Executing business strategies through humanresource management practices§,§§

John Slocum, David Lei, Paul Buller

Organizational Dynamics (2014) 43, 73—87

Available online at www.sciencedirect.com

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Businesses of all sizes face an ever more brutal hypercom-petitive landscape. Sources of competitive advantage devel-oped in one period are often too fleeting, leaving businessleaders scratching their heads about how best to think aboutstrategy and execution. Companies that once were synon-ymous with their particular industry (e.g., Sears in retailing,General Motors in automotive, Eastman Kodak in photogra-phy, Xerox in photocopiers) have become today’s businessschool case studies about misdirection, complacency, tech-nological obsolescence, or the rise of unforeseen competitorsthat have fundamentally changed the economics and meth-ods of creating value. Regardless of relentless changes intechnology, customer needs, value-creating activities, dis-tribution systems, and management systems, the only con-stant are employees. Each business begins and evolves with astrategy that is based on its customers (who it will serve), itsprocesses (how it will create value to serve them), its leaders(their priorities, focus, dedication to the business), and itspeople (who it hires, develops, retains). At its heart, strategyis a coherent set of integrated choices about what an orga-nization will do in order to accomplish its goals and objec-tives. Integrated choices refer to the fact that there aremany functions and avenues related to managing the busi-ness–—for example, how will we enter a market, whichcustomers will we serve, how will we create the product/service, which technologies will we invest in, how do we growover time. How a business decides to answer one question hasa direct impact on the others.

§ The authors acknowledge the constructive comments on an ear-lier draft of this manuscript by David Garza, Sue Hammond, MikeHarvey, Don Hellriegel, Andrew Hiduke, Maribeth Kuenzi, WilliamReisel, Randy Schuler, Chuck Snow, Steve Watson, and Ron Zera.§§ Portions of this paper were presented at the CEO Forum, Dallas,TX, November, 2013.

http://dx.doi.org/10.1016/j.orgdyn.2014.03.0010090-2616/# 2014 Elsevier Inc. All rights reserved.

By its very nature, strategy is also about tradeoffs–—whatan organization will choose to do and not to do. For example,by choosing to serve the mass market, the business willprobably limit its appeal to upper and lower incomes. Con-versely, by choosing to be the technology leader, the businesswill have to invest proportionately more in product researchthan a firm that chooses to be a late adopter. Failure torecognize tradeoffs results in a ‘‘mission fog’’ by which thebusiness does not distinguish itself in any way from itscompetitors and eventually dies.

Selecting a given strategy in turn provides the basis fordetermining how critical organizational functions buttressthe strategy. These organizational functions can include thetype of reporting structure used, performance and evalua-tion systems that measure outcomes, staffing decisions, andthe choice of career paths best suited for managers andemployees. Senior managers should consider effective orga-nization design as a vital part of the strategy-making process,but not a substitute for it. Yet, when it comes to executing anintegrated, unified strategy across the entire organization,staffing is perhaps the most salient investment a business canmake, since people bring all other functions (e.g. manufac-turing, marketing, operations, etc.) into play to support thefirm’s mission and direction. Selecting, developing andretaining human capital represent key steps in building thefoundation for the requisite strategic capabilities and dis-ciplines that create competitive advantage. It is critical tocreate a culture and network of relationships that supporteffective strategy implementation.

The choice of strategies that suit one particular businesswell may not translate into competitive advantage or successfor another business or across industries. There are scores, ifnot hundreds, of industries that define and drive today’seconomic life. As a firm’s environment changes, so will manyof the drivers that senior management must consider whenutilizing their capabilities to compete and navigate the firm

74 J. Slocum et al.

through a changing economic landscape. What senior man-agement may consider a very pressing issue in one industry(e.g., patent protection for drugs or video games) may bequite different in another (e.g., availability of low-cost steelin the construction and automotive industries). An effectivebusiness strategy, in turn, requires the manager to be awarenot only of the business’ external environment, but also ofthe strategic disciplines that directly support the executionof that strategy. These strategic disciplines, in turn, shapeand influence the kinds of skills and human and social capitalin which the business must invest. Here are the ‘‘big picture’’guidelines:

� the relative importance and predictability of the externalenvironment facing the business;� the cultivation of core strategic disciplines that impactday-to-day activities;� the prioritization of investment decisions that support astrategy;� the alignment of people and culture within these strategicpriorities.

We will consider each of these broad topics in detail. Wethen present four company case examples to illustrate theseconcepts. Let us begin by first examining the external envi-ronment facing the business, as illustrated in Fig. 1.

FORCES OF CHANGE

Regardless of the product or service offered, every organiza-tion must adapt to its environment. Customer needs, revisedproduct designs, technological breakthroughs, new processimprovements, and competitors’ actions represent just a fewof the major forces in the business environment. Whenorganizations ignore them, they do so at great peril. Witnessthe current troubles plaguing The New York Times, TheChicago Tribune, the Los Angeles Times, and the entire dailyU.S. newspaper industry as it grapples with delivering infor-mation in a tablet computer or smart-phone era. A hard-woncompetitive advantage can face rapid deterioration in thewake of these changes. In the worst situations, an organiza-tion’s entire vision, strategy and business model can becomecompletely irrelevant almost overnight. As an industryevolves, customer expectations tend to become clearer(more known), and the environmental landscape becomesmore stable, as shown along the vertical axis in Fig. 1.

• Financi al service s • Distribution logistics • Utiliti es • Construction materials • Processed foods

• Appliances• Auto motiv e • Medical device s • Office equipmen t • Semiconductors

• Video games • Casu al dining • Digit al enter tain ment • Pet care ser vice s • Education

• Biotechnology• Nanotechnology• Advanced materials • Health care providers and

services• Altern ative energy

Changing Stable Environmental Landscape

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Figure 1 Broad Mapping of Industry Environments.

Conversely, there will be times in an industry when customerexpectations change, and the environmental landscapebecome unstable. This is usually the result of some type ofexternal upheaval (e.g., new product technology, new com-petitors, government regulations, etc.). The horizontal axisof Fig. 1 depicts the nature of the change impacting theindustry landscape.

Changing Customer Expectations

In the early stage of the organizational life cycle, firmsattempt to get their innovative products or services to gainacceptance by customers. As the overall size of the marketexpands, competitors assess their prospects for entering themarket. Many firms strive to create ways to design newofferings and to reach customers, whose needs are oftenunclear and fast-changing.

As the industry becomes mature, a dominant industry-wide approach or method to create products and servicesbecomes established. As a result, products tend to standar-dize over time, and markets saturate. It becomes an uphillbattle for firms to distinguish themselves from their rivals,since products become more similar and customers demandmore features or performance for what they pay. Equallyimportant, customers become smarter and know what theywant. This makes it difficult for firms to raise prices. Declin-ing differences generally lead to similar pricing. At this stage,firms become highly specialized and cost efficiency becomesimportant in driving profitability. Thus, the evolution ofproducts and processes across industries tends to exhibitstrong life-cycle characteristics that ultimately result in evermore intense competition. Recent examples of industriesthat have undergone such a progression include food proces-sing, car rentals, consumer electronics, and retailing.

Business Upheavals–—Stable EnvironmentalLandscape

Many changes in an industry are gradual and occur in a waythat both firms and customers can predict, as illustrated inFig. 1. Products and technologies follow a seemingly welldefined, almost logical progression and trajectory of betterperformance. Sustaining innovations provide steady, incre-mental, measurable product improvement. Each subsequentgeneration of new products incorporates improved featuresor functionality over the previous one, as we currently see inthe smart-phone industry. For example, each successive lineof iPhone, iPod or Android-based communication productsdelivers greater functionality and versatility compared withthose introduced just a few months ago. Predictability ofproduct planning and customer demand is high. The under-lying core product technology remains stable for a longperiod of time. Thus, there is comparatively little uncer-tainty facing the firm when it designs a new product. Theseproducts tend to follow the same underlying ‘‘design logic’’of previous generations.

Industries are also subject to periods of ‘‘disruption,’’whereby unforeseen or new technologies, methods, or waysto serve customers completely redefine an industry’s ‘‘logic’’to creating value. As their name suggests, disruptive innova-tions ‘‘shake up’’ familiar ways of creating and delivering

Executing business strategies through HRM practices 75

products to customers. A technological breakthrough orradically different way of meeting a customer need definesa disruptive innovation. The ‘‘disruption’’ can be so severethat an entire industry is transformed in a very compressedtime, much like a massive earthquake’s impact on the sur-rounding landscape, which can divert rivers and cause wide-spread damage. Disruptive innovations change the rules ofthe game for the entire industry. The industry’s pre-existingmethods and approaches, such as long-followed productdesigns, technical standards, or distribution channels, facethe prospect of immediate obsolescence.

Consider the immense challenge posed by growing strainsof antibiotic-resistant bacteria. Instead of the large pharma-ceutical companies, it was the advanced laboratories of IBMthat led the way in designing a nanotechnology-based drugthat treats antibiotic-resistant staph infections. This is thesame technology that IBM hopes to use in designing anentirely new line of semiconductors and advanced materialsthat bypass today’s use of silicon. Similarly, new models ofDaVinci Robotics’ surgical systems (created by Intuitive Sur-gical) enable doctors to operate on patients with far lessinvasive procedures, resulting in much faster healing times.Using joysticks to control and manipulate small surgical tools,doctors can pinpoint exactly where and how much tissue toremove in the shortest time with minimal damage to sur-rounding healthy tissues.

DESIGNING EFFECTIVE BUSINESS STRATEGIES

In their book Demystifying Your Business Strategy, David Leiand John Slocum developed four archetypical business stra-tegies that correspond to the industry environments cap-tured in Fig. 1. As one can see from each of the four cells inFig. 1, the nature of the strategic requirements for compe-titive success varies substantially as firms adapt to thedemanding conditions they face. Broadly speaking, four dis-tinct business strategies represent the dominant modes forcrafting the strategic disciplines and organization designs tocreate and sustain advantage. These four strategies arecalled Pioneers, Trendsetters, Consolidators, and Reinven-tors. Each of these strategies, shown in Fig. 2, generatesspecific types of priorities and investment requirements thatunderpin competitive advantage. Consequently, each strat-egy will shape the kinds of management processes and humanresource practices necessary to support strategy execution.

Consolidators

• Operatio nal Excelle nce

Reinventors

• Resource Allocation

Trendsetters

• Customer Inti macy

Pioneers

• Research and Development

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Figure 2 Four Business Strategies and Associated StrategicDisciplines.

Let us now examine the broad characteristics of each strat-egy, as well as the core strategic disciplines that guidestrategy execution.

The Vital Role of Core Strategic Disciplines

A strategic discipline refers to the ‘‘guiding logic’’ that helpsmanagers implement their strategy on a daily basis, as shownin Fig. 2. A business will utilize a number of strategic disci-plines, but the priority of which discipline to emphasizedepends on the firm’s strategy. A strategic discipline shouldalso translate the business’ strategy into specific, actionableresults that directly emanate from employees’ efforts to exe-cute goals and objectives. The notion of a ‘‘discipline’’ rests onthe link between strategy and a guiding internal logic, orpremise that shapes the operating ‘‘context’’ of the business.

Pioneers

Pioneers are the lifeblood of every industry in every economy.No industry ever begins without the kind of bold risk-takingthat all too often fails. Industries depend on pioneers tocreate new products and technological breakthroughs thatseed entirely new ways of doing things. Point to any humanneed and most likely you will find a person or a team of peoplescrambling for a solution. Pioneers in science-driven fields,such as biotechnology, alternative energy, nanotechnology,software, telecommunications, and computers are composedof teams of people scrambling for a solution or breakthroughthat can fundamentally change the way we live. In otherindustries, ranging from restaurants to consumer products,home health care, cleaning supplies, and education, ener-getic entrepreneurs from all backgrounds and life storiesrelentlessly experiment with new ideas and bold approachesto deliver better value to customers.

Pioneers thrive in highly uncertain, dynamic environ-ments. Without exception, Pioneers must persevere and fightto stay alive. The barriers to entry and exit are often quitelow. One of the most daunting uncertainties confrontingPioneers is how best do they gauge their customers’ expecta-tions and then develop a method to serve them. By their verynature, Pioneers identify some type of unmet need and striveto find some way of fulfilling it. Even when an industry isdominated by pre-existing large firms, successful Pioneers,like Zappos, often redefine the competitive marketplace andultimately create an entirely new product category (e.g.,online shoes) or an industry (e.g., alternative energy, 3-Dprinting).

The source of Pioneers’ competitive advantage is to capi-talize on its first-mover advantage. This occurs when a firmhas the opportunity to introduce a new product in an existingmarket, to create a new market, or to create value in a newway for its customers. Often, the first-mover advantagerelies on a lead in some key technology, way of innovating,or business process that other firms will find difficult toimitate, at least initially. In short, Pioneers must be differentand daring. In practice, this means that Pioneers rely heavilyon developing and protecting their knowledge-based assets,including intellectual property (e.g., patents, copyrights,trademarks) or proprietary methods (e.g., production meth-ods, formulas, techniques), research and development (R&D)

76 J. Slocum et al.

personnel, or even the firm’s brands and other reputationsources.

Pioneers tend to be firms that often have founders withgreat vision and passion for doing something that most peoplethink impossible–—or even insane (e.g., the late Steve Jobs atApple). Sometimes this vision extends to breakthrough tech-nologies (e.g., web browsers or disease cures); other times,these visions relate to a better way of doing things (e.g.,Richard Branson’s forays into the music, retailing, and airlinebusinesses); or a superior way of delivering a customerexperience (e.g., Jani-King in the office cleaning business);or certainly a way of thinking about the customer whendesigning products (e.g., Sony under late CEO Akio Morita).Pioneers rely on agility, enormous sweat equity, and speed ofproduct development to create bold new product ideas thatset or redefine the standards of customer expectations.Pioneers cannot count on the presence of a large customerbase to amortize their investment costs. Customers who buyPioneers’ products tend to be enthusiasts who want the ‘‘newtoy,’’ or disgruntled customers turned off by the stale offer-ings of existing firms.

Strategic Discipline: Research and Development(R&D)

At the heart of Pioneers is their riveting focus on fosteringand sustaining new product ideas and concepts. Pioneersmust also execute by commercializing the idea into productsthat customers want. Yet, it is important to recognize thatbeing the first with a new product or technology does notautomatically translate into a sustainable competitiveadvantage. Patents, copyrights, proprietary processes, andmethods do not translate into competitive strength withoutthe requisite disciplined focus on execution as well. A greattechnology does not equal a great business. If there is any-thing that we learned from the past 30 years, it is that themost successful businesses are those that aim to keep theirproduct offerings relevant to their customers while sustain-ing a high rate of innovation by its people.

Trendsetters

Competing in high-growth industries, Trendsetters strive tobe unique in what they offer and are often synonymous with adistinctive way of doing things that also raises the bar fortheir rivals. Those pursuing a Trendsetter strategy continu-ally tailor and shape their products and services to fit anincreasingly precise definition of what the customer wants.This can be costly, but Trendsetters are willing to spendresources to build customer loyalty and to innovate for thefuture. They typically look at the customer’s long-term valueto the business. Trendsetters live and breathe customerintimacy and innovation. Innovation can be focused arounddesigning the best performing products, or delivering thehighest level of customer intimacy to gain customer satisfac-tion. Trendsetters constantly experiment with new productand service concepts to see which ones work best. Constantlygathering and sorting through enormous reams of data, theyeducate and update themselves to determine how to createthe best-in-class value proposition for their customers. Tren-dsetters are in the vanguard of shaping their customers’

expectations through creating memorable shopping experi-ences (e.g., Nordstrom), digital technology and entertain-ment (e.g., Apple), purchasing and maintaining cars (e.g.,Sewell Automotive), or designing the technical standards forchips used in modern digital technology (e.g., Qualcommchips in Samsung smart-phones). Changing customer expec-tations require Trendsetters to stay agile and nimble so thatthey can respond quickly to new market segments, changingcustomer needs, and shifting technological trajectories.Excellence in understanding and serving the customer isthe critical survival factor for Trendsetters–—want-to-be riv-als lurk just around the corner, ready to pounce on even thesmallest misstep.

Trendsetters build brand equity by isolating and meetingcustomer needs that are on the leading edge, or whereexceptional personal attention is synonymous with customersatisfaction. In turn, loyal, satisfied customers enable theTrendsetter to erect strong barriers to imitation from rivals.For example, Trendsetters can thrive by providing highlysought-after products and/or services that require sales staffand technical personnel with deep knowledge (e.g., Wil-liams-Sonoma, PGA Stores, Bass Pro Shops, Andrews Distri-buting Company). These knowledgeable employees supportcustomers in every stage of their information-gathering,decision-making, warranties, potential after-sales serviceneeds, and the ultimate choice of what to buy. It is difficultfor competitors offering a broader product line to developand cultivate this type of specialized knowledge.

Strategic Discipline: Customer Intimacy

The essence of competitive advantage for Trendsetters is anintimacy that allows them to discover, learn, improve, andoffer new products and services directly targeted at theircustomers. This emphasis on close, personal interaction withthe customer offers numerous vantage points for them toacquire insights that guide future product and service oppor-tunities. For example, The Ritz-Carlton aims to offer itscustomers the highest level of service possible. It seeks toachieve a uniquely deep level of customer intimacy byencouraging its employees to read the customer’s bodylanguage to anticipate what the guest may need. In addition,the company gathers and studies reams of information aboutwhat customers want from their previous stays. The Ritz-Carlton believes that it is most effective when the company isable to think like its customer.

Every organization should be able to deliver a qualityproduct or service and stand behind it. This is the minimumbaseline of any business. Customer intimacy is vastly differ-ent for Trendsetters. For trendsetters, customer intimacycan involve data analytics, used by Google and AndrewsDistributing Company, along with person-to-person interac-tion. Intimacy transcends meeting needs; it is the provision ofanticipatory, proactive value to the customer. ‘‘Anticipa-tory’’ means truly understanding the customer at the deepestlevel–—even to the point of understanding his or her emo-tional and subconscious needs where possible. ‘‘Proactive’’means providing them before the customer is even aware ofwhat he or she desires. An increasing base of research assertsthat anticipatory customer service actually means that thereis little distinction between ‘‘product’’ and ‘‘service’’–—thetwo come together as a source of value that addresses

Executing business strategies through HRM practices 77

economic and emotional needs simultaneously. Achievingmaximum customer satisfaction means building a high levelof emotional connection into the product itself if possible.

Consolidators

Businesses that once led industries or shaped the customer’smindset for exceptional product quality or customer serviceare not immune from industry maturity. In a paradoxical way,maturity is the byproduct of long-term industry success.Industries become mature precisely because businesses havebecome so successful in expanding, fine-tuning and refiningwhat they offer to their customers. Customers, in turn, beginto view yesterday’s leading-edge offerings as business asusual. As industry growth rates slow down and innovationsbecome more incremental, a new strategic imperative kicksin: consolidation.

Consolidators from all types of industries face enormouschallenges resulting from their inability to grow sales andprofits at their previous fast rates. Because of the industry’sslow growth, Consolidators’ gains in market share are almostimpossible to attain without bruising battles with other firms,most often through price wars. Unfortunately, customersbecome accustomed to these price wars and will rarelypay anything but a discounted price, especially for standar-dized products that are largely indistinguishable from itsrivals (e.g., television sets, tires, lumber, and DVD players).

Central to the Consolidators’ sustainable competitiveadvantage is the pursuit of cost-efficiency in every aspectof their operations. This search for cost-efficiency cannotcome at the expense of product quality, however. Consoli-dators must preserve their brand equity while simultaneouslylooking for every possible way to streamline, standardize,and render operations consistent across the organization.Consolidators tend to be large businesses (e.g., Amazon,Costco, Wal-Mart) that grew in earlier time periods throughexpansion into new markets, new product lines, and eventhrough acquisitions that complemented their offerings.

Strategic Discipline: Operational Excellence

The Consolidators’ source of competitive advantage is theattainment of operational excellence in all of its activities.As a rule, Consolidators will devote most of their R&D spend-ing toward refining their internal processes to deliver value atsuccessively lower costs. Reducing work-in-process, orderfulfillment time, inventory holding costs, and supply chaincomplexity represent key priorities for Consolidators.Although improving product features remain important waysof attracting and retaining customers, Consolidators willdevote more resources to making their offerings more con-sistent, slicing the number of steps to provide them, andstriving for a low-cost leadership position in the marketplace.Emphasizing special, custom features or the latest break-through product designs are less important for Consolidatorsthan implementing new cost-saving methods or technologies.

No activity is immune from the Consolidator’s search forgreater efficiency. Capturing and exploiting economies ofscale in procurement, staffing, manufacturing, service provi-sion, distribution, logistics, and service are minimumrequirements to achieve cost-efficient platforms. Economies

of scale are vital to lower the fixed unit costs that saddleConsolidators’ large investments in operational infrastruc-ture. In an attempt to reduce its health care costs andvariation in quality for its 1.1 million employees and depen-dents, Wal-Mart Stores has signed an agreement with sixcenters of excellence (hospitals), to provide care for certaincardiac and spine procedures at no additional cost to them.Wal-Mart will also cover the cost of travel, lodging and foodfor the patient and one caregiver. Wal-Mart expects theprogram to reduce health care costs for its full-time employ-ees through bundled payment agreements with these sixhospitals.

Many consolidators utilize a high degree of outsourcing toremove entire layers of personnel and costly activities. Otherconsolidators invest and manage their own large in-houseoperations to capture ever larger scale benefits (e.g., Wal-Mart’s logistical system). Scale ratchets up the commitmentto further improvement to garner rising productivity, costreduction, and process yields. Consider the dominant costleaders in the automotive industry (e.g., Toyota, Hyundai),the steel industry (Posco of Korea, Baoshan of China), paints(DuPont, Valspar, Sherwin-Williams, the ICI unit of Akzo-Nobel, BASF), and Weyerhaeuser in the wood products andpaper industries. All of these firms continue to uncoverunforeseen ways to improve capital and people productivity.Refining the actual production or service provision process isalso a must for Consolidators, as it removes every possiblesource of variation that could negatively impact productquality or smooth operations.

Reinventors

Every business will face a defining moment at some point intime. Doing business as usual will no longer be a source ofcompetitive advantage. Instead, the same business thatdelivered profitability and competitive success time aftertime becomes an albatross that hinders a company’s ability tocompete in the future. When a pre-existing business begins tohinder a firm’s ability to compete, it must reinvent itself tosurvive.

Reinventors are typically large businesses, many of whichare part of multi-product diversified firms, such as UnitedTechnologies, Northrop Grumman or Lockheed-Martin. Otherreinventors were industry leaders forced to adapt to majortechnological change in their respective industries, such asEastman Kodak (photography), Technicolor (color imaging forfilms), or TDK (electronic storage media) of Japan. Theirproducts compete in a mature industry that is at the epi-center of a massive change in the way value is created,produced, and delivered to the customer. Most often, Rein-ventors will face technological breakthroughs that comple-tely redefine how a product/service is created, or how acustomer uses its product/service. As an existing product linebecomes obsolete, the decline in market share will ideallyspur a company’s efforts to reinvent itself. In practice,however, reinvention efforts are enormously difficult andcomplex endeavors. Firms do not willingly ‘‘unlearn’’ theircore competencies. Businesses that do not learn the new corecompetencies and methods to reinvent themselves will soonbecome irrelevant and die, as did Eastman Kodak, Blockbus-ter, and Borders.

78 J. Slocum et al.

Reinventors have lost their sources of competitive advan-tage in a core business line. Opportunities to distinguish theirproducts or services from their competitors have faded overtime as obsolescence sets in. While reinventors may stillpossess brand names (e.g., Kodak) that conjure up theirproducts’ glory days, whatever immediate profits they stillgenerate cannot make up for the consumer drift away fromthese brands. Their very existence is in question becausetheir pre-existing business models no longer create value.Yet, they are burdened with the legacy of how they previouslycompeted. This ‘‘legacy’’ includes how they produced theproduct/service, how they organized their activities, andhow they managed, evaluated, and rewarded their work-forces. Over time, this legacy effect means that businessesfacing the need for reinvention are saddled with a pre-existing way of thinking about how to compete and how tocreate value.

Strategic Discipline: Resource Allocation

Successful reinvention means that businesses must acknowl-edge and gauge the shifting industry landscape’s impact ontheir competitive advantage. Undertaking reinvention is notwithout its risks–—in fact, the entire reinvention process is allabout managing risks on multiple dimensions: sorting throughcustomers’ changing needs; understanding new technolo-gies; learning and cultivating new organizational processes;and instilling new skills, cultures, and mindsets throughoutthe firm. Failure to deliver on any of those fronts spells an endto reinvention.

As Reinventors shift resources (e.g., personnel, cash) fromtheir mature business to promising new opportunities, theymust rethink their ideas on profitability and return on invest-ment (ROI). Transferring resources from one business toanother has always tended to be a complicated and oftena politically charged task in any organization, but it isespecially problematic for Reinventors. The major issue isto allocate resources from existing mature business(s) touncertain new ventures that consume these quickly. We knowthat senior managers are likely to be extremely risk-aversewhen it comes to allocating resources to a new business,product idea, or technology they do not understand. We alsoknow these same managers are probably unaware of whatbenchmarks (e.g., return on equity, or ROE; return on invest-ment, or ROI; market share gains) should be used whenmeasuring the financial progress of their new ventures.Cost-efficiency metrics that drive and reinforce low-costoperations, for example, do not apply, nor do they fit theneed to prospect and experiment. Thus, Reinventors must

Human Resource Ma

Strategy

Human Resources

Human ResourcePractices

•

•

••

Figure 3 Human Resource

clearly specify and execute the transfer pricing mechanismand accountability measures across various units.

ALIGNING PEOPLE AND CULTURE WITHSTRATEGY FOR COMPETITIVE ADVANTAGE

The ultimate aim of any business strategy is to achieve acompetitive advantage–—a profitable and sustainable posi-tion–—for the company. Possible sources of competitiveadvantage include advantages due to products, pricing,technology, finances, physical plant, location and operations.These sources of advantage are mostly tangible and quantifi-able. There is increasing recognition that a company’s peopleand culture, largely intangible resources, are also importantsources of competitive advantage. The collective stock oftalent (employees’ knowledge, competence and abilities)constitutes a company’s human capital. The company’s cul-ture (shared assumptions, beliefs, and values) and the net-work of relationships inside and outside of the company, are afirm’s social capital. There is a growing body of evidence thatwhen both human capital and social capital are aligned withthe firm’s mission and its strategic goals, competitive advan-tage is enhanced. Firm-specific human capital and socialcapital are potentially sustainable sources of competitiveadvantage because they are more valuable, rare, and diffi-cult to imitate and substitute for than physical assets. In asense, human resource management practices are valuablestrategic resources only in so far as they provide for thecreation and maintenance of other resources to execute thefirm’s business strategy.

A company’s human resources (HR) function can providean essential set of strategically relevant activities–—includingrecruitment and selection, performance appraisal, compen-sation, and training and development. We have found that HRpractices of recruitment/selection and training/develop-ment are instrumental in developing human capital. Perfor-mance appraisal and compensation are essential todeveloping and sustaining motivation and also contributeto the development of culture and relationships (i.e., socialcapital) necessary to create and implement strategic goals.By generating, reinforcing, and sustaining employees’ cap-abilities and actions in line with strategic goals, the HRfunction makes an important contribution to the firm’s com-petitive position. As shown in Fig. 3, it is simply not enough tocreate human resource practices that are aligned with strat-egy. The real challenge for executives is to implement HRpractices in such a way that these actions enable a firm’sstrategy to be implemented.

nagement Practice s

Recruit ment & Selectio n

Perfor manc e Appraisal

Co mpensation Trai nin g &

Develop ment

Perfor manc e Outcomes

Management Practices.

Executing business strategies through HRM practices 79

The notion of ‘‘line of sight’’ can be used to illustrate theimportance of aligning people, HRM practices, and culturewith strategy. Line of sight means that every person, team,and organizational unit understands the company’s strategicgoals and has the capabilities, motivation and opportunity topursue those goals through their daily activities. While it isnot entirely clear what specific kinds of HR practices areneeded to implement particular types of business strategies,it is increasingly clear that one size does not fit all. In otherwords, so called ‘‘best practices’’ approaches, in which acompany attempts to emulate the HR practices of otherleading companies, are likely doomed to failure, since theyare not tailored to the firm’s unique strategic priorities. Amore appropriate approach is to implement a unique con-figuration of HR practices that are internally consistent withone another and are also linked directly to the company’smission and strategic goals.

The line of sight concept implies that every companyshould have a different configuration of HR practices forits unique strategy in its efforts to attain a competitiveadvantage. While companies pursuing a particular strategytype–—Pioneers, Trendsetters, Consolidators, or Reinventors–—may use similar human resource management activities tosupport that strategy, HR practices should be tailored spe-cifically to develop human and social capital directly linkedto the firm’s strategic priorities. A very real challenge increating a tight linkage between business strategy and HRpractices is that it may make it more difficult for the firm toadapt quickly to changing external forces and new strategicpriorities. Consequently, the best that companies can hopefor is to design HR practices that equip teams and individualemployees with the necessary abilities, motivations, andopportunities to pursue complex, dynamic, and fragile stra-tegic priorities. This perspective on the relationships amongstrategy, human resource management and performance, asshown in Fig. 3, is representative of organizational realities.This unique configuration of HRM practices is a potentiallysustainable source of competitive advantage preciselybecause it is rare, complex, and causally ambiguous.

CASE EXAMPLES

For each of the strategy archetypes in Fig. 2, we now providea case example that illustrates how the company has crafteda unique blend of HR practices to align human and socialcapital with the firm’s strategic priorities. In each of thefollowing examples, we highlight the company’s HR practicesof recruitment and selection, performance appraisal, com-pensation and training and development.

Pioneer–—Netflix

Frustrated by his experience with the existing option ofrenting videos from a bricks and mortar store, serial entre-preneur Reed Hastings founded Netflix in 1997 as an alter-native way to rent movies. Netflix, originally conceived as anon-line subscription-based DVD rental service, quicklybecame the top video rental company through its proprietarysearch engine, recommendation algorithms, and its efficientdistribution through the U.S. Postal Service. The company hascontinued to break new ground ever since. As technology

changed and video-on- demand became more viable, thecompany adapted and re-emerged as one of the leadingproviders of video streaming services. Now, Netflix is pio-neering the shift to offering television and other contentprogramming via the Internet and has developed sophisti-cated technology to make this transition happen.

CEO Hastings believes that Netflix’s culture is the key tolong-term success, and he sees his primary role as creating aculture that sustains Netflix as a continuous learning orga-nization. The company emphasizes seven dimensions of cul-ture: company values (defined below), high performance,freedom and responsibility, context-not control, highlyaligned-loosely coupled, pay top of the market, and promo-tions/development. Everything that the company does,including human resource management practices, is designedto promote and reinforce these facets of the company’sculture. Ultimately, Hastings adheres to the philosophy thatsustained performance and innovation in a growing companyare only possible when the density of talent outpaces thedemands of increasing organizational complexity. In otherwords, by attracting star performers and creating an envir-onment where people have the freedom, motivation, andself-discipline to make a positive impact, the company canreduce the number of formal structures and processes thatlimit creativity and flexibility. This philosophy has beenvalidated several times as Netflix has adapted its strategyquickly to changing technology and market demands.

Netflix uses a unique and coherent set of HR practices toshape its culture. Getting the right people on board andsustaining high performance across the company are essen-tial. So, in addition to job-specific competencies, the com-pany’s recruitment and selection processes are based on ninebehaviorally defined values linked to the aforementionedseven culture dimensions: judgment, communication,impact, curiosity, innovation, courage, passion, honesty,and selflessness. The recruitment philosophy is to attracthigh value people by creating an organization where employ-ees have the desire, ability and freedom to make a positiveimpact. A big attraction of working at Netflix is that you getto work with other like-minded ‘‘stunning colleagues.’’ Tothis end, Netflix hires people with experience–—its employeestend to be older than those at most other Silicon Valley techfirms. The company wants entry level employees who havealready demonstrated they are high performers who canmake an impact.

To evaluate and reinforce the nine values and job-relatedskills, Netflix uses a 360-degree performance review process.The purpose of the review process is to maintain ‘‘A-level’’performance by everyone. Employees are not ranked basedon performance as in many other companies such as GeneralElectric, Cisco, and Intel. Instead, the intention is that everyemployee is in the top 10 percent relative to their peers atother companies. The underlying logic is that, for the crea-tive work necessary to foster Netflix’ continued long-termsuccess, cooperation among employees is preferable to com-petition. Employees are encouraged to help each other. Inaddition, the company believes that, in creative work, ‘‘A’’performers are far more productive than ‘‘B’’ performers.Consequently, when evaluating an employee’s performance,managers are asked to apply the ‘‘keeper test’’–—‘‘If thisemployee said she/he was leaving for a similar position at acompetitor company, would you fight hard to keep her/him’’?

80 J. Slocum et al.

If the answer is no, then the manager is encouraged to offer aseverance package now, so that the position can be filled witha star performer.

Compensation at Netflix is based almost exclusively onpaying a top market salary at initial hiring and then con-tinuously re-calibrated following each annual review. Speci-fically, every salaried employees pay is set at 10—20 percentmore than the level determined by regular external marketsurveys. Compensation is not tied to company performance;top of the market pay is given regardless of how the companyis doing. The philosophy behind this is that the companywants to attract and sustain ‘‘keepers’’ (‘‘A’’ performers),even when the company is going through a bad stretch.Beyond base salary, there are no bonuses or stock options.Employees can choose to have a certain portion of theircompensation in the form of company stock or options.Netflix does have a defined contribution 401K plan andmatches employee contributions.

Benefits at Netflix are also uniquely designed to maximizeperformance and efficiency. For example, instead of offeringan extensive health care plan, employees receive $10,000 ayear for benefits; they can choose a Netflix plan or, if theyfind a less expensive one, can keep the difference. If they donot need a benefits plan, they can keep all the $10,000. Inaddition, rather than set up a formal vacation policy, thecompany encourages employees to take vacations on theirown. There is no tracking of time off. The assumption is thatthe amount of time spent at work does not matter as long as itis quality work that has an impact. Finally, with regard totravel and other business-related expenses, the policy (orlack thereof) is remarkably simple–—‘‘act in Netflix’s bestinterest.’’ All of these compensation and benefit policies aredesigned to create a culture where employees have thefreedom and responsibility to make an impact.

Netflix does not provide a lot of formal training anddevelopment. First of all, it hires people who are moreexperienced and have demonstrated their desire and abilityto perform. The company’s approach is to create an envir-onment where employees have the opportunity to developthemselves, by giving them challenging projects and sur-rounding them with outstanding colleagues. The assumptionis that high-performing people are generally self-improvingand are capable of developing their own career paths. Theend result of Netflix’s approach to human resource manage-ment is to hire the people who can thrive in a culture offreedom and responsibility. Not everyone is cut out for thiskind of environment, and Netflix is happy to provide a healthyseverance package for those who do not thrive. But it is thisculture that allows the company to sustain itself as a dynamicpioneer in a changing world.

Trendsetter–—Whole Foods

Founded by John Mackey in 1978 as Safer Way, it was a smallstore in Austin, Texas. By attracting hoards of customers, itexpanded and changed its name to Whole Foods in 1980. It isnow the leading retailer of natural and organic foods, withmore than 311 locations in the U.S., U.K. and Canada andrevenues in excess of $11 billion. Through its distinctiveapproach to strategic HR management and merchandizing,the meteoric growth of Whole Foods reveals how a dedicatedcustomer focus can propel a small company into the big

leagues of grocery retailing. Whole Foods has a focusedmission and is highly selective about what it sells, its custo-mers, its stakeholders and its HR policies. Both its mission andHR practices are overt manifestations of its conscious capit-alism philosophy.

Whole Foods’ culture is based on the emerging notion ofconscious capitalism, which is a way of thinking about busi-ness, its impact on the world, and its relationships withvarious stakeholders. According to Mackey, conscious capit-alism has four principles: higher purpose and core values,conscious leadership, conscious culture, and stakeholderintegration. Let us examine how each of these pillars ofconscious capitalism shapes Whole Foods’ underlyingapproach to its business strategy.

Higher Purpose and Core ValuesMackey has long believed that Americans would increasinglycare for not only what they eat and how they eat, but alsotheir impact on the larger environment of the planet. WholeFoods’ purpose is helping people eat well, improving thequality of their lives, and increasing their lifespan. Itachieves this purpose through selling organic foods andpromoting environmental benefits to organic farmers, ran-chers, and others who practice sustainable agricultural prac-tices. It is committed to using re-usable packaging, savingwater and electricity to be a good environmental steward. Fivepercent of the company’s profitability is given to a variety ofcommunity and nonprofit organizations. Although Whole Foodshas developed a unique approach to merchandizing thatenables it to sell its private-label products at a price premium,the company believes that its products’ natural freshness andgreen approach to agriculture are powerful selling points tocustomers in their own right.

Conscious LeadershipConscious leaders find great joy and beauty in their work andin their opportunity to serve, lead, and help shape a betterfuture. They are intrinsically motivated to pursue a higher-order vision and mission that often supersedes the quest forfinancial or material success. They are keenly self-aware andrecognize their own emotions and personal convictions. As aresult, conscious leaders imbue their values in their decisionsat all levels–—strategic and tactical; they seem to command ahigher ‘‘moral ground’’ in everything they do.

Conscious CultureConscious cultures have seven characteristics: trust,accountability, caring, transparency, integrity, loyalty andegalitarianism. These seven facets define the day-to-daycontext of what it means to work at Whole Foods. Staffingat each individual Whole Foods location reflects a carefulscreening and selection process that evaluates how wellprospective employees embody these seven attributes. Con-scious cultures have a tangible, almost physical aura thatcustomers can feel when they walk into a store.

Stakeholder IntegrationWhole Foods takes an expansive view of the concept of‘‘stakeholder.’’ Stakeholders are not only shareholders(who have been generously rewarded with a rising stockprice over the past decade), but also suppliers, customers,and especially employees. It wants all stakeholders to be part

Executing business strategies through HRM practices 81

of the Whole Foods community. Whole Foods realizes thateach employee at a local store represents the face of thecompany; his/her attitude and approach to customer servicewill strongly influence how often customers will make repeatpurchases. Lastly, stakeholder integration means thatemployees look for ways for all stakeholders to win. Employ-ees are offered up to a 30 percent discount to shop at WholeFoods and are encouraged, along with local suppliers, to buystock in the company.

The HR system that Whole Foods has designed is central toimplementing the tenets of conscious capitalism. Startingwith the recruitment and selection of employees, WholeFoods has designed its HR policies to reflect these values.All of its 72,000 employees are hired into a particular team.Each store has ten teams and is led by a team leader. Newhires are placed in a team on a probationary basis for thirty toninety days, at which point a two-thirds vote by the entireteam is required before the new hire is granted team memberstatus. People who do not fit the Whole Foods ConsciousCapitalism Culture are not selected in a team and are askedto leave the company, even those employees who performtheir day-to-day tasks extremely well. People who are cyni-cal, self-centered, display poor work habits, bad attitudes,and lack a passion about food and serving customers areterminated. Teams look for members who are talented,capable and are committed to Whole Food’s purpose andtheir work. Whole Foods looks for people who are ‘‘inclusive’’and value diversity. Since teams empower people and givethem autonomy to make decisions, the ability to function as aproductive team member is critical. This esprit de corpsenhances a fast response to customer service at each WholeFoods location. Team members are accountable to each otherand to customers. Teams often give themselves names, suchas the Green Produce Monsters or Rocking Richardson Gro-cery, to enhance members’ sense of belonging. Whole Foodsbelieves that this attracts people with a high degree ofemotional and spiritual intelligence and keeps turnover atless than ten percent a year.

It is no coincidence that the performance appraisal pro-cesses emphasizes teamwork. Since team sharing and colla-boration is fundamental to conscious capitalism, teamsperform their own performance appraisals. Members areevaluated by all other team members based on their trust,cohesion, and performance. There cannot be any free-riders.For example, when the Columbus Circle store opened in NewYork City, employees from various stores came to help thisstore’s employees understand the culture of Whole Foods andhelp them learn their new jobs. Each team has profit respon-sibilities and is measured with customer satisfaction indices.Teams are encouraged to share their successes with others intheir geographical region. It is a matter of great pride to berecognized by one’s peers as the best team in the region. Again-sharing program is used to unite the goals of the com-pany and employee. Employees share in the economic gainsof their team through saving labor costs, waste, energy, andthe like. Bonuses are paid in portion to the number of hourswhich an individual worked. This reinforces solidarity withinthe team by aligning the interests together.

The compensation program at Whole Foods is radical; itreflects the company’s philosophy of egalitarianism. Every-one who works at the company knows what everyone else ispaid. This transparency is an essential part of the culture and

ensures that team members can give feedback on what theyfind unfair. When the company was forced to downsize in2008 because of economic conditions, team members votedon how they would undertake this. Some teams voted to haveall members reduce their hours, others to temporarily imposea hiring freeze, or others chose to relocate some members toanother location. This commitment to mutual sharing of gainsand setbacks reinforces the esprit de corps. Some membersvoluntarily took severance packages that were offered to allteam members. Whole Foods has set a cap (a ratio of what theCEO makes relative to a team member) on the total com-pensation that senior managers can make. In many publiclytraded companies, this cap can be over four hundred to fivehundred times. At Whole Foods, the cap is nineteen-to-one.The rationale is that Whole Foods wants leaders who caremore about the purpose and people of the company than theydo about their own personal enrichment.

One way to reinforce its culture is through gain-sharing.Under its gain-sharing plan, each team receives a laborbudget expressed as a percentage of its team’s sales. Whenteams come in under budget due either to higher sales orlower labor costs, a portion of the surplus is divided amongthe team members and paid out every four weeks. Whenteams are over budget, no gain-sharing is paid out. Instead,the overage is taken out of the team’s savings pool to be paidback using future surpluses. The savings pool is paid outannually to all teams with a positive balance.

At Whole Foods, team members vote every three years onthe benefits they want. The senior leaders decide whatpercentage of total revenue will go toward benefits forthe company and assign a cost for every potential benefit.Team members prioritize and vote on the benefits they mostprefer. This process results in benefits that reflect the needsand desires of the majority of team members in the company.For 2013—2015, more than 82 percent of all eligible teammembers voted to provide health care coverage at no cost tofull-time team members who work at least 30 h a week andhave worked a minimum of 10 years. Team members with lesstenure and/or hours worked will pay a minimum of $10 perpaycheck. In addition, the company provides personal well-ness dollars in terms of either a health reimbursementarrangement or health savings account.

Training and development opportunities also reflect thetenets of conscious capitalism. Team members’ cross-traineach other to accomplish all jobs within their areas of respon-sibility. When the company has promoted someone beyondtheir competency level, it removes them from the job they arecurrently performing. It then provides them with a bridge or athree-to-six month period at full pay during which they try tofind another job within the organization. In this way, failure isnot seen as permanent, but as a valuable learning experience.Since leaders represent a massive investment in personaltraining, Whole Foods wants to ensure that its people can findthe best fit for their skills, no matter where that might bewithin the larger organization. The ‘‘recycled’’ leader isencouraged to continue learning and growing and to seekother leadership opportunities in the company.

Consolidator–—Costco Wholesale

An early entrant in the warehouse retail segment, CostcoWholesale was founded in 1983 by Jim Sinegal and Jeff

82 J. Slocum et al.

Brotman and quickly became one of the country’s top retailfirms. Today, Costco is the leading warehouse retailer and thesecond largest retail firm overall with annual sales of $97billion and 174,000 employees worldwide. From the begin-ning, Costco’s founders developed and implemented a uniqueblend of strategic, operational, and human resource prac-tices that have produced consistent superior financial resultscompared with other retail firms (e.g., K-Mart, Sears, Tar-get). The company’s strategy is focused on achieving costleadership advantages that stem primarily from its stream-lined product line, efficiencies in its supply chain and opera-tions, and its highly productive work force. For example,Costco’s limited product line (4000 SKUs versus Wal-Mart’s100,000 SKUs) allows the company to be focused on acquiringand selling a mix of products that generate high sales volumeand inventory turnover. Costco drives volume with its lowprice, high quality merchandize mix by following the ‘‘14Percent Rule’’–—‘‘no Costco product will be marked up morethan 14 percent above wholesale (15 percent in for storebrand Kirkland products), regardless of how well it is sellingor what the competitors are doing.’’ In addition, the ware-house model means that operations are less complex, and thecompany can reduce or eliminate certain costs associatedwith inventorying, transporting, handling, and displayingproducts.

While other warehouse retailers, such as Wal-Mart’s Sam’sClub and BJ’s Wholesale, have imitated these practices,Costco remains unique in the industry with its seeminglycounterintuitive approach to human resource management.Common wisdom would lead one to believe that a companypositioned as a cost leader, particularly in a low-margin massretail business, would be very concerned about minimizinglabor costs. Yet, despite criticism from some financial ana-lysts, Costco has done just the opposite. The company’sphilosophy and culture are focused on treating people wellby offering higher pay and benefits and better working con-ditions than other retail firms. In fact, labor costs at Costcoare approximately 70 percent of the total cost of operations,well above the industry average of 53 percent. Yet, theperformance results speak for themselves. When comparedwith other retail firms, Costco has above industry averagesales and profits per employee, higher employee productiv-ity, higher rankings of customer satisfaction, and loweremployee turnover. Current CEO Craig Jelinek, sums upthe company philosophy: ‘‘Instead of minimizing wages,we know that it’s a lot more profitable in the long term tominimize employee turnover and maximize employee pro-ductivity, commitment and loyalty.’’

Because of its unique approach to human resource man-agement, Costco has developed a reputation as an ‘‘employerof choice’’ and has maintained a positive public image.Recruitment and selection are enhanced due to the highnumber of applicants for entry level positions, allowing thecompany to be highly selective in hiring. Selection criteriaemphasize the potential for good customer service, creativ-ity, teamwork, attention to detail, and ability to multi-task.For hourly and store positions, store managers review appli-cations and do the hiring. For professional and managementpositions, senior managers and HR officers review applica-tions and make the hiring decisions. In general, the HRphilosophy at Costco is to support line managers by providingthem the tools they need to solve problems on their own

rather than for the HR professionals to take the lead inaddressing employment issues. When hired, all employeesare given an Employee Agreement Manual that spells out thecompany’s values, Code of Conduct, pay and benefits poli-cies, sick leave and other employee policies and procedures.

Performance appraisal at Costco is based on annual formalreviews, as well as informal feedback sessions, that empha-size customer service, efficiency, innovation, and teamworkfor hourly workers. Executives’ and managers’ reviews arefocused on sales growth, operational efficiency, customersatisfaction, and innovation. Store and department managersare encouraged to be entrepreneurial and make decisionslocally to foster performance in these areas.

Compensation practices at Costco are what separate thecompany from its competitors. The starting hourly wage in2013 was $11.50 (the U.S. minimum wage is $7.25). Costcopays its hourly workers an average of $20.89, well above theindustry average. In addition, employees at the top of theirhourly wage range are eligible for semi-annual bonuses of$2000—3000; both full- and part-time employees are eligibleto receive bonuses of up to $5000 after five years. Costcoemployees also receive a generous benefit package, includinghealth insurance (covering 88 percent of all employees),401K after three months employment (91 percent of employ-ees are on the plan), and many other benefits includingdental care, vision care, dependent-care assistance, anddisability insurance. With respect to executive compensa-tion, Costco has historically set CEO pay at a level well belowthat of other retail company peers. There are four compo-nents of executive pay: annual salary–—based loosely onexternal surveys but set below that of most peer companies;annual cash bonus (not to exceed $200,000); restricted stockgrants based on metrics such as total sales growth and growthin pre-tax margins; and other benefits/perquisites includingdeferred compensation, defined contribution pension plan,life insurance, health insurance, and vehicle allowance.

Training and development activities at Costco arestraightforward; most development is done through on-the-job training. Basic job training is provided to entry levelemployees. Over time, employees are cross-trained for mul-tiple jobs. This allows the company to adjust what employeesdo based on fluctuations in demand for certain tasks. Thispractice helps minimize costs due to continual layoffs and re-hiring as retail cycles naturally occur. In addition, manage-ment training is provided in each warehouse to prepare thosein line for manager positions. Costco believes strongly in thepractice of promoting from within; remarkably, 70 percent ofall the warehouse managers started out as entry-levelemployees. This practice fosters employee loyalty and com-mitment and contributes to a family atmosphere. As a testa-ment to the effectiveness of Costco’s HR practices, only 15percent of its work force is unionized, and the company hashad no significant labor issues throughout its history. Thisstatement cannot be made for most other firms in the retailindustry.

Reinventor–—3M

Founded in 1902 as Minnesota Mining and ManufacturingCompany, 3M has evolved to become one of the most inno-vative companies in the world. Reinvention has been partof the company’s fabric since its early days. In fact, the

Executing business strategies through HRM practices 83

company was created on a mistaken assumption. The foun-ders purchased some land that they thought contained cor-undum, a mineral considered to be a natural abrasive. Theyplanned on mining corundum to sell to the emerging grindingwheel industry. It turned out that the mineral they thoughtwas corundum was another mineral, one not suitable as anabrasive. With the company near failure, the original foun-ders sold the majority share to Edgar Ober and anotherpartner, Lucius Ordway. Ober, Ordway, and later, CEO WilliamMcKnight, are credited with repositioning 3M and launching iton a trajectory of continuous innovation and growth that haspersisted throughout much of its history. Today, 3M is a $30billion global technology company operating in five businesssegments with 35 business units and, remarkably, over 55,000products that extend far beyond its foundation in abrasives.

A strong and consistent culture of innovation and anorganization built for adaptability are central to 3M’s suc-cess. One of the company’s primary goals is to achieve 30percent of its annual revenues from products less than fouryears old. The company invests an above industry average 6percent of revenues on R&D. As a result, much of 3M’s growthis organic, leading to new products and even new industries.The organization’s structure, including small, autonomousdivisions and new product and technology forums,encourages sharing of ideas and technology within and acrossdivisions. In addition, the ‘‘Fifteen Percent of Time’’ policyallows all employees the freedom to explore and purseprojects outside of their core responsibilities. This and othercompany policies foster experimentation, informality,friendship, and voluntary activity. As a result, communica-tion and interaction among employees are high and employeeturnover is low. The wide diversification of 3M’s product linehas evolved largely through the creation of an organizationthat continually reinvents itself through continuous experi-mentation, innovation and adaptation.

As stated on its web site, 3M’s Human Resource Principlesreflect the fundamental importance of people to the com-pany’s success:

We respect the dignity and worth of all individuals, weencourage the initiative of each employee, challengeindividual capabilities and provide equal opportunity fordevelopment.

HR leaders are viewed as strategic business partners andare represented on the 3M Leadership Council. HR plansemphasize the identification and development of talentand the alignment of human resources with the needs ofthe business. The company places a strong emphasis onemployee engagement, defined as the alignment of theemployees’ interests and motivation toward the persistentaccomplishment of company goals. Recruitment and selec-tion processes are designed to identify candidates who havethe motivation and skills to be innovators or, as the companycalls them, ‘‘inventorpreneurs.’’ The 3M selection profileincludes the following criteria: capacity for divergent think-ing, breadth of interests beyond their disciplines, eagernessto experiment and tackle the unusual, passion for pastaccomplishments, tenacity and resourcefulness. In addition,since friendship and informal relationships are integral to theculture, peers are very involved in the selection process inan effort to ensure a good fit. Diversity at 3M is highly valuedand is viewed as an important source of more ideas and

innovation. The company is committed to sustaining a work-force that reflects the diversity of its communities, custo-mers, and suppliers.

To reinforce the emphasis on generating and sharing ideas,3M uses an annual 360-degree performance review processbased on job competencies, including personal leadershipskills (e.g., initiative, emotional self-understanding, coop-eration, customer service orientation, flexibility, and inter-personal understanding). Peer feedback and peer recognitionare critical components of the review process. In addition,risk taking and persistence are encouraged at 3M. Ratherthan discipline or dismiss employees who make mistakes, theemphasis is on helping employees learn from their mistakes.If an employee fails on a project, she or he is moved toanother one. While there is no guarantee of lifetime employ-ment, the company does not punish employees who fail onindividual initiatives made in good faith.

Compensation practices at 3M are also designed to pro-mote innovation. Base pay is competitive, and variable pay istied to company metrics for eligible employees. Stockoptions are available to managers. HR practices ensure thatindividual entrepreneurs are recognized and appreciated.For example, the coveted Carlton Award is given annuallyto those who make exceptional original scientific or technicalcontributions to the company. Other awards, like the GoldenStep Award and Innovator Award, also acknowledge thecreation and sharing of technical accomplishments. 3M alsorecognizes individual achievement by non-technical staffemployees who make significant innovative contributionstoward company goals.

Training and development activities at 3M are focused onaligning employee and company interests and on the devel-opment of talent at all levels. All employees go through aninitial orientation to and ongoing communication about thecompany’s vision, strategic goals, and performance results.Diversity awareness training is also an integral part of theorientation program. In addition, 3M is one of the firstcompanies to use a dual career ladder; one for scientistsand one for managers. This practice allows the employees topursue their individual passions and skills to the fullest. Thecompany also encourages job rotation, including overseasassignments, to develop broader skills, networking and rela-tionships across organizational boundaries. 3M has an exten-sive leadership development program tailored after the oneat GE, but focused more on developing world class leadersequipped to develop and support innovation and innovators.The company also provides mentoring programs for employ-ees and managers as well as a variety of Affinity Groups tofoster engagement and collaboration throughout the orga-nization. This unique and integrated combination of HRpractices sustains an organization and culture that allowfor continuous reinvention.

CORE HRM PRACTICES UNDERPINNINGSTRATEGY EXECUTION: SUMMARY

There is little debate that successful strategy executiondepends heavily on attaining co-alignment with the HRMpractices that each firm cultivates according to its ownunique set of values, priorities, mission, and long-term plan-ning. Designing and implementing the entire set of HRM

84 J. Slocum et al.

practices forms the basis for a larger ‘‘people process’’ thatshould reinforce the firm’s core strategic discipline. This‘‘people process’’ represents an essential investment inthe firm’s future as vital as developing new products andprocesses, or discovering new markets and customers toserve.

Fig. 4 highlights our general conclusions regarding the HRrequirements to support each strategy. For Pioneers, break-through innovations are essential to create new technologiesand markets. R&D is an essential strategic discipline. Thisstrategic discipline is best supported by recruiting and select-ing employees who are entrepreneurial and who possessmental adroitness. Compensation through stock optionsand bonuses is designed to reinforce and reward high per-formance. Risk taking, breakthrough ideas and fast executionare valued as key performance appraisal metrics Employees,imbued with these company values, have the freedom topursue initiatives that lead to first-mover advantages. Indi-viduals and teams continue to develop skills and experienceby engaging in increasingly more challenging projects. Net-flix’s people, and its culture of freedom and responsibility,provide the ingredients necessary for proactive maneuveringin an environment landscape marked by changing technolo-gies and consumer expectations.

Trendsetters, like Whole Foods, Sewell Automotive andAndrews Distributing Company, focus on customer intimacyas their strategic discipline. Consequently, they recruit and

Matching Business Strategy

Consolidators

Recruitment Standar dized objectiv and Selecti on: crite ria

Performanc e Make your nu mbers appraisal:

Compensation: Cost efficiency and productivity

Training and Skill upgrades develop ment:

Trendsetters

Recruitment Enthusias m and buy-iand selection:

Performanc e Custo mer loyalty andappraisal: tea m-based fit

Compensation: Market share growth &customer satisfactio n

Training and Values-driven

Kno

wn

Cha

ngin

g

Cus

tom

er E

xpec

tatio

ns

cus tomer develop ment: focus

elbatSemnorivnE

Figure 4 Matching Business Strateg

select people who are passionate about the company’s visionand who have the competencies needed to perform out-standing customer service. Creativity in engaging customersand responding to their needs is an essential capability.Managers and employees are evaluated based on metricssuch as customer satisfaction and loyalty. Training and devel-opment activities are designed to socialize employees under-standing the ‘‘soul’’ of the organization. Employees arecontinuously seeking avenues to enhance their customers’experiences with the firm.

Consolidators exist in a mature environment with knowncustomer expectations; operational excellence is the keystrategic discipline. Costco has become an industry cost-leader by implementing a unique blend of operational, supplychain, and human resource management practices. Selectioncriteria emphasize the basics of customer service, teamwork, creativity, attention to detail, and ability to multi-task. These criteria also form the basis for performanceappraisal for hourly workers. Compensation for managersfocuses on measures of sales growth, efficiency, customersatisfaction and innovation (particularly with respect toimprovements in operational efficiency). Compensation isthe area in which Costco operates differently from mostother competitors. Entry level and average wages are muchhigher and benefits are more generous than those of othercompetitors. Yet, these practices generate much higheremployee productivity and much lower turnover than other

with Human Resource Practices

e

Reinventors

Recruitment Change agent, and sel ecti on: cre ativit y

Performanc e Consistency of resource

appraisal: allo cations

Compensation: Resource sharing and innovation

Training and Boundaryless thinking development:

n

Pioneers

Recruitment Ment al adr oitnes s and selection:

Performanc e Breakthrough idea appraisal: generation &

execution

Compensation: Stock options

Training and Co mpetency deepening

development:

gnignahC epacsdnaL latn

y with Human Resource Practices.

Executing business strategies through HRM practices 85

retail firms. Initial investments in employees are reinforcedthrough continual on-the-job training, cross-training, and apolicy of promotion from within. These HR policies foster astrong sense of loyalty among employees and customers.

Reinventors focus on the core discipline of resource allo-cation. 3M has been particularly proactive in creating, shar-ing and leveraging its resources to build a large portfolio ofbusinesses and products spanning several industries. Thecompany has demonstrated a capacity for continuousrenewal by creating a culture of innovation and an organiza-tion designed for adaptability. Recruiting and selecting crea-tive people who are capable of being change agents is acritical ingredient for reinventors. Performance appraisaland compensation reinforces innovation and collaboration;employees and teams are recognized for sharing knowledgeand resources across organizational boundaries. Risk takingand persistence in pursuing new ideas are encouraged. Jobrotation, lateral (cross-divisional) assignments, and overseasassignments are viewed as a means for building networks andrelationships across the organization. This network of rela-tionships builds the capacity for continuous resource sharingand renewal.

In summary, the relationships among environmental con-text, strategy, and HR practices shown in Fig. 4 provide ageneral conceptual framework. Each of the four strategytypes assumes a core strategic discipline that is requiredfor successful execution. By designing HR practices to gen-erate, reinforce, and sustain employees’ actions in line withthese strategic priorities, company leaders can more effec-tively implement their strategy. It is important to acknowl-edge, however, that, even within a particular strategy type,there is likely no ‘‘best practice’’ HR solution. Given thedynamic nature of the external environment, and theongoing jostling for an advantageous competitive position,the appropriate strategy-HR alignment is likely unique foreach company. In the end, effectively managing the ongoingfit and flexibility among these relationships may be the key toa sustainable competitive advantage.

86 J. Slocum et al.

SELECTED BIBLIOGRAPHY

For additional reading on strategy and competition, see D.Lei and J. Slocum, Demystifying Your Business Strategy (NewYork: Routledge, 2013); D. Lei and J. Slocum, ‘‘The TippingPoint of Business Strategy: The Rise and Decline of Competi-tiveness,’’ Organizational Dynamics, 2009, 38, 131—147; andC. Christensen, D. Wang and D. von Bever, ‘‘Disruption: LookOut, Consultants. You’re Next,’’ Harvard Business Review,2013 (October), 106—115.

For more information on strategy and human resourcemanagement, see P. Buller and G. McEvoy, ‘‘Strategy, HumanResource Management and Performance: Sharpening Line ofSight,’’ Human Resource Management Review, 2012, 22, 43—56; W. Joyce and J. Slocum, ‘‘Top Management Talent, Stra-tegic Capabilities, and Firm Performance,’’ OrganizationalDynamics, 2012, 41, 183—193; I. Tarique and R. Schuler,‘‘Global Talent Management: Literature Reviews, IntegrativeFramework and Suggestions for Further Research,’’ Journal ofWorld Business, 2010, 45, 122—133; B. Becker, M. Huselid andR. Beatty, The Differentiated Workforce: Transforming Talentinto Strategic Intent (Boston: Harvard Business Press, 2009); Y.Ton, ‘‘Some Companies Are Investing in Their Workers andReaping Healthy Benefits,’’ Harvard Business Review, 2012(January-February), 125—131; W.R. Bozwell, ‘‘AligningEmployees with the Organization’s Strategic Objectives: Outof ‘Line of Sight,’ Out of Mind,’’ International Journal ofHuman Resource Management, 2006, 17(9), 1489—1511; J.Barney, ‘‘Looking Inside for Competitive Advantage,’’ Acad-emy of Management Executive, 1995, 9(4), 49—61. An excel-lent book that examines the notion of the ‘‘people process’’ isL. Bossidy and R. Charan, Execution (New York: Crown Busi-ness, a Division of Random House, 2002).

For information on the major cases in the text, see: J.Mackey and R. Sisodia, Conscious Capitalism (New York: John

Wiley & Sons, 2013); www.wholefoods.com (accessed Octo-ber 8, 2013. Look at the hiring practices icon); E. Gundling,The 3M Way to Innovation: Balancing People and Profit(Tokyo: Kodansha International Ltd., 2000); 3M Companywebsite, http://solutions.3mcom/wps/portal/3M/en_US/(accessed on June 3, 2013); K. Paul and B Schneider, 3MHuman Resource Measurement; ‘‘Engagement: A Multi-YearAffair,’’ presentation to the Society of Human ResourceManagement, http://view.officeapps.live.com/op/view.-aspx?src=http%3A%2F%2Fwww.shrm.org%2FPublications%2Fhrmagazine%2FEditorialContent%2F2011%2F0111%2FDocuments%2F3MHREngagement%252011.24.10%2520for%2520release%2520final.ppt; C. Bartlett and A. Mohammed,3M: Profile of an Innovating Company (Boston: HarvardBusiness School, 1995); B. Stone, ‘‘Costco CEO Craig JelinkekLeads the Cheapest, Happiest Company in the World,’’ Busi-ness Week, 26 June 2013; Costco Wholesale annual report,http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-irhome&cm_re=1_en-_-Bottom_Nav-_-Bottom_investor&lang=en-US (accessed on August 10, 2013); Costco Whole-sale company website, http://www.costco.com/jobs.html(accessed on August 8, 2013); W. Casio, ‘‘Decency MeansMore Than ‘Always Low Prices:’ A Comparison of Costco toWal-Mart’s Sam’s Club,’’ Academy of Management Perspec-tives, August 26—37, 2006; Netflix Culture Document, ‘‘Free-dom and Responsibility,’’ http://www.slideshare.net/reed2001/culture-1798664; Netflix company website,https://signup.netflix.com/MediaCenter (accessed on May28, 2013); W. Shih, S. Kaufman and D. Spinola, Netflix(Boston: Harvard Business School, 2007), and P. McCord,‘‘How Netflix Reinvented HR,’’ Harvard Business Review,2014 (January—February) 71—76.

John Slocum is a distinguished visiting scholar in the Gaming Department at SMU’s Guild Hall and ProfessorEmeritus at SMU. He has consulted for organizations such as Andrews Distributing Company, AAA, LockheedMartin, NASA, Aramark, Governor of Texas, among others. He is author of more than 135 articles and 28 books,including his latest with David Lei, Demystifying Your Business Strategy (Routledge, 2013). He is co-editor ofOrganizational Dynamics, Journal of World Business and Journal of Leadership and Organizational Studies. Heserves on the board of directors at Kisco Senior Retirement Communities of Carlsbad CA. He has been studying,speaking about and writing on management topics for more than 45 years (Guild Hall, Game DevelopmentDepartment, Southern Methodist University, Dallas, TX 75275, United States. Tel.: +1 214 460 2116; e-mail:jslocum@cox.smu.edu).

David Lei is an associate professor of strategy and entrepreneurship at the Cox School of Business, SouthernMethodist University. He has consulted for organizations such as Corning, EDS, The Saber Group, IBM and FidelityInvestments on issues related to strategic planning and strategic renewal. He is co-author with John Slocum ontheir book, Demystifying Your Business Strategy, and serves on the editorial review boards of Journal of WorldBusiness and Organizational Dynamics (Edwin L. Cox School of Business, Southern Methodist University, Dallas, TX75275, United States. Tel.: +1 214 768 3005; e-mail: dlei@cox.smu.edu).

Executing business strategies through HRM practices 87

Paul Buller holds the Kinsey M. Robinson Chair in the School of Business Administration at Gonzaga University. He isthe founding director of the Hogan Entrepreneurial Leadership Program at Gonzaga and consults in the areas ofstrategy, human resource management, and organizational change. He is the past president of the WesternAcademy of Management and has served on the editorial review boards of Journal of World Business, HumanResource Management and Journal of Jesuit Business Education (School of Business Administration, GonzagaUniversity, Spokane, WA 99258, United States. Tel.: +1 509 313 3438; e-mail: buller@jepson.gonzaga.edu).