CHAPTER 3: STRATEGIC PLANNING

Strategic Management Strategic Human Resource Management Involves aligning initiatives involving how people are managed with organizational mission & objectives

Models of Strategy Industrial Organization (O/I) Model External environment is primary determinant of organizational strategy rather than internal decisions of managers Environment presents threats & opportunities All competing organizations control or have equal access to resources Resources are highly mobile between firms Organizational success is achieved by Offering goods & services at lower costs than competitors Differentiating products to bring premium prices

Models of Strategy Resource-Based View (RBV) An organization’s resources & capabilities, not external environmental conditions, should be basis for strategic decisions Competitive advantage is gained through acquisition & value of organizational resources Organizations can identify, locate & acquire key valuable resources Resources are not highly mobile across organizations & once acquired are retained Valuable resources are costly to imitate & non-substitutable

Contrasting the Two Approaches Research provides support for both positions What drives strategy? I/O: External considerations RBV: Internal considerations I/O: Strategy drives resource acquisition RBV: Strategy is determined by resources

The Process of Strategic Management Mission statement Environmental analysis Organizational self-assessment Establishing goals & objectives

Exhibit 3-1 Process of Strategic Management

Mission Statement Explains purpose & reason for existence Usually very broad No more than a couple of sentences Serves as foundation for everything organization does

American Express Mission Statement “The mission of our program is to bring to life the American Express value of good corporate citizenship by supporting diverse communities in ways that enhance the company’s reputation with employees, customers, business partners and other stakeholders.”

Analysis of Environment Critical components of external environment Competition Industry structure Government regulations Technology Market trends Economic tends

Organization Self-Assessment Identify primary strengths & weaknesses Find ways to capitalize on strengths Find ways to improve or minimize weaknesses Examine resources Physical Human Technological Capital

Organization Self-Assessment Examine internal management systems Culture Organization structure Power dynamics & policy Decision-making processes Past strategy & performance Work systems

Establishing Goals & Objectives Goals should be SMART Specific Measurable Attainable Relevant Time bound Goals should be flexible as well.

Levels of Strategy Corporate Level Strategy Completive Strategy Business 1 Business 1 Functional Strategy Marketing Dept. HR Dept. Competitive Strategy Business 2 Business 2 Functional Strategy

Corporate Strategies: Growth Benefits Gaining economies of scale in operations & functions Enhancing competitive position vis-à-vis industry competitors Providing opportunities for employee professional development & advancement HR Issues Planning for new hiring Alerting current employees Ensuring quality & performance standards are maintained Internal Methods Penetration of existing markets Developing new markets Developing new products or services for existing or new markets External Methods Acquiring other organizations Vertical integration HR Issues Merging organizations Dismissing redundant employees

Corporate Strategies: Stability Maintaining status quo due to limited environmental opportunities for gaining competitive advantage Few employees will have opportunities for advancement Critical that management identify key employees & develop specific HR retention strategies to keep them

Corporate Strategies: Turnaround or Retrenchment Downsizing or streamlining organization in cost-cutting attempt to adjust to competitive environment Few opportunities & many environmental threats Important to develop HR practices to manage “survivors”

Business Unit Strategies: Cost Leadership Increases in efficiency & cutting of costs, then passing savings to consumer Assumes price elasticity in demand for products or services is high Assumes that customers are more price sensitive than brand loyal HR strategy focuses on short-term performance measures of results & promoting efficiency through job specialization & cross-training

Business Unit Strategies: Differentiation In order to demand a premium price from consumers Attempting to distinguish organizational products or services from other competitors or Creating perception of difference Organization offers employees incentives & compensation for creativity HR strategy focuses on external hiring of unique individuals & on retaining creative employees

Business Unit Strategies: Focus Business attempts to satisfy needs of only a particular group or narrow market segment Strategic intent is to gain consumer loyalty of neglected groups of consumers Strategic HR issue is ensuring employee awareness of uniqueness of market segment Thorough employee training & focus on customer satisfaction are critical factors Hiring members of target segment who are empathetic to customer in target segment

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