Executing business strategies through human

resource management practices

,
John Slocum, David Lei, Paul Buller
Businesses of all sizes face an ever more brutal hypercom-
petitive landscape. Sources of competitive advantage devel-
oped in one period are often too eeting, leaving business
leaders scratching their heads about how best to think about
strategy 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 todays business
school case studies about misdirection, complacency, tech-
nological obsolescence, or the rise of unforeseen competitors
that have fundamentally changed the economics and meth-
ods of creating value. Regardless of relentless changes in
technology, customer needs, value-creating activities, dis-
tribution systems, and management systems, the only con-
stant are employees. Each business begins and evolves with a
strategy that is based on its customers (who it will serve), its
processes (how it will create value to serve them), its leaders
(their priorities, focus, dedication to the business), and its
people (who it hires, develops, retains). At its heart, strategy
is 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 are
many functions and avenues related to managing the busi-
nessfor example, how will we enter a market, which
customers will we serve, how will we create the product/
service, which technologies will we invest in, how do we grow
over time. How a business decides to answer one question has
a direct impact on the others.
By its very nature, strategy is also about tradeoffswhat
an organization will choose to do and not to do. For example,
by choosing to serve the mass market, the business will
probably limit its appeal to upper and lower incomes. Con-
versely, by choosing to be the technology leader, the business
will have to invest proportionately more in product research
than a rm that chooses to be a late adopter. Failure to
recognize tradeoffs results in a mission fog by which the
business does not distinguish itself in any way from its
competitors and eventually dies.
Selecting a given strategy in turn provides the basis for
determining how critical organizational functions buttress
the strategy. These organizational functions can include the
type of reporting structure used, performance and evalua-
tion systems that measure outcomes, stafng decisions, and
the choice of career paths best suited for managers and
employees. 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 an
integrated, unied strategy across the entire organization,
stafng is perhaps the most salient investment a business can
make, since people bring all other functions (e.g. manufac-
turing, marketing, operations, etc.) into play to support the
rms mission and direction. Selecting, developing and
retaining human capital represent key steps in building the
foundation for the requisite strategic capabilities and dis-
ciplines that create competitive advantage. It is critical to
create a culture and network of relationships that support
effective strategy implementation.
The choice of strategies that suit one particular business
well may not translate into competitive advantage or success
for another business or across industries. There are scores, if
not hundreds, of industries that dene and drive todays
economic life. As a rms environment changes, so will many
of the drivers that senior management must consider when
utilizing their capabilities to compete and navigate the rm
Organizational Dynamics (2014) 43, 7387

The authors acknowledge the constructive comments on an ear-

lier draft of this manuscript by David Garza, Sue Hammond, Mike
Harvey, Don Hellriegel, Andrew Hiduke, Maribeth Kuenzi, William
Reisel, Randy Schuler, Chuck Snow, Steve Watson, and Ron Zera.

Portions of this paper were presented at the CEO Forum, Dallas,

TX, November, 2013.
Available online at www.sciencedirect.com
ScienceDirect
j ou r n al h omep ag e: www. el s evi er . co m/ l oc at e/ o r g d yn
http://dx.doi.org/10.1016/j.orgdyn.2014.03.001
0090-2616/# 2014 Elsevier Inc. All rights reserved.
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 be
quite different in another (e.g., availability of low-cost steel
in the construction and automotive industries). An effective
business strategy, in turn, requires the manager to be aware
not only of the business external environment, but also of
the strategic disciplines that directly support the execution
of that strategy. These strategic disciplines, in turn, shape
and inuence the kinds of skills and human and social capital
in which the business must invest. Here are the big picture
guidelines:
the relative importance and predictability of the external
environment facing the business;
the cultivation of core strategic disciplines that impact
day-to-day activities;
the prioritization of investment decisions that support a
strategy;
the alignment of people and culture within these strategic
priorities.
We will consider each of these broad topics in detail. We
then present four company case examples to illustrate these
concepts. Let us begin by rst 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, revised
product designs, technological breakthroughs, new process
improvements, and competitors actions represent just a few
of the major forces in the business environment. When
organizations ignore them, they do so at great peril. Witness
the current troubles plaguing The New York Times, The
Chicago Tribune, the Los Angeles Times, and the entire daily
U.S. newspaper industry as it grapples with delivering infor-
mation in a tablet computer or smart-phone era. A hard-won
competitive advantage can face rapid deterioration in the
wake of these changes. In the worst situations, an organiza-
tions entire vision, strategy and business model can become
completely irrelevant almost overnight. As an industry
evolves, customer expectations tend to become clearer
(more known), and the environmental landscape becomes
more stable, as shown along the vertical axis in Fig. 1.
Conversely, there will be times in an industry when customer
expectations change, and the environmental landscape
become unstable. This is usually the result of some type of
external upheaval (e.g., new product technology, new com-
petitors, government regulations, etc.). The horizontal axis
of Fig. 1 depicts the nature of the change impacting the
industry landscape.
Changing Customer Expectations
In the early stage of the organizational life cycle, rms
attempt to get their innovative products or services to gain
acceptance by customers. As the overall size of the market
expands, competitors assess their prospects for entering the
market. Many rms strive to create ways to design new
offerings and to reach customers, whose needs are often
unclear and fast-changing.
As the industry becomes mature, a dominant industry-
wide approach or method to create products and services
becomes established. As a result, products tend to standar-
dize over time, and markets saturate. It becomes an uphill
battle for rms to distinguish themselves from their rivals,
since products become more similar and customers demand
more features or performance for what they pay. Equally
important, customers become smarter and know what they
want. This makes it difcult for rms to raise prices. Declin-
ing differences generally lead to similar pricing. At this stage,
rms become highly specialized and cost efciency becomes
important in driving protability. Thus, the evolution of
products and processes across industries tends to exhibit
strong life-cycle characteristics that ultimately result in ever
more intense competition. Recent examples of industries
that have undergone such a progression include food proces-
sing, car rentals, consumer electronics, and retailing.
Business UpheavalsStable Environmental
Landscape
Many changes in an industry are gradual and occur in a way
that both rms and customers can predict, as illustrated in
Fig. 1. Products and technologies follow a seemingly well
dened, almost logical progression and trajectory of better
performance. Sustaining innovations provide steady, incre-
mental, measurable product improvement. Each subsequent
generation of new products incorporates improved features
or functionality over the previous one, as we currently see in
the smart-phone industry. For example, each successive line
of iPhone, iPod or Android-based communication products
delivers greater functionality and versatility compared with
those introduced just a few months ago. Predictability of
product planning and customer demand is high. The under-
lying core product technology remains stable for a long
period of time. Thus, there is comparatively little uncer-
tainty facing the rm when it designs a new product. These
products 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 ways
to serve customers completely redene an industrys logic
to creating value. As their name suggests, disruptive innova-
tions shake up familiar ways of creating and delivering
Financial services
Distribution logistics
Utilities
Construction materials
Processed foods
Appliances
Automotive
Medical devices
Office equipment
Semiconductors
Video games
Casual dining
Digital entertainment
Pet care services
Education
Biotechnology
Nanotechnology
Advanced materials
Health care providers and
services
Alternative energy
Changing Stable
Environmental Landscape
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Figure 1 Broad Mapping of Industry Environments.
74 J. Slocum et al.
products to customers. A technological breakthrough or
radically different way of meeting a customer need denes
a disruptive innovation. The disruption can be so severe
that an entire industry is transformed in a very compressed
time, much like a massive earthquakes impact on the sur-
rounding landscape, which can divert rivers and cause wide-
spread damage. Disruptive innovations change the rules of
the game for the entire industry. The industrys pre-existing
methods and approaches, such as long-followed product
designs, technical standards, or distribution channels, face
the prospect of immediate obsolescence.
Consider the immense challenge posed by growing strains
of antibiotic-resistant bacteria. Instead of the large pharma-
ceutical companies, it was the advanced laboratories of IBM
that led the way in designing a nanotechnology-based drug
that treats antibiotic-resistant staph infections. This is the
same technology that IBM hopes to use in designing an
entirely new line of semiconductors and advanced materials
that bypass todays use of silicon. Similarly, new models of
DaVinci Robotics surgical systems (created by Intuitive Sur-
gical) enable doctors to operate on patients with far less
invasive 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 to
remove in the shortest time with minimal damage to sur-
rounding healthy tissues.
DESIGNING EFFECTIVE BUSINESS STRATEGIES
In their book Demystifying Your Business Strategy, David Lei
and 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 in
Fig. 1, the nature of the strategic requirements for compe-
titive success varies substantially as rms adapt to the
demanding conditions they face. Broadly speaking, four dis-
tinct business strategies represent the dominant modes for
crafting the strategic disciplines and organization designs to
create and sustain advantage. These four strategies are
called Pioneers, Trendsetters, Consolidators, and Reinven-
tors. Each of these strategies, shown in Fig. 2, generates
specic types of priorities and investment requirements that
underpin competitive advantage. Consequently, each strat-
egy will shape the kinds of management processes and human
resource practices necessary to support strategy execution.
Let us now examine the broad characteristics of each strat-
egy, as well as the core strategic disciplines that guide
strategy execution.
The Vital Role of Core Strategic Disciplines
A strategic discipline refers to the guiding logic that helps
managers implement their strategy on a daily basis, as shown
in Fig. 2. A business will utilize a number of strategic disci-
plines, but the priority of which discipline to emphasize
depends on the rms strategy. A strategic discipline should
also translate the business strategy into specic, actionable
results that directly emanate from employees efforts to exe-
cute goals and objectives. The notion of a discipline rests on
the link between strategy and a guiding internal logic, or
premise 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-taking
that all too often fails. Industries depend on pioneers to
create new products and technological breakthroughs that
seed entirely new ways of doing things. Point to any human
need and most likely you will nd a person or a team of people
scrambling for a solution. Pioneers in science-driven elds,
such as biotechnology, alternative energy, nanotechnology,
software, telecommunications, and computers are composed
of teams of people scrambling for a solution or breakthrough
that can fundamentally change the way we live. In other
industries, ranging from restaurants to consumer products,
home health care, cleaning supplies, and education, ener-
getic entrepreneurs from all backgrounds and life stories
relentlessly experiment with new ideas and bold approaches
to deliver better value to customers.
Pioneers thrive in highly uncertain, dynamic environ-
ments. Without exception, Pioneers must persevere and ght
to stay alive. The barriers to entry and exit are often quite
low. One of the most daunting uncertainties confronting
Pioneers is how best do they gauge their customers expecta-
tions and then develop a method to serve them. By their very
nature, Pioneers identify some type of unmet need and strive
to nd some way of fullling it. Even when an industry is
dominated by pre-existing large rms, successful Pioneers,
like Zappos, often redene the competitive marketplace and
ultimately create an entirely new product category (e.g.,
online shoes) or an industry (e.g., alternative energy, 3-D
printing).
The source of Pioneers competitive advantage is to capi-
talize on its rst-mover advantage. This occurs when a rm
has the opportunity to introduce a new product in an existing
market, to create a new market, or to create value in a new
way for its customers. Often, the rst-mover advantage
relies on a lead in some key technology, way of innovating,
or business process that other rms will nd difcult to
imitate, at least initially. In short, Pioneers must be different
and daring. In practice, this means that Pioneers rely heavily
on 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)
Consolidators
Operational Excellence
Reinventors
Resource Allocation
Trendsetters
Customer Intimacy
Pioneers
Research and Development
g n i g n a h C e l b a t S
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Figure 2 Four Business Strategies and Associated Strategic
Disciplines.
Executing business strategies through HRM practices 75
personnel, or even the rms brands and other reputation
sources.
Pioneers tend to be rms that often have founders with
great vision and passion for doing something that most people
think impossibleor even insane (e.g., the late Steve Jobs at
Apple). 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 Bransons forays into the music, retailing, and airline
businesses); or a superior way of delivering a customer
experience (e.g., Jani-King in the ofce cleaning business);
or certainly a way of thinking about the customer when
designing products (e.g., Sony under late CEO Akio Morita).
Pioneers rely on agility, enormous sweat equity, and speed of
product development to create bold new product ideas that
set or redene the standards of customer expectations.
Pioneers cannot count on the presence of a large customer
base to amortize their investment costs. Customers who buy
Pioneers products tend to be enthusiasts who want the new
toy, or disgruntled customers turned off by the stale offer-
ings of existing rms.
Strategic Discipline: Research and Development
(R&D)
At the heart of Pioneers is their riveting focus on fostering
and sustaining new product ideas and concepts. Pioneers
must also execute by commercializing the idea into products
that customers want. Yet, it is important to recognize that
being the rst with a new product or technology does not
automatically translate into a sustainable competitive
advantage. Patents, copyrights, proprietary processes, and
methods do not translate into competitive strength without
the requisite disciplined focus on execution as well. A great
technology does not equal a great business. If there is any-
thing that we learned from the past 30 years, it is that the
most successful businesses are those that aim to keep their
product offerings relevant to their customers while sustain-
ing a high rate of innovation by its people.
Trendsetters
Competing in high-growth industries, Trendsetters strive to
be unique in what they offer and are often synonymous with a
distinctive way of doing things that also raises the bar for
their rivals. Those pursuing a Trendsetter strategy continu-
ally tailor and shape their products and services to t an
increasingly precise denition of what the customer wants.
This can be costly, but Trendsetters are willing to spend
resources to build customer loyalty and to innovate for the
future. They typically look at the customers long-term value
to the business. Trendsetters live and breathe customer
intimacy and innovation. Innovation can be focused around
designing the best performing products, or delivering the
highest level of customer intimacy to gain customer satisfac-
tion. Trendsetters constantly experiment with new product
and service concepts to see which ones work best. Constantly
gathering and sorting through enormous reams of data, they
educate and update themselves to determine how to create
the 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 for
chips used in modern digital technology (e.g., Qualcomm
chips in Samsung smart-phones). Changing customer expec-
tations require Trendsetters to stay agile and nimble so that
they can respond quickly to new market segments, changing
customer needs, and shifting technological trajectories.
Excellence in understanding and serving the customer is
the critical survival factor for Trendsetterswant-to-be riv-
als lurk just around the corner, ready to pounce on even the
smallest misstep.
Trendsetters build brand equity by isolating and meeting
customer needs that are on the leading edge, or where
exceptional personal attention is synonymous with customer
satisfaction. In turn, loyal, satised customers enable the
Trendsetter to erect strong barriers to imitation from rivals.
For example, Trendsetters can thrive by providing highly
sought-after products and/or services that require sales staff
and technical personnel with deep knowledge (e.g., Wil-
liams-Sonoma, PGA Stores, Bass Pro Shops, Andrews Distri-
buting Company). These knowledgeable employees support
customers in every stage of their information-gathering,
decision-making, warranties, potential after-sales service
needs, and the ultimate choice of what to buy. It is difcult
for competitors offering a broader product line to develop
and cultivate this type of specialized knowledge.
Strategic Discipline: Customer Intimacy
The essence of competitive advantage for Trendsetters is an
intimacy that allows them to discover, learn, improve, and
offer new products and services directly targeted at their
customers. This emphasis on close, personal interaction with
the customer offers numerous vantage points for them to
acquire insights that guide future product and service oppor-
tunities. For example, The Ritz-Carlton aims to offer its
customers the highest level of service possible. It seeks to
achieve a uniquely deep level of customer intimacy by
encouraging its employees to read the customers body
language to anticipate what the guest may need. In addition,
the company gathers and studies reams of information about
what customers want from their previous stays. The Ritz-
Carlton believes that it is most effective when the company is
able to think like its customer.
Every organization should be able to deliver a quality
product or service and stand behind it. This is the minimum
baseline of any business. Customer intimacy is vastly differ-
ent for Trendsetters. For trendsetters, customer intimacy
can involve data analytics, used by Google and Andrews
Distributing Company, along with person-to-person interac-
tion. Intimacy transcends meeting needs; it is the provision of
anticipatory, proactive value to the customer. Anticipa-
tory means truly understanding the customer at the deepest
leveleven 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 of
what he or she desires. An increasing base of research asserts
that anticipatory customer service actually means that there
is little distinction between product and servicethe
two come together as a source of value that addresses
76 J. Slocum et al.
economic and emotional needs simultaneously. Achieving
maximum customer satisfaction means building a high level
of emotional connection into the product itself if possible.
Consolidators
Businesses that once led industries or shaped the customers
mindset for exceptional product quality or customer service
are not immune from industry maturity. In a paradoxical way,
maturity is the byproduct of long-term industry success.
Industries become mature precisely because businesses have
become so successful in expanding, ne-tuning and rening
what they offer to their customers. Customers, in turn, begin
to view yesterdays leading-edge offerings as business as
usual. As industry growth rates slow down and innovations
become more incremental, a new strategic imperative kicks
in: consolidation.
Consolidators from all types of industries face enormous
challenges resulting from their inability to grow sales and
prots at their previous fast rates. Because of the industrys
slow growth, Consolidators gains in market share are almost
impossible to attain without bruising battles with other rms,
most often through price wars. Unfortunately, customers
become accustomed to these price wars and will rarely
pay anything but a discounted price, especially for standar-
dized products that are largely indistinguishable from its
rivals (e.g., television sets, tires, lumber, and DVD players).
Central to the Consolidators sustainable competitive
advantage is the pursuit of cost-efciency in every aspect
of their operations. This search for cost-efciency cannot
come at the expense of product quality, however. Consoli-
dators must preserve their brand equity while simultaneously
looking 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 through
expansion into new markets, new product lines, and even
through acquisitions that complemented their offerings.
Strategic Discipline: Operational Excellence
The Consolidators source of competitive advantage is the
attainment of operational excellence in all of its activities.
As a rule, Consolidators will devote most of their R&D spend-
ing toward rening their internal processes to deliver value at
successively lower costs. Reducing work-in-process, order
fulllment time, inventory holding costs, and supply chain
complexity represent key priorities for Consolidators.
Although improving product features remain important ways
of attracting and retaining customers, Consolidators will
devote more resources to making their offerings more con-
sistent, slicing the number of steps to provide them, and
striving for a low-cost leadership position in the marketplace.
Emphasizing special, custom features or the latest break-
through product designs are less important for Consolidators
than implementing new cost-saving methods or technologies.
No activity is immune from the Consolidators search for
greater efciency. Capturing and exploiting economies of
scale in procurement, stafng, manufacturing, service provi-
sion, distribution, logistics, and service are minimum
requirements to achieve cost-efcient platforms. Economies
of scale are vital to lower the xed unit costs that saddle
Consolidators large investments in operational infrastruc-
ture. In an attempt to reduce its health care costs and
variation in quality for its 1.1 million employees and depen-
dents, Wal-Mart Stores has signed an agreement with six
centers of excellence (hospitals), to provide care for certain
cardiac and spine procedures at no additional cost to them.
Wal-Mart will also cover the cost of travel, lodging and food
for the patient and one caregiver. Wal-Mart expects the
program to reduce health care costs for its full-time employ-
ees through bundled payment agreements with these six
hospitals.
Many consolidators utilize a high degree of outsourcing to
remove entire layers of personnel and costly activities. Other
consolidators invest and manage their own large in-house
operations to capture ever larger scale benets (e.g., Wal-
Marts logistical system). Scale ratchets up the commitment
to further improvement to garner rising productivity, cost
reduction, and process yields. Consider the dominant cost
leaders 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 and
paper industries. All of these rms continue to uncover
unforeseen ways to improve capital and people productivity.
Rening the actual production or service provision process is
also a must for Consolidators, as it removes every possible
source of variation that could negatively impact product
quality or smooth operations.
Reinventors
Every business will face a dening moment at some point in
time. Doing business as usual will no longer be a source of
competitive advantage. Instead, the same business that
delivered protability and competitive success time after
time becomes an albatross that hinders a companys ability to
compete in the future. When a pre-existing business begins to
hinder a rms ability to compete, it must reinvent itself to
survive.
Reinventors are typically large businesses, many of which
are part of multi-product diversied rms, such as United
Technologies, Northrop Grumman or Lockheed-Martin. Other
reinventors were industry leaders forced to adapt to major
technological change in their respective industries, such as
Eastman Kodak (photography), Technicolor (color imaging for
lms), or TDK (electronic storage media) of Japan. Their
products 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 redene how a product/service is created, or how a
customer uses its product/service. As an existing product line
becomes obsolete, the decline in market share will ideally
spur a companys efforts to reinvent itself. In practice,
however, reinvention efforts are enormously difcult and
complex endeavors. Firms do not willingly unlearn their
core competencies. Businesses that do not learn the new core
competencies and methods to reinvent themselves will soon
become irrelevant and die, as did Eastman Kodak, Blockbus-
ter, and Borders.
Executing business strategies through HRM practices 77
Reinventors have lost their sources of competitive advan-
tage in a core business line. Opportunities to distinguish their
products or services from their competitors have faded over
time as obsolescence sets in. While reinventors may still
possess brand names (e.g., Kodak) that conjure up their
products glory days, whatever immediate prots they still
generate cannot make up for the consumer drift away from
these brands. Their very existence is in question because
their pre-existing business models no longer create value.
Yet, they are burdened with the legacy of how they previously
competed. This legacy includes how they produced the
product/service, how they organized their activities, and
how they managed, evaluated, and rewarded their work-
forces. Over time, this legacy effect means that businesses
facing the need for reinvention are saddled with a pre-
existing way of thinking about how to compete and how to
create value.
Strategic Discipline: Resource Allocation
Successful reinvention means that businesses must acknowl-
edge and gauge the shifting industry landscapes impact on
their competitive advantage. Undertaking reinvention is not
without its risksin fact, the entire reinvention process is all
about managing risks on multiple dimensions: sorting through
customers changing needs; understanding new technolo-
gies; learning and cultivating new organizational processes;
and instilling new skills, cultures, and mindsets throughout
the rm. Failure to deliver on any of those fronts spells an end
to reinvention.
As Reinventors shift resources (e.g., personnel, cash) from
their mature business to promising new opportunities, they
must rethink their ideas on protability and return on invest-
ment (ROI). Transferring resources from one business to
another has always tended to be a complicated and often
a politically charged task in any organization, but it is
especially problematic for Reinventors. The major issue is
to allocate resources from existing mature business(s) to
uncertain new ventures that consume these quickly. We know
that senior managers are likely to be extremely risk-averse
when it comes to allocating resources to a new business,
product idea, or technology they do not understand. We also
know these same managers are probably unaware of what
benchmarks (e.g., return on equity, or ROE; return on invest-
ment, or ROI; market share gains) should be used when
measuring the nancial progress of their new ventures.
Cost-efciency metrics that drive and reinforce low-cost
operations, for example, do not apply, nor do they t the
need to prospect and experiment. Thus, Reinventors must
clearly specify and execute the transfer pricing mechanism
and accountability measures across various units.
ALIGNING PEOPLE AND CULTURE WITH
STRATEGY FOR COMPETITIVE ADVANTAGE
The ultimate aim of any business strategy is to achieve a
competitive advantagea protable and sustainable posi-
tionfor the company. Possible sources of competitive
advantage include advantages due to products, pricing,
technology, nances, physical plant, location and operations.
These sources of advantage are mostly tangible and quanti-
able. There is increasing recognition that a companys people
and culture, largely intangible resources, are also important
sources of competitive advantage. The collective stock of
talent (employees knowledge, competence and abilities)
constitutes a companys human capital. The companys cul-
ture (shared assumptions, beliefs, and values) and the net-
work of relationships inside and outside of the company, are a
rms social capital. There is a growing body of evidence that
when both human capital and social capital are aligned with
the rms mission and its strategic goals, competitive advan-
tage is enhanced. Firm-specic human capital and social
capital are potentially sustainable sources of competitive
advantage because they are more valuable, rare, and dif-
cult to imitate and substitute for than physical assets. In a
sense, human resource management practices are valuable
strategic resources only in so far as they provide for the
creation and maintenance of other resources to execute the
rms business strategy.
A companys human resources (HR) function can provide
an essential set of strategically relevant activitiesincluding
recruitment and selection, performance appraisal, compen-
sation, and training and development. We have found that HR
practices of recruitment/selection and training/develop-
ment are instrumental in developing human capital. Perfor-
mance appraisal and compensation are essential to
developing and sustaining motivation and also contribute
to the development of culture and relationships (i.e., social
capital) necessary to create and implement strategic goals.
By generating, reinforcing, and sustaining employees cap-
abilities and actions in line with strategic goals, the HR
function makes an important contribution to the rms com-
petitive position. As shown in Fig. 3, it is simply not enough to
create human resource practices that are aligned with strat-
egy. The real challenge for executives is to implement HR
practices in such a way that these actions enable a rms
strategy to be implemented.
Human Resource Management Practices
Strategy
Human
Resources
Human
Resource
Practices
Recruitment &
Selection
Performance
Appraisal
Compensation
Training &
Development
Performance
Outcomes
Figure 3 Human Resource Management Practices.
78 J. Slocum et al.
The notion of line of sight can be used to illustrate the
importance of aligning people, HRM practices, and culture
with strategy. Line of sight means that every person, team,
and organizational unit understands the companys strategic
goals and has the capabilities, motivation and opportunity to
pursue those goals through their daily activities. While it is
not entirely clear what specic kinds of HR practices are
needed to implement particular types of business strategies,
it is increasingly clear that one size does not t all. In other
words, so called best practices approaches, in which a
company attempts to emulate the HR practices of other
leading companies, are likely doomed to failure, since they
are not tailored to the rms unique strategic priorities. A
more appropriate approach is to implement a unique con-
guration of HR practices that are internally consistent with
one another and are also linked directly to the companys
mission and strategic goals.
The line of sight concept implies that every company
should have a different conguration of HR practices for
its unique strategy in its efforts to attain a competitive
advantage. While companies pursuing a particular strategy
typePioneers, Trendsetters, Consolidators, or Reinventors
may use similar human resource management activities to
support that strategy, HR practices should be tailored spe-
cically to develop human and social capital directly linked
to the rms strategic priorities. A very real challenge in
creating a tight linkage between business strategy and HR
practices is that it may make it more difcult for the rm to
adapt quickly to changing external forces and new strategic
priorities. Consequently, the best that companies can hope
for is to design HR practices that equip teams and individual
employees with the necessary abilities, motivations, and
opportunities to pursue complex, dynamic, and fragile stra-
tegic priorities. This perspective on the relationships among
strategy, human resource management and performance, as
shown in Fig. 3, is representative of organizational realities.
This unique conguration of HRM practices is a potentially
sustainable source of competitive advantage precisely
because it is rare, complex, and causally ambiguous.
CASE EXAMPLES
For each of the strategy archetypes in Fig. 2, we now provide
a case example that illustrates how the company has crafted
a unique blend of HR practices to align human and social
capital with the rms strategic priorities. In each of the
following examples, we highlight the companys HR practices
of recruitment and selection, performance appraisal, com-
pensation and training and development.
PioneerNetix
Frustrated by his experience with the existing option of
renting videos from a bricks and mortar store, serial entre-
preneur Reed Hastings founded Netix in 1997 as an alter-
native way to rent movies. Netix, originally conceived as an
on-line subscription-based DVD rental service, quickly
became the top video rental company through its proprietary
search engine, recommendation algorithms, and its efcient
distribution through the U.S. Postal Service. The company has
continued to break new ground ever since. As technology
changed and video-on- demand became more viable, the
company adapted and re-emerged as one of the leading
providers of video streaming services. Now, Netix is pio-
neering the shift to offering television and other content
programming via the Internet and has developed sophisti-
cated technology to make this transition happen.
CEO Hastings believes that Netixs culture is the key to
long-term success, and he sees his primary role as creating a
culture that sustains Netix as a continuous learning orga-
nization. The company emphasizes seven dimensions of cul-
ture: company values (dened below), high performance,
freedom and responsibility, context-not control, highly
aligned-loosely coupled, pay top of the market, and promo-
tions/development. Everything that the company does,
including human resource management practices, is designed
to promote and reinforce these facets of the companys
culture. Ultimately, Hastings adheres to the philosophy that
sustained performance and innovation in a growing company
are only possible when the density of talent outpaces the
demands of increasing organizational complexity. In other
words, by attracting star performers and creating an envir-
onment where people have the freedom, motivation, and
self-discipline to make a positive impact, the company can
reduce the number of formal structures and processes that
limit creativity and exibility. This philosophy has been
validated several times as Netix has adapted its strategy
quickly to changing technology and market demands.
Netix uses a unique and coherent set of HR practices to
shape its culture. Getting the right people on board and
sustaining high performance across the company are essen-
tial. So, in addition to job-specic competencies, the com-
panys recruitment and selection processes are based on nine
behaviorally dened values linked to the aforementioned
seven culture dimensions: judgment, communication,
impact, curiosity, innovation, courage, passion, honesty,
and selessness. The recruitment philosophy is to attract
high value people by creating an organization where employ-
ees have the desire, ability and freedom to make a positive
impact. A big attraction of working at Netix is that you get
to work with other like-minded stunning colleagues. To
this end, Netix hires people with experienceits employees
tend to be older than those at most other Silicon Valley tech
rms. The company wants entry level employees who have
already demonstrated they are high performers who can
make an impact.
To evaluate and reinforce the nine values and job-related
skills, Netix 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 based
on performance as in many other companies such as General
Electric, Cisco, and Intel. Instead, the intention is that every
employee is in the top 10 percent relative to their peers at
other companies. The underlying logic is that, for the crea-
tive work necessary to foster Netix continued long-term
success, cooperation among employees is preferable to com-
petition. Employees are encouraged to help each other. In
addition, the company believes that, in creative work, A
performers are far more productive than B performers.
Consequently, when evaluating an employees performance,
managers are asked to apply the keeper testIf this
employee said she/he was leaving for a similar position at a
competitor company, would you ght hard to keep her/him?
Executing business strategies through HRM practices 79
If the answer is no, then the manager is encouraged to offer a
severance package now, so that the position can be lled with
a star performer.
Compensation at Netix is based almost exclusively on
paying a top market salary at initial hiring and then con-
tinuously re-calibrated following each annual review. Speci-
cally, every salaried employees pay is set at 1020 percent
more than the level determined by regular external market
surveys. Compensation is not tied to company performance;
top of the market pay is given regardless of how the company
is doing. The philosophy behind this is that the company
wants 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 their
compensation in the form of company stock or options.
Netix does have a dened contribution 401K plan and
matches employee contributions.
Benets at Netix are also uniquely designed to maximize
performance and efciency. For example, instead of offering
an extensive health care plan, employees receive $10,000 a
year for benets; they can choose a Netix plan or, if they
nd a less expensive one, can keep the difference. If they do
not need a benets plan, they can keep all the $10,000. In
addition, rather than set up a formal vacation policy, the
company encourages employees to take vacations on their
own. There is no tracking of time off. The assumption is that
the amount of time spent at work does not matter as long as it
is quality work that has an impact. Finally, with regard to
travel and other business-related expenses, the policy (or
lack thereof) is remarkably simpleact in Netixs best
interest. All of these compensation and benet policies are
designed to create a culture where employees have the
freedom and responsibility to make an impact.
Netix does not provide a lot of formal training and
development. First of all, it hires people who are more
experienced and have demonstrated their desire and ability
to perform. The companys approach is to create an envir-
onment where employees have the opportunity to develop
themselves, by giving them challenging projects and sur-
rounding them with outstanding colleagues. The assumption
is that high-performing people are generally self-improving
and are capable of developing their own career paths. The
end result of Netixs approach to human resource manage-
ment is to hire the people who can thrive in a culture of
freedom and responsibility. Not everyone is cut out for this
kind of environment, and Netix is happy to provide a healthy
severance package for those who do not thrive. But it is this
culture that allows the company to sustain itself as a dynamic
pioneer in a changing world.
TrendsetterWhole Foods
Founded by John Mackey in 1978 as Safer Way, it was a small
store in Austin, Texas. By attracting hoards of customers, it
expanded and changed its name to Whole Foods in 1980. It is
now the leading retailer of natural and organic foods, with
more than 311 locations in the U.S., U.K. and Canada and
revenues in excess of $11 billion. Through its distinctive
approach to strategic HR management and merchandizing,
the meteoric growth of Whole Foods reveals how a dedicated
customer focus can propel a small company into the big
leagues of grocery retailing. Whole Foods has a focused
mission and is highly selective about what it sells, its custo-
mers, its stakeholders and its HR policies. Both its mission and
HR practices are overt manifestations of its conscious capit-
alism philosophy.
Whole Foods culture is based on the emerging notion of
conscious capitalism, which is a way of thinking about busi-
ness, its impact on the world, and its relationships with
various stakeholders. According to Mackey, conscious capit-
alism has four principles: higher purpose and core values,
conscious leadership, conscious culture, and stakeholder
integration. Let us examine how each of these pillars of
conscious capitalism shapes Whole Foods underlying
approach to its business strategy.
Higher Purpose and Core Values
Mackey has long believed that Americans would increasingly
care for not only what they eat and how they eat, but also
their impact on the larger environment of the planet. Whole
Foods purpose is helping people eat well, improving the
quality of their lives, and increasing their lifespan. It
achieves this purpose through selling organic foods and
promoting environmental benets to organic farmers, ran-
chers, and others who practice sustainable agricultural prac-
tices. It is committed to using re-usable packaging, saving
water andelectricity to be a good environmental steward. Five
percent of the companys protability is given to a variety of
community andnonprot organizations. Although Whole Foods
has developed a unique approach to merchandizing that
enables it to sell its private-label products at a price premium,
the company believes that its products natural freshness and
green approach to agriculture are powerful selling points to
customers in their own right.
Conscious Leadership
Conscious leaders nd great joy and beauty in their work and
in their opportunity to serve, lead, and help shape a better
future. They are intrinsically motivated to pursue a higher-
order vision and mission that often supersedes the quest for
nancial or material success. They are keenly self-aware and
recognize their own emotions and personal convictions. As a
result, conscious leaders imbue their values in their decisions
at all levelsstrategic and tactical; they seem to command a
higher moral ground in everything they do.
Conscious Culture
Conscious cultures have seven characteristics: trust,
accountability, caring, transparency, integrity, loyalty and
egalitarianism. These seven facets dene the day-to-day
context of what it means to work at Whole Foods. Stafng
at each individual Whole Foods location reects a careful
screening and selection process that evaluates how well
prospective employees embody these seven attributes. Con-
scious cultures have a tangible, almost physical aura that
customers can feel when they walk into a store.
Stakeholder Integration
Whole Foods takes an expansive view of the concept of
stakeholder. Stakeholders are not only shareholders
(who have been generously rewarded with a rising stock
price over the past decade), but also suppliers, customers,
and especially employees. It wants all stakeholders to be part
80 J. Slocum et al.
of the Whole Foods community. Whole Foods realizes that
each employee at a local store represents the face of the
company; his/her attitude and approach to customer service
will strongly inuence how often customers will make repeat
purchases. Lastly, stakeholder integration means that
employees look for ways for all stakeholders to win. Employ-
ees are offered up to a 30 percent discount to shop at Whole
Foods and are encouraged, along with local suppliers, to buy
stock in the company.
The HR system that Whole Foods has designed is central to
implementing the tenets of conscious capitalism. Starting
with the recruitment and selection of employees, Whole
Foods has designed its HR policies to reect 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. New
hires are placed in a team on a probationary basis for thirty to
ninety days, at which point a two-thirds vote by the entire
team is required before the new hire is granted team member
status. People who do not t the Whole Foods Conscious
Capitalism Culture are not selected in a team and are asked
to leave the company, even those employees who perform
their 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 are
terminated. Teams look for members who are talented,
capable and are committed to Whole Foods purpose and
their work. Whole Foods looks for people who are inclusive
and value diversity. Since teams empower people and give
them autonomy to make decisions, the ability to function as a
productive team member is critical. This esprit de corps
enhances a fast response to customer service at each Whole
Foods location. Team members are accountable to each other
and to customers. Teams often give themselves names, such
as the Green Produce Monsters or Rocking Richardson Gro-
cery, to enhance members sense of belonging. Whole Foods
believes that this attracts people with a high degree of
emotional and spiritual intelligence and keeps turnover at
less 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, teams
perform their own performance appraisals. Members are
evaluated 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 New
York City, employees from various stores came to help this
stores employees understand the culture of Whole Foods and
help them learn their new jobs. Each team has prot respon-
sibilities and is measured with customer satisfaction indices.
Teams are encouraged to share their successes with others in
their geographical region. It is a matter of great pride to be
recognized by ones peers as the best team in the region. A
gain-sharing program is used to unite the goals of the com-
pany and employee. Employees share in the economic gains
of their team through saving labor costs, waste, energy, and
the like. Bonuses are paid in portion to the number of hours
which an individual worked. This reinforces solidarity within
the team by aligning the interests together.
The compensation program at Whole Foods is radical; it
reects the companys philosophy of egalitarianism. Every-
one who works at the company knows what everyone else is
paid. This transparency is an essential part of the culture and
ensures that team members can give feedback on what they
nd unfair. When the company was forced to downsize in
2008 because of economic conditions, team members voted
on how they would undertake this. Some teams voted to have
all members reduce their hours, others to temporarily impose
a hiring freeze, or others chose to relocate some members to
another location. This commitment to mutual sharing of gains
and setbacks reinforces the esprit de corps. Some members
voluntarily took severance packages that were offered to all
team members. Whole Foods has set a cap (a ratio of what the
CEO makes relative to a team member) on the total com-
pensation that senior managers can make. In many publicly
traded companies, this cap can be over four hundred to ve
hundred times. At Whole Foods, the cap is nineteen-to-one.
The rationale is that Whole Foods wants leaders who care
more about the purpose and people of the company than they
do about their own personal enrichment.
One way to reinforce its culture is through gain-sharing.
Under its gain-sharing plan, each team receives a labor
budget expressed as a percentage of its teams sales. When
teams come in under budget due either to higher sales or
lower labor costs, a portion of the surplus is divided among
the team members and paid out every four weeks. When
teams are over budget, no gain-sharing is paid out. Instead,
the overage is taken out of the teams savings pool to be paid
back using future surpluses. The savings pool is paid out
annually to all teams with a positive balance.
At Whole Foods, team members vote every three years on
the benets they want. The senior leaders decide what
percentage of total revenue will go toward benets for
the company and assign a cost for every potential benet.
Team members prioritize and vote on the benets they most
prefer. This process results in benets that reect the needs
and desires of the majority of team members in the company.
For 20132015, more than 82 percent of all eligible team
members voted to provide health care coverage at no cost to
full-time team members who work at least 30 h a week and
have worked a minimum of 10 years. Team members with less
tenure and/or hours worked will pay a minimum of $10 per
paycheck. In addition, the company provides personal well-
ness dollars in terms of either a health reimbursement
arrangement or health savings account.
Training and development opportunities also reect the
tenets of conscious capitalism. Team members cross-train
each other to accomplish all jobs within their areas of respon-
sibility. When the company has promoted someone beyond
their competency level, it removes them from the job they are
currently performing. It then provides them with a bridge or a
three-to-six month period at full pay during which they try to
nd another job within the organization. In this way, failure is
not seen as permanent, but as a valuable learning experience.
Since leaders represent a massive investment in personal
training, Whole Foods wants to ensure that its people can nd
the best t for their skills, no matter where that might be
within the larger organization. The recycled leader is
encouraged to continue learning and growing and to seek
other leadership opportunities in the company.
ConsolidatorCostco Wholesale
An early entrant in the warehouse retail segment, Costco
Wholesale was founded in 1983 by Jim Sinegal and Jeff
Executing business strategies through HRM practices 81
Brotman and quickly became one of the countrys top retail
rms. Today, Costco is the leading warehouse retailer and the
second largest retail rm overall with annual sales of $97
billion and 174,000 employees worldwide. From the begin-
ning, Costcos founders developed and implemented a unique
blend of strategic, operational, and human resource prac-
tices that have produced consistent superior nancial results
compared with other retail rms (e.g., K-Mart, Sears, Tar-
get). The companys strategy is focused on achieving cost
leadership advantages that stem primarily from its stream-
lined product line, efciencies in its supply chain and opera-
tions, and its highly productive work force. For example,
Costcos limited product line (4000 SKUs versus Wal-Marts
100,000 SKUs) allows the company to be focused on acquiring
and selling a mix of products that generate high sales volume
and inventory turnover. Costco drives volume with its low
price, high quality merchandize mix by following the 14
Percent Ruleno Costco product will be marked up more
than 14 percent above wholesale (15 percent in for store
brand Kirkland products), regardless of how well it is selling
or what the competitors are doing. In addition, the ware-
house model means that operations are less complex, and the
company can reduce or eliminate certain costs associated
with inventorying, transporting, handling, and displaying
products.
While other warehouse retailers, such as Wal-Marts Sams
Club and BJs Wholesale, have imitated these practices,
Costco remains unique in the industry with its seemingly
counterintuitive approach to human resource management.
Common wisdom would lead one to believe that a company
positioned as a cost leader, particularly in a low-margin mass
retail business, would be very concerned about minimizing
labor costs. Yet, despite criticism from some nancial ana-
lysts, Costco has done just the opposite. The companys
philosophy and culture are focused on treating people well
by offering higher pay and benets and better working con-
ditions than other retail rms. In fact, labor costs at Costco
are approximately 70 percent of the total cost of operations,
well above the industry average of 53 percent. Yet, the
performance results speak for themselves. When compared
with other retail rms, Costco has above industry average
sales and prots per employee, higher employee productiv-
ity, higher rankings of customer satisfaction, and lower
employee turnover. Current CEO Craig Jelinek, sums up
the company philosophy: Instead of minimizing wages,
we know that its a lot more protable in the long term to
minimize 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 employer
of choice and has maintained a positive public image.
Recruitment and selection are enhanced due to the high
number of applicants for entry level positions, allowing the
company to be highly selective in hiring. Selection criteria
emphasize 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 management
positions, senior managers and HR ofcers review applica-
tions and make the hiring decisions. In general, the HR
philosophy at Costco is to support line managers by providing
them the tools they need to solve problems on their own
rather than for the HR professionals to take the lead in
addressing employment issues. When hired, all employees
are given an Employee Agreement Manual that spells out the
companys values, Code of Conduct, pay and benets poli-
cies, sick leave and other employee policies and procedures.
Performance appraisal at Costco is based on annual formal
reviews, as well as informal feedback sessions, that empha-
size customer service, efciency, innovation, and teamwork
for hourly workers. Executives and managers reviews are
focused on sales growth, operational efciency, customer
satisfaction, and innovation. Store and department managers
are encouraged to be entrepreneurial and make decisions
locally to foster performance in these areas.
Compensation practices at Costco are what separate the
company from its competitors. The starting hourly wage in
2013 was $11.50 (the U.S. minimum wage is $7.25). Costco
pays its hourly workers an average of $20.89, well above the
industry average. In addition, employees at the top of their
hourly wage range are eligible for semi-annual bonuses of
$20003000; both full- and part-time employees are eligible
to receive bonuses of up to $5000 after ve years. Costco
employees also receive a generous benet package, including
health insurance (covering 88 percent of all employees),
401K after three months employment (91 percent of employ-
ees are on the plan), and many other benets including
dental care, vision care, dependent-care assistance, and
disability insurance. With respect to executive compensa-
tion, Costco has historically set CEO pay at a level well below
that of other retail company peers. There are four compo-
nents of executive pay: annual salarybased loosely on
external surveys but set below that of most peer companies;
annual cash bonus (not to exceed $200,000); restricted stock
grants based on metrics such as total sales growth and growth
in pre-tax margins; and other benets/perquisites including
deferred compensation, dened contribution pension plan,
life insurance, health insurance, and vehicle allowance.
Training and development activities at Costco are
straightforward; most development is done through on-
the-job training. Basic job training is provided to entry level
employees. Over time, employees are cross-trained for mul-
tiple jobs. This allows the company to adjust what employees
do based on uctuations in demand for certain tasks. This
practice 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 those
in line for manager positions. Costco believes strongly in the
practice of promoting from within; remarkably, 70 percent of
all the warehouse managers started out as entry-level
employees. This practice fosters employee loyalty and com-
mitment and contributes to a family atmosphere. As a testa-
ment to the effectiveness of Costcos HR practices, only 15
percent of its work force is unionized, and the company has
had no signicant labor issues throughout its history. This
statement cannot be made for most other rms in the retail
industry.
Reinventor3M
Founded in 1902 as Minnesota Mining and Manufacturing
Company, 3M has evolved to become one of the most inno-
vative companies in the world. Reinvention has been part
of the companys fabric since its early days. In fact, the
82 J. Slocum et al.
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. They
planned on mining corundum to sell to the emerging grinding
wheel industry. It turned out that the mineral they thought
was corundum was another mineral, one not suitable as an
abrasive. With the company near failure, the original foun-
ders sold the majority share to Edgar Ober and another
partner, Lucius Ordway. Ober, Ordway, and later, CEO William
McKnight, are credited with repositioning 3M and launching it
on a trajectory of continuous innovation and growth that has
persisted throughout much of its history. Today, 3M is a $30
billion global technology company operating in ve business
segments with 35 business units and, remarkably, over 55,000
products that extend far beyond its foundation in abrasives.
A strong and consistent culture of innovation and an
organization built for adaptability are central to 3Ms suc-
cess. One of the companys primary goals is to achieve 30
percent of its annual revenues from products less than four
years old. The company invests an above industry average 6
percent of revenues on R&D. As a result, much of 3Ms growth
is organic, leading to new products and even new industries.
The organizations structure, including small, autonomous
divisions and new product and technology forums,
encourages sharing of ideas and technology within and across
divisions. In addition, the Fifteen Percent of Time policy
allows all employees the freedom to explore and purse
projects outside of their core responsibilities. This and other
company policies foster experimentation, informality,
friendship, and voluntary activity. As a result, communica-
tion and interaction among employees are high and employee
turnover is low. The wide diversication of 3Ms product line
has evolved largely through the creation of an organization
that continually reinvents itself through continuous experi-
mentation, innovation and adaptation.
As stated on its web site, 3Ms Human Resource Principles
reect the fundamental importance of people to the com-
panys success:
We respect the dignity and worth of all individuals, we
encourage the initiative of each employee, challenge
individual capabilities and provide equal opportunity for
development.
HR leaders are viewed as strategic business partners and
are represented on the 3M Leadership Council. HR plans
emphasize the identication and development of talent
and the alignment of human resources with the needs of
the business. The company places a strong emphasis on
employee engagement, dened as the alignment of the
employees interests and motivation toward the persistent
accomplishment of company goals. Recruitment and selec-
tion processes are designed to identify candidates who have
the motivation and skills to be innovators or, as the company
calls them, inventorpreneurs. The 3M selection prole
includes the following criteria: capacity for divergent think-
ing, breadth of interests beyond their disciplines, eagerness
to experiment and tackle the unusual, passion for past
accomplishments, tenacity and resourcefulness. In addition,
since friendship and informal relationships are integral to the
culture, peers are very involved in the selection process in
an effort to ensure a good t. Diversity at 3M is highly valued
and is viewed as an important source of more ideas and
innovation. The company is committed to sustaining a work-
force that reects 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 process
based on job competencies, including personal leadership
skills (e.g., initiative, emotional self-understanding, coop-
eration, customer service orientation, exibility, and inter-
personal understanding). Peer feedback and peer recognition
are critical components of the review process. In addition,
risk taking and persistence are encouraged at 3M. Rather
than discipline or dismiss employees who make mistakes, the
emphasis is on helping employees learn from their mistakes.
If an employee fails on a project, she or he is moved to
another one. While there is no guarantee of lifetime employ-
ment, the company does not punish employees who fail on
individual initiatives made in good faith.
Compensation practices at 3M are also designed to pro-
mote innovation. Base pay is competitive, and variable pay is
tied to company metrics for eligible employees. Stock
options are available to managers. HR practices ensure that
individual entrepreneurs are recognized and appreciated.
For example, the coveted Carlton Award is given annually
to those who make exceptional original scientic or technical
contributions to the company. Other awards, like the Golden
Step Award and Innovator Award, also acknowledge the
creation and sharing of technical accomplishments. 3M also
recognizes individual achievement by non-technical staff
employees who make signicant innovative contributions
toward company goals.
Training and development activities at 3M are focused on
aligning employee and company interests and on the devel-
opment of talent at all levels. All employees go through an
initial orientation to and ongoing communication about the
companys vision, strategic goals, and performance results.
Diversity awareness training is also an integral part of the
orientation program. In addition, 3M is one of the rst
companies to use a dual career ladder; one for scientists
and one for managers. This practice allows the employees to
pursue their individual passions and skills to the fullest. The
company also encourages job rotation, including overseas
assignments, to develop broader skills, networking and rela-
tionships across organizational boundaries. 3M has an exten-
sive leadership development program tailored after the one
at GE, but focused more on developing world class leaders
equipped to develop and support innovation and innovators.
The company also provides mentoring programs for employ-
ees and managers as well as a variety of Afnity Groups to
foster engagement and collaboration throughout the orga-
nization. This unique and integrated combination of HR
practices sustains an organization and culture that allow
for continuous reinvention.
CORE HRM PRACTICES UNDERPINNING
STRATEGY EXECUTION: SUMMARY
There is little debate that successful strategy execution
depends heavily on attaining co-alignment with the HRM
practices that each rm cultivates according to its own
unique set of values, priorities, mission, and long-term plan-
ning. Designing and implementing the entire set of HRM
Executing business strategies through HRM practices 83
practices forms the basis for a larger people process that
should reinforce the rms core strategic discipline. This
people process represents an essential investment in
the rms future as vital as developing new products and
processes, or discovering new markets and customers to
serve.
Fig. 4 highlights our general conclusions regarding the HR
requirements to support each strategy. For Pioneers, break-
through innovations are essential to create new technologies
and markets. R&D is an essential strategic discipline. This
strategic discipline is best supported by recruiting and select-
ing employees who are entrepreneurial and who possess
mental adroitness. Compensation through stock options
and bonuses is designed to reinforce and reward high per-
formance. Risk taking, breakthrough ideas and fast execution
are valued as key performance appraisal metrics Employees,
imbued with these company values, have the freedom to
pursue initiatives that lead to rst-mover advantages. Indi-
viduals and teams continue to develop skills and experience
by engaging in increasingly more challenging projects. Net-
ixs people, and its culture of freedom and responsibility,
provide the ingredients necessary for proactive maneuvering
in an environment landscape marked by changing technolo-
gies and consumer expectations.
Trendsetters, like Whole Foods, Sewell Automotive and
Andrews Distributing Company, focus on customer intimacy
as their strategic discipline. Consequently, they recruit and
select people who are passionate about the companys vision
and who have the competencies needed to perform out-
standing customer service. Creativity in engaging customers
and responding to their needs is an essential capability.
Managers and employees are evaluated based on metrics
such as customer satisfaction and loyalty. Training and devel-
opment activities are designed to socialize employees under-
standing the soul of the organization. Employees are
continuously seeking avenues to enhance their customers
experiences with the rm.
Consolidators exist in a mature environment with known
customer expectations; operational excellence is the key
strategic discipline. Costco has become an industry cost-
leader by implementing a unique blend of operational, supply
chain, and human resource management practices. Selection
criteria emphasize the basics of customer service, team
work, creativity, attention to detail, and ability to multi-
task. These criteria also form the basis for performance
appraisal for hourly workers. Compensation for managers
focuses on measures of sales growth, efciency, customer
satisfaction and innovation (particularly with respect to
improvements in operational efciency). Compensation is
the area in which Costco operates differently from most
other competitors. Entry level and average wages are much
higher and benets are more generous than those of other
competitors. Yet, these practices generate much higher
employee productivity and much lower turnover than other
Matching Business Strategy with Human Resource Practices
Consolidators
Recruitment Standardized objective
and Selection: criteria
Performance Make your numbers
appraisal:
Compensation: Cost efficiency and
productivity
Training and Skill upgrades
development:
Reinventors
Recruitment Change agent,
and selection: creativity
Performance Consistency of
resource
appraisal: allocations
Compensation: Resource sharing and
innovation
Training and Boundaryless thinking
development:
Trendsetters
Recruitment Enthusiasm and buy-in
and selection:
Performance Customer loyalty and
appraisal: team-based fit
Compensation: Market share growth &
customer satisfaction
Training and Values-driven
Pioneers
Recruitment Mental adroitness
and selection:
Performance Breakthrough idea
appraisal: generation &
execution
Compensation: Stock options
Training and Competency
K
n
o
w
n
C
h
a
n
g
i
n
g
C
u
s
t
o
m
e
r

E
x
p
e
c
t
a
t
i
o
n
s

customer
development: focus
deepening
development:
g n i g n a h C e l b a t S
e p a c s d n a L l a t n e m n o r i v n E
Figure 4 Matching Business Strategy with Human Resource Practices.
84 J. Slocum et al.
retail rms. Initial investments in employees are reinforced
through continual on-the-job training, cross-training, and a
policy of promotion from within. These HR policies foster a
strong 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 of
businesses and products spanning several industries. The
company has demonstrated a capacity for continuous
renewal 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 a
critical ingredient for reinventors. Performance appraisal
and compensation reinforces innovation and collaboration;
employees and teams are recognized for sharing knowledge
and resources across organizational boundaries. Risk taking
and persistence in pursuing new ideas are encouraged. Job
rotation, lateral (cross-divisional) assignments, and overseas
assignments are viewed as a means for building networks and
relationships across the organization. This network of rela-
tionships builds the capacity for continuous resource sharing
and renewal.
In summary, the relationships among environmental con-
text, strategy, and HR practices shown in Fig. 4 provide a
general conceptual framework. Each of the four strategy
types assumes a core strategic discipline that is required
for successful execution. By designing HR practices to gen-
erate, reinforce, and sustain employees actions in line with
these 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 the
dynamic nature of the external environment, and the
ongoing jostling for an advantageous competitive position,
the appropriate strategy-HR alignment is likely unique for
each company. In the end, effectively managing the ongoing
t and exibility among these relationships may be the key to
a sustainable competitive advantage.
Executing business strategies through HRM practices 85
SELECTED BIBLIOGRAPHY
For additional reading on strategy and competition, see D.
Lei and J. Slocum, Demystifying Your Business Strategy (New
York: Routledge, 2013); D. Lei and J. Slocum, The Tipping
Point of Business Strategy: The Rise and Decline of Competi-
tiveness, Organizational Dynamics, 2009, 38, 131147; and
C. Christensen, D. Wang and D. von Bever, Disruption: Look
Out, Consultants. Youre Next, Harvard Business Review,
2013 (October), 106115.
For more information on strategy and human resource
management, see P. Buller and G. McEvoy, Strategy, Human
Resource Management and Performance: Sharpening Line of
Sight, Human Resource Management Review, 2012, 22, 43
56; W. Joyce and J. Slocum, Top Management Talent, Stra-
tegic Capabilities, and Firm Performance, Organizational
Dynamics, 2012, 41, 183193; I. Tarique and R. Schuler,
Global Talent Management: Literature Reviews, Integrative
Framework and Suggestions for Further Research, Journal of
World Business, 2010, 45, 122133; B. Becker, M. Huselid and
R. Beatty, The Differentiated Workforce: Transforming Talent
into Strategic Intent (Boston: Harvard Business Press, 2009); Y.
Ton, Some Companies Are Investing in Their Workers and
Reaping Healthy Benets, Harvard Business Review, 2012
(January-February), 125131; W.R. Bozwell, Aligning
Employees with the Organizations Strategic Objectives: Out
of Line of Sight, Out of Mind, International Journal of
Human Resource Management, 2006, 17(9), 14891511; J.
Barney, Looking Inside for Competitive Advantage, Acad-
emy of Management Executive, 1995, 9(4), 4961. An excel-
lent book that examines the notion of the people process is
L. 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 Prot
(Tokyo: Kodansha International Ltd., 2000); 3M Company
website, http://solutions.3mcom/wps/portal/3M/en_US/
(accessed on June 3, 2013); K. Paul and B Schneider, 3M
Human Resource Measurement; Engagement: A Multi-Year
Affair, presentation to the Society of Human Resource
Management, http://view.ofceapps.live.com/op/view.-
aspx?src=http%3A%2F%2Fwww.shrm.org%2FPublications%2
Fhrmagazine%2FEditorialContent%2F2011%2F0111%2F
Documents%2F3MHREngagement%252011.24.10%2520for%
2520release%2520nal.ppt; C. Bartlett and A. Mohammed,
3M: Prole of an Innovating Company (Boston: Harvard
Business School, 1995); B. Stone, Costco CEO Craig Jelinkek
Leads 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 Means
More Than Always Low Prices: A Comparison of Costco to
Wal-Marts Sams Club, Academy of Management Perspec-
tives, August 2637, 2006; Netix Culture Document, Free-
dom and Responsibility, http://www.slideshare.net/
reed2001/culture-1798664; Netix company website,
https://signup.netix.com/MediaCenter (accessed on May
28, 2013); W. Shih, S. Kaufman and D. Spinola, Netix
(Boston: Harvard Business School, 2007), and P. McCord,
How Netix Reinvented HR, Harvard Business Review,
2014 (JanuaryFebruary) 7176.
John Slocum is a distinguished visiting scholar in the Gaming Department at SMUs Guild Hall and Professor
Emeritus at SMU. He has consulted for organizations such as Andrews Distributing Company, AAA, Lockheed
Martin, 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 of
Organizational Dynamics, Journal of World Business and Journal of Leadership and Organizational Studies. He
serves 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 Development
Department, 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, Southern
Methodist University. He has consulted for organizations such as Corning, EDS, The Saber Group, IBM and Fidelity
Investments on issues related to strategic planning and strategic renewal. He is co-author with John Slocum on
their book, Demystifying Your Business Strategy, and serves on the editorial review boards of Journal of World
Business and Organizational Dynamics (Edwin L. Cox School of Business, Southern Methodist University, Dallas, TX
75275, United States. Tel.: +1 214 768 3005; e-mail: dlei@cox.smu.edu).
86 J. Slocum et al.
Paul Buller holds the Kinsey M. Robinson Chair in the School of Business Administration at Gonzaga University. He is
the founding director of the Hogan Entrepreneurial Leadership Program at Gonzaga and consults in the areas of
strategy, human resource management, and organizational change. He is the past president of the Western
Academy of Management and has served on the editorial review boards of Journal of World Business, Human
Resource Management and Journal of Jesuit Business Education (School of Business Administration, Gonzaga
University, Spokane, WA 99258, United States. Tel.: +1 509 313 3438; e-mail: buller@jepson.gonzaga.edu).
Executing business strategies through HRM practices 87