et al., 2000; McGee et al., 1995). Strategic group research has
facilitated a better understanding of how group structure can shape rivalry and
ultimately performance, as well as group identities and reputations. It has also
illustrated how strategic group reputations serve to reinforce mobility barriers to other
industry competitors (Dranove et al., 1998; Ferguson et al., 2000; Leask and Parker,
2006; Peteraf and Shanley, 1997). The analysis of the business environment as an
objective reality, achieved classically through cluster or factor analysis of company
data (Reger and Huff, 1993), drives most investigations in this area. However,
Panagiotou (2006, p. 441) summarises the problems of this prescriptive approach as
leading to:
[. . .] a preoccupation by managers that strategic management is all about prescribing
strategies for positioning a business in a particular industry structure, having first carried out
a thorough economic analysis based on the implicit notion that industry structures are
relatively stable and easily identifiable.
More recently a cognitive approach to strategic group research has emerged based on
the argument that managers’ simplification of their complex competitive environments
and perceptions of similarities and differences among their rivals will shape strategic
decision-making (Panagiotou, 2006, 2007; Reger and Huff, 1993). Such managerial
insights into competitive groupings offer clearer conceptions of the way
decision-makers perceive their own organisations and their rivals and therefore how
these determine and implement strategies. These arguments suggest that strategists’
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understand (and approach) their competitive environments in similar ways, and are
related to the ideas of institutional assimilation and isomorphism (DiMaggio and
Powell, 1983; Powell and DiMaggio, 1991). Therefore, the capacity of firms to pursue
distinctive practices for competitive advantage may be limited by constraints, such as
organisational inertia and forms of isomorphism (Reger and Huff, 1993; Boon et al.,
2009). Strategic groups are then another important aspect of the structural dimensions
which foster this organisational sluggishness. These are critical insights where the
pursuit of competitive advantage through human resources, HRM practices and
strategies has gained substantial support in recent years (Becker and Huselid, 2006;
Boxall, 2003). However, this quest for distinctive or idiosyncratic HRM practices and
strategies to attain competitive advantage needs to be resolved against the pressures to
conform and achieve social legitimacy within sectors. The next section evaluates the
contemporary SHRM approaches and highlights where the strategic group literature
contributes to their enhanced understanding.
The strategic HRM approaches
Three main SHRM approaches have emerged as the keystone for understanding and
achieving sustained corporate success through human resources (Purcell, 1999, 2001;
Boxall and Purcell, 2003, 2008). While the opportunities for simultaneously enacting
these approaches are now well-rehearsed it is useful to revisit them briefly as part of
developing the theoretical connection with the strategic group literature. The best
practice SHRM approach encourages companies to adopt sophisticated or “high
performance” practices across their human resources in order to achieve competitive
advantage (Pfeffer, 1998; Huselid, 1995). Considerable criticism of the best practice
SHRM approach occurs in relation to what actually represents “sophisticated” HRM
practices and the empirical basis on which these practices are suggested (Marchington
and Grugulis, 2000; Boxall and Purcell, 2003, 2008). Furthermore, the conventional best
practice SHRM approach suggests that these superior HRM practices should be
adopted regardless of different industrial and national boundaries (Marchington and
Grugulis, 2000; Boxall and Purcell, 2003, 2008). Recent evaluations of the “best
practice” SHRM approach have emerged recognising that within industries there may
be certain HRM practices and approaches which are obligatory (Boxall and Purcell,
2003, 2008). The “table stake” concept suggests there are established (HRM) practices
adopted by all businesses in an industry which serve to legitimise their position in that
industry. This concept has thus been recognised as an adaptation of the “best practice”
SHRM approach (Boon et al., 2009; Bjorkman, 2006; Boxall and Purcell, 2003; Paauwe
and Boselie, 2003). The “table stake” version of best practice SHRM approach is based
on the institutional assimilation literature where organisations struggle to distinguish
themselves from their industry associates while simultaneously achieving legitimacy
(institutional fit) in their sector (DiMaggio and Powell, 1983; Powell and DiMaggio,
1991; Oliver, 1997). Isomorphism is the process which constrains organisations’
attempts to differentiate themselves within the same institutional context (DiMaggio
and Powell, 1983). Isomorphism emerges in two broad variations; competitive
isomorphism where market pressures and performance targets are emphasised and
institutional isomorphism where institutional factors associated with socio-cultural,
technological and economic parameters are highlighted.
The adoption of best practice SHRM approach across an international setting has
also been roundly critiqued (Brewster, 1999, 2006; Sparrow et al., 2004) due to the
ingrained national institutional and cultural conventions, which are seen to regulate
the value of various high performance HRM practices in other countries (Brewster,
1991, 2006; Sorge, 2004). However, this does not mean that across a country all
industries have the same HRM practices. Much of the IHRM literature could be seen as
disproportionately focused on the parent and host country cultures and systems in
light of the evidence on SHRM approaches and practices in hospitals, local government
and hotels (Boselie et al., 2002, 2003). Such studies indicate that institutional and
competitive isomorphisms differ across industry contexts creating distinct table stake
HRM practices in different industries within the same country (Boon et al., 2009;
DiMaggio and Powell, 1983). Furthermore, such evidence recognizes that national
institutional dimensions may have less of an impact than competitive institutional
dimensions on some industries and their resulting people management practices. This
level of industry interplay on the best practice approach is valuable but in light of the
strategic group insights it is clear that companies do not compete directly with every
other company in their industry. Instead they are likely to have particularly close rivals
whose practices, products, managers, innovations and initiatives will be of specific
interest to them (Panagiotou, 2006; Peteraf and Shanley, 1997). As such there may be
another layer of consistency and similarity in HRM practices due to the close rivalry of
strategic groups, in addition to those identified by the “table stake” version of the best
practice SHRM approach across an industry.
The “best-fit” SHRM approach suggests a firm’s market position and strategies
drive and shape its HRM policies and practices. Within the “best fit” SHRM approach a
range of theories have emerged from those that more simplistically link specific
strategy choices to HRM practices and policies (Delery and Doty, 1996; Miles and
Snow, 1984; Schuler and Jackson, 1987) to more complex models (Fombrun et al., 1984;
Hendry and Pettigrew, 1986) which envision a range of corporate characteristics
(strategies, positions, portfolio characteristics) determining people management
practices. Within the IHRM area, much of the research has also focused on the
influential nature of national differences as well as strategic models (Perlmutter, 1969;
Bartlett and Ghoshal, 1989, 2000; Edwards et al., 1996). For example: the models of
international orientation (Perlmutter, 1969; Heenan and Perlmutter, 1979); product
life-cycle phases (Adler and Ghadar, 1990); and international responsiveness versus
integration (Bartlett and Ghoshal, 1989, 2000; Edwards et al., 1996) are all based on
strategic choice arguments derived from the strategic management field. The main
thrust of the strategic dimension to IHRM has revolved around the question of whether
HRM practices are determined by corporate or business strategies and customised or
standardised across national boundaries with many authors providing detailed
analyses of the contingency of specific factors (Boselie et al., 2002, 2003; Coller and
Marginson, 1998; Easterby-Smith et al., 1995; Ferner, 1994, 1997; Ferner and
Quintanilla, 1998; Hannon et al., 1995; Newman and Nollen, 1996; Rosenzweig and
Nohria, 1994; Rosenzweig, 2006; Thompson et al., 1998).
The weaknesses of the “best fit” SHRM approach are its distorted attention on the
external context as determining strategies and practices based on market positioning,
cultural and institutional factors; and its inability to secure competitive advantage
where several companies within the same sector pursue similar strategies and market
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positions (Boxall and Purcell, 2003, 2008; Kamoche, 2001; Wright and Snell, 1998). Such
criticisms are similar to those voiced by contemporary strategic management
researchers on the objective and prescriptive versions of strategic management being
the primary influence on strategic thinking and decision-making at the expense of
managers’ and executives perceptions of positions and rivalries (Reger and Huff, 1993).
Indeed Panagiotou’s (2006, 2007) research on executives’ perceptions, as opposed to the
economic analysis of the competitive terrains, competitor strategies and industry
dynamics shaping strategic groups, highlights that executives whose firms belong to
the same strategic groups react to events and market factors in similar ways. This
suggests, that not only are companies constrained by the suggested strategies and
market positions they develop, but that there are limitations to the options they can
take to distinguish themselves because of the added level of similarity strategic groups
create.
Finally, the resource based view (RBV) SHRM approach has been proffered as an
alternative to the best practice and best-fit approaches due its internal focus based on
creating competitive advantage through the leverage of valuable, rare, inimitable,
non-substitutable and rent achieving (human) resources (Morris et al., 2006; Wright
et al., 1994, 2004). The empirical research supporting the RBV SHRM approach (Boxall
and Steeneveld, 1999; Leonard-Barton, 1995; Marchington et al., 2003) clearly
highlights that human resources can fulfil the criteria of resources which deliver
competitive advantage. The most valuable human resources are those identified as the
“strategic human resources” or “rainmakers” who fulfil t …
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