This document discusses different models for classifying human resource activities based on their strategic importance and relationship to transactions or relationships. It describes a typology that categorizes activities as having high or low strategic value and being transactional or relational in nature. Another model classifies companies into different strategic types ("clubs", "baseball teams", "academies", and "fortresses") that pursue different competitive strategies and have varying human resource practices. The document also discusses how network organizations outsource non-core functions and require employees with entrepreneurial and contracting skills.

1. FIGURE 4- 2 Strategic Typology of Human Resource Activities
Source: Slight modification of model developed by Alan W.
Speaker, Synhrgy HR Technologies, Alpharetta, GA, 2000.
timely manner, and with cost efficiency. The firm's executives
do not view these activities as strategically important and do
not become concerned with them unless there is a problem.
However, when such activities are performed poorly, human
resource executives quickly get into trouble. Human resource
departments must ensure that the activities in this quadrant are
performed well before they can take on more strategic roles. In
many instances, these activities are good candidates for
outsourcing, which enables human resource departments to shift
their focus and staff resources to a more strategic venue. 73
Baron and Kreps make a similar recommendation in that they
argue that activities of low strategic importance and low social
interdependence should be outsourced and that the decision
criteria for such decisions are cost and flexibility. 74 The
evolving wisdom of strategic human resources argues that the
function can make its greatest contributions in the upper right
quadrant. Human resource executives see an imperative to move
their departments toward greater contributions in this area.
Activities in the high strategic value/ relationship quadrant have
a more direct impact on the firm's ability to successfully
implement its competitive strategy. For example, if the firm has
poor relations with its unionized workers and this produces
restrictive work rules and resistance to more flexible work
arrangements, then the firm is likely to have difficulty
implementing a low- cost strategy. Likewise, if the firm does
not have a good executive compensation pro-gram, then it is
likely to have more political infighting and will encounter
greater difficulty in getting its executives to cooperate for the
good of the company. Given such conditions, the firm is
unlikely to succeed with a differentiation strategy requiring
superior customer service. Because excellence in these

2. activities can provide firms with a source of competitive
advantage and some are based on trusting relationships
developed over time, they are unlikely to be outsourced. In
contrast to executives, the firm's other employees are less likely
to attach as much importance to these activities. Several
planning- related or design activities fall within the high
strategic value/ transactional quadrant. These activities
potentially affect the firm's ability to implement strategies in
the future. For example, staffing planning or human resource
planning probably falls within this category. As will be
explained in Chapter 5, such planning is necessary to ensure the
availability of key people to implement the firm's strategies in
the future. Compliance with governmental regulations is another
activity of high strategic value of a transactional nature. For
example, firms need to evaluate and monitor their staffing
practices and analyze the upward mobility of their female and
minority employees to ensure equal employment opportunity. If
firms fail to comply with these regulations, the financial
liabilities incurred can prevent them from successful
implementation of their strategies. The last quadrant, low
strategic value/ relationship, may include activities such as
employee assistance programs. These activities or programs
require substantial relationship skills such as trust,
confidentiality, and genuine concern for employees' welfare.
However, except for the long- term preservation of the firm's
investments in valuable employees, positive contributions to
employee morale, and good corporate citizenship, such an
activity has little immediate impact on the firm's ability to
implement its strategies.
CLASSIFYING HUMAN RESOURCE TYPES Greater
understanding of industrial and strategic differences can be
obtained by examining different classifications of strategic
types. Interestingly, principles of enlightened management
suggest that companies should develop then" employees, strive
toward providing employment security, and seek to have

3. supplies of internal candidates prepared for promotion when
vacancies occur. Nonetheless, some companies do not manage
their human resources in accordance with these principles, nor
is there any indication that they should. In fact, promises of job
security, committing too much of the company's resources to
human resource programs, and placing too much emphasis on
employees' feelings about strategic decisions can make them
uncompetitive. 75 An analysis of one company's experience
with employment security policies following the plunge of its
stock revealed the following: " One discovery . . . was that the
provisions of employment security did not automatically
motivate employees to learn new skills, change jobs, or relocate
to the extent demanded by the crisis." 76 Examples such as this
demonstrate that the application of human resource management
principles must be tempered by industry differences.
Systematic differences in utilization of human resource
practices may be explained by a typology of career systems
developed by Jeffrey Sonnenfeld and Maury Peiperl. Companies
in this typology are classified as ( 1) clubs, ( 2) base-ball teams,
( 3) academies, and ( 4) fortresses. This typology has been
overlaid on an earlier typology of strategies developed by
Raymond Miles and Charles Snow. In the Miles and Snow
typology, the corresponding four basic types of strategies are,
respectively: ( 1) defenders ( low- cost producers), ( 2)
prospectors ( product differentiators and innovators), ( 3)
analyzers ( imitators of successful prospectors and focused
operations), and ( 4) reactors ( companies with dysfunctional
strategies). Figure 4- 3 presents the Sonnenfeld and Peiperl
model. 77
The personnel policies followed by companies in each of these
categories provide marked contrasts. For economy of
presentation in the following discussion, the characteristics of
companies in the Miles and Snow categories are covered within
the Sonnenfeld and Peiperl categories.

4. Club. When the strategy is to be the low- cost producer, the
focus is on cost control. With cost control as the guiding
principle, predictability and a short-term focus are valued. 78
Companies in this category compete by increasing their
efficiency in controlling costs, maintaining quality, and
providing customer service. Types of companies in the club
category include airlines, banks, utilities, and governmental
agencies. Club personnel policies emphasize development and
training, as employees are hired in only at entry level, talent is
developed within the organization, and higher- level vacancies
are filled by promotions from within. There is an expectation
that employees will remain with the company for a long period
and there is low turnover. In terms of " make" or " buy," these
companies " make" their own higher- level employees. A
company well known for its managerial excellence in this
category is Lincoln Electric. 79
Baseball Team. Companies in this category pursue an
innovation strategy. As such, they design and produce new
products and routinely redeploy resources from discontinued
products to the development of new ones. Hewlett- Packard is
an example of a successful company in this category. In
Sonnenfeld and
CHAPTER 4 Strategy Formulation 141
FIGURE 4- 5 Strategic Staffing Policies Source: Modification

5. of figure from Jeffrey A. Sonnenfeld and Maury A. Peiperl. "
Staffing Policy as a Strategic Response: A Typology of Career
Systems," Academy of Management Review 13, no. 4 ( 1988):
591. Reprinted with permission of Academy of Management
Review.
Peiperl's framework, investment banks, broadcasting companies,
software developers, entertainment companies, and biological
research companies fit this category. Companies in this category
also can be professional firms such as law firms, advertising
agencies, consulting firms, and accounting firms. When
innovation is the strategy, those organizational conditions that
foster risk taking, cooperation, creativity, and a long- term
perspective are valued. Accordingly, companies pursuing an
innovation strategy invest in training their employees and
managers. In addition to providing more training, they also tend
to train their employees in skills that apply beyond their present
jobs. These differences high-light the benefits of integrating
strategic planning and human resource planning. 80
The baseball team brings in talent at any level within the
organization and does not place much emphasis on
development. Instead, there is a " buy" approach to talent.
Nonetheless, there also may be development through rapid
assignment changes. However, career paths often involve inter
organizational moves as individuals take jobs with other
companies as they develop and command greater compensation,
responsibility, and professional stature. Promotion policies are
often " up or out" as those passed over for promotion are
terminated. Not surprisingly, in such companies, performance
appraisals are more results oriented. 81 The trading of baseball
players from one team to another provides a good example of
career paths and the high talent and high turnover of the
organizations in this category. Another example of career
progression in this category might be the local television
reporter who moves up to a national news network. Empirical

6. evidence of distinctive " make" or " buy" patterns of human
resource management practices has been established in a study
of MBA students who have accepted offers of employment. 82
Closer examination of the baseball team quadrant indicates
some potential contradictions. Sonnenfeld and Peiperl's
category of baseball teams does not correspond completely with
Miles and Snow's prospector category because certified public
accounting ( CPA) firms and law firms probably do not operate
at the same level of innovation as prospectors such as Hewlett-
Packard. Firms emphasizing innovation, the prospectors in
Miles and Snow's typology, have also been found to place a
heavier emphasis on training than less innovative companies.
There is also a need for lower turnover in such firms because
the loss of personnel can be extremely disruptive. 83 Great
disruption results from turnover in these firms because their
quick rate of learning often leaves organizational knowledge
unrecorded. Explanation for this apparent contradiction may
require more complex descriptions of baseball teams in
Sonnenfeld and Peiperl's typology. Even without considering
prospectors, within the baseball team quad-rant itself, law firms
and CPA firms do indeed have high turnover, but typically it is
confined mainly to the lower levels. The employees at the
higher levels, partners, have very low turnover as they are
frequently able to reap the financial rewards of managing the
efforts of junior professionals.
Academy. Academies are somewhat of a hybrid in that they are
both product innovators and competitors in long- run production
roles. They attempt to exploit niches in the marketplace. Types
of companies in this category include manufacturers of
electronics, Pharmaceuticals, consumer products, and
automobiles. Texas Instruments is an example of a successful
academy. The personnel policies of the academy, which follows
a focused strategy, fall between the two extremes of clubs and
baseball teams. In this category, there is substantial emphasis

7. on development but some outsiders are hired to fill higher- level
positions. These companies both " make" and " buy" human
resources. There are extensive career paths within the
companies themselves. Performance appraisal tends to
emphasize process. 84 Although the personnel policies of these
companies differ, they are consistent with their companies'
overall strategies.
Fortress. Companies in this category are in highly competitive
markets and are at the mercy of their environments. Examples
of the types of companies in this category include those in
hotels, retailing, publishing, textiles, and natural resources. 85
Because companies in this category are essentially reactive,
there are few systematic strategic implications.
NETWORK ORGANIZATIONS AND STRATEGY
Network organizations were discussed in Chapter 2 as an
important development in the human resource environment.
Such organizations have developed as a result of advances in
communications technology, desires for workforce flexibility,
and intensified worldwide competition brought about by
financial and economic deregulation. Network organizations
readily acquire or divest their organizational units based on
their return on assets and outsource activities that other
companies or venture partners can produce at a lower cost in
less time. Outsourcing enables network organizations to
maintain an optimal size and lower economic risk of ventures
into new markets. Essentially, network organizations retain for
themselves only those activities in which they have expertise.
Several different firms may be involved in a network, with the
activities of product design, manufacturing, and distribution
being performed by the specialist in each area. 86
There are differences between network organizations in their
degree of permanence and externality. They can even operate

8. internally within giant companies, such as General Motors. In
the case of internal networks, efficiencies are sought through
the use of market- priced transactions between network
components. For external networks, at one end of the spectrum
are dynamic networks that have lead companies that basically
act as brokers, outsourcing virtually all activities to a changing
set of companies. Lewis Galoob toys, with only 100 employees,
provides an example of such a network that outsources
manufacturing, design, development, distribution, and
collection of accounts receivable. At the other end of the
external spectrum are stable networks in which one company
remains as the central core as an investor and outsources to
subsidiaries and other independent companies. BMW provides
an example of the latter. As a result of computer, satellite, and
telecommunications technology, company components of the
network that perform outsourced activities may be located
throughout the world. 87
One strategic implication of network organizations is that lead
firms will have needs for employees who have the
entrepreneurial skills required for the broker activities of
establishing the network. Project management experience across
functional areas may help develop the kinds of skills needed.
Addition-ally, the internal entrepreneurship approaches of firms
such as Texas Instruments may also develop the entrepreneurial
skills needed to establish networks. Further, because the
establishment and operation of networks require contracting
skills, managers of construction engineering and negotiators
may prove to be good sources of network operators. As these
skills indicate, while network lead companies and brokers have
fewer permanent employees than more convenin-resources. 85
Because companies in this category are essentially reactive,
there are few systematic strategic implications. NETWORK
ORGANIZATIONS AND STRATEGY Network organizations
were discussed in Chapter 2 as an important development in the
human resource environment. Such organizations have

9. developed as a result of advances in communications
technology, desires for workforce flexibility, and intensified
worldwide competition brought about by financial and economic
deregulation. Network organizations readily acquire or divest
their organizational units based on their return on assets and
outsource activities that other companies or venture partners
can produce at a lower cost in less time. Outsourcing enables
network organizations to maintain an optimal size and lower
economic risk of ventures into new markets. Essentially,
network organizations retain for themselves only those
activities in which they have expertise. Several different firms
may be involved in a network, with the activities of product
design, manufacturing, and distribution being performed by the
specialist in each area. 86 There are differences between
network organizations in their degree of permanence and
externality. They can even operate internally within giant
companies, such as General Motors. In the case of internal
networks, efficiencies are sought through the use of market-
priced transactions between network components. For external
networks, at one end of the spectrum are dynamic networks that
have lead companies that basically act as brokers, outsourcing
virtually all activities to a changing set of companies. Lewis
Galoob toys, with only 100 employees, provides an example of
such a network that outsources manufacturing, design,
development, distribution, and collection of accounts
receivable. At the other end of the external spectrum are stable
networks in which one company remains as the central core as
an investor and outsources to subsidiaries and other independent
companies. BMW provides an example of the latter. As a result
of computer, satellite, and telecommunications technology,
company components of the network that perform outsourced
activities may be located throughout the world. 87 One strategic
implication of network organizations is that lead firms will have
needs for employees who have the entrepreneurial skills
required for the broker activities of establishing the network.
Project management experience across functional areas may

10. help develop the kinds of skills needed. Addition-ally, the
internal entrepreneurship approaches of firms such as Texas
Instruments may also develop the entrepreneurial skills needed
to establish networks. Further, because the establishment and
operation of networks require contracting skills, managers of
construction engineering and negotiators may prove to be good
sources of network operators. As these skills indicate, while
network lead companies and brokers have fewer permanent
employees than more conven-