The Harvard approach is rooted in the human resource relation's tradition, and supports the view that people can influence the outcomes of strategy. It employs the multiple stakeholder models. Employees are seen as having interests along with other stakeholders such as shareholders, management, unions, and government.
HRM has four policy areas, which must be addressed. They are human resource flows, reward systems, employee influence, and work systems. Human resource flows involve managing the flow of people into organization (recruitment, selection), through the organization (placement, appraisal, promotion), out of the organization (termination). HR policy must ensure the right mix and number of staff through resourcing and developing employee competences. Reward systems cover pay and benefits designed to attract, motivate, and keep employees. Employee influence is concerned with controlling levels of authority, power, and decision- making. Work systems involve defining and designing jobs, so that the arrangement of people, information, and technology provide the best outcomes. These policies are designed to achieve the crucial goals of: commitment, congruence, competence, and cost effectiveness. The Harvard approach also emphasizes a belief in an organization's people as assets rather than costs. People can be allocated in order to obtain maximum efficiency. Their efforts can be directed towards particular objectives and their competences developed to achieve the highest quality work. Time spent on training and development is an investment in a firm's human capital. Human capital is the body of knowledge, skills, and experience possessed by an organization's people. According to this viewpoint, investment in people provides long-term benefits for an organization. Every business consists of physical, financial and human resources but human resources are particularly important because a firm's competitiveness depends upon its employees' ability to make best use of the physical and monetary resources. Consequently, the success of a business depends ultimately on the people working for it.
In 1984 Fombrun, Tichy and Devanna launched a model, the Michigan model of HRM, which emphasized that organizational effectiveness is dependent on achieving a tight fit between human resource strategy and the overall business strategy of the firm. Only when this has been achieved can HRM systems be developed. Their core recommendation is that the business strategy should be employed to define and determine the types of employee performance required. Once performance has been specified, systems that ensure its realization must be slotted into place. The first of these is a system for personal selection; that is a system that ensures the deployment of individuals, with the appropriate aptitudes, knowledge, and experience. Second, there should be an appraisal system that enables the firm on a regular basis to assess whether performance is satisfactory. Third, there should be a system of rewards that differentiates between different levels of performance. Fourth, they recommended that a development system should be available on those instances where the appraisal system indicates performance shortcomings. On the surface the Michigan model bears a strong resemblance to scientific management.