CHAPTER 3: STRATEGIC PLANNING Copyright © 2005 South-Western. All rights reserved.

Strategic Management Strategic Human Resource Management Involves aligning initiatives involving how people are managed with organizational mission and objectives Strategic Management Process Determining what needs to be done to achieve corporate objectives, often over 3 - 5 years Examining organization and competitive environment Establishing optimal fit between organization and its environment Reviewing and revising strategic plan Copyright © 2005 South-Western. All rights reserved.

Industrial Organization (I/O) Model Models of Strategy Industrial Organization (I/O) Model External environment is primary determinant of organizational strategy rather than internal decisions of managers Environment presents threats and opportunities All competing organizations control or have equal access to resources Resources are highly mobile between firms Organizational success is achieved by: Offering goods and services at lower costs than competitors Differentiating products to bring premium prices Copyright © 2005 South-Western. All rights reserved.

Models of Strategy Resource-Based View (RBV) An organization’s resources and capabilities, not external environmental conditions, should be basis for strategic decisions Competitive advantage is gained through acquisition and value of organizational resources Organizations can identify, locate and acquire key valuable resources Resources are not highly mobile across organizations, and once acquired are retained Valuable resources are costly to imitate and non-substitutable Copyright © 2005 South-Western. All rights reserved.

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 determined by resources Copyright © 2005 South-Western. All rights reserved.

The Process of Strategic Management Mission statement Environmental analysis Organizational self-assessment Establishing goals and objectives Copyright © 2005 South-Western. All rights reserved.

Exhibit 3-1 Process of Strategic Management Copyright © 2005 South-Western. All rights reserved.

Explains purpose and reason for existence Usually very broad Mission Statement Explains purpose and reason for existence Usually very broad No more than a couple of sentences Serves as foundation for everything organization does Copyright © 2005 South-Western. All rights reserved.

Solectron Mission Statement “Our mission is to provide worldwide responsiveness to our customers by offering the highest quality, lowest total cost, customized, integrated, design, supply-chain and manufacturing solutions through long-term partnerships based on integrity and ethical business practices.” Copyright © 2005 South-Western. All rights reserved.

Analysis of Environment Critical components of external environment Competition Industry structure Government regulations Technology Market trends Economic tends Copyright © 2005 South-Western. All rights reserved.

Organization Self-Assessment Identify primary strengths and weaknesses Find ways to capitalize on strengths Find ways to improve or minimize weaknesses Examine resources Physical Human Technological Capital Copyright © 2005 South-Western. All rights reserved.

Organization Self-Assessment Examine internal management systems Culture Organization structure Power dynamics and policy Decision-making processes Past strategy and performance Work systems Copyright © 2005 South-Western. All rights reserved.

Establishing Goals & Objectives Goals should be: Specific Measurable Flexible Copyright © 2005 South-Western. All rights reserved.

Corporate Strategies: Growth Benefits Gaining economies of scale in operations and functions Enhancing competitive position vis-à-vis industry competitors Providing opportunities for employee professional development and 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 Copyright © 2005 South-Western. All rights reserved.

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 and develop specific HR retention strategies to keep them Copyright © 2005 South-Western. All rights reserved.

Corporate Strategies: Turnaround or Retrenchment Downsizing or streamlining organization in cost-cutting attempt to adjust to competitive environment Few opportunities and many environmental threats Important to develop HR practices to manage “survivors” Copyright © 2005 South-Western. All rights reserved.

Business Unit Strategies: Cost Leadership Increases in efficiency and 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 and promoting efficiency through job specialization and cross-training Copyright © 2005 South-Western. All rights reserved.

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 and compensation for creativity HR strategy focuses on external hiring of unique individuals, and on retaining creative employees Copyright © 2005 South-Western. All rights reserved.

Business Unit Strategies: Focus Business attempts to satisfy needs of only a particular group or narrow market segment (niche) 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 and focus on customer satisfaction are critical factors Hiring members of target segment who are empathetic to customers in target segment Copyright © 2005 South-Western. All rights reserved.

Exhibit 3-3 (page 1) Dyer & Holder’s Typology of Strategies Copyright © 2005 South-Western. All rights reserved.

Exhibit 3-3 (page 2) Dyer & Holder’s Typology of Strategies Copyright © 2005 South-Western. All rights reserved.

Benefits of a Strategic Approach to HR Facilitates development of high-quality workforce through focus on types of people and skills needed Facilitates cost-effective utilization of labor, particularly in service industries where labor is generally greatest cost Facilitates planning and assessment of environmental uncertainty, and adaptation of organization to external forces Copyright © 2005 South-Western. All rights reserved.

“People management systems” construct Reading 3.1 (Wright, Dunford, & Snell) Human Resources & Resource Based View “People management systems” construct Not all competitive advantage begins with people management systems These systems create value to the extent that they impact stock, flow, and change of intellectual capital/knowledge Basis of core competencies Copyright © 2005 South-Western. All rights reserved.

Reading 3.1 Human Resources & Resource Based View “Skill” concept expanded to consider stock of intellectual capital in firm “Behavior” concept reconceptualized as flow of knowledge within firm through its creation, transfer, and integration Core competence arises from combination of firm’s stock of knowledge and flow of knowledge through creation, transfer, and integration in a way that is valuable, rare, inimitable, and organized Copyright © 2005 South-Western. All rights reserved.

Reading 3.1 Human Resources & Resource Based View Dynamic capability construct illustrates the interdependent interplay between workforce and core competence as it changes over time Copyright © 2005 South-Western. All rights reserved.

Reading 3.2 (Capelli & Crocker-Hefter) Distinctive Human Resources “Flexibility” dimension associated with “prospectors” “Established markets” category linked to classifications like “defenders” Employment practices are difficult to change and transfer Claim: core competencies should drive business strategy, and not vice versa Copyright © 2005 South-Western. All rights reserved.

Reading 3.2 Distinctive Human Resources Key question: If competencies are available to everyone in an open market, how can they generate a unique competency and competitive advantage for any one firm? Copyright © 2005 South-Western. All rights reserved.

Reading 3.3 (Schuler) The Five P’s Model of SHRM Philosophy Statements of how organization values and treats employees; essentially culture of the organization Policies Expressions of shared values and guidelines for action on employee-related business issues Programs Coordinated and strategized approaches to initiate, disseminate, and sustain strategic organizational change efforts necessitated by strategic business needs Copyright © 2005 South-Western. All rights reserved.

Reading 3.3 The Five P’s Model of SHRM Practices HR practices motivate behaviors that allow individuals to assume roles consistent with organization’s strategic objectives Three categories of roles: Leadership Managerial Operational Copyright © 2005 South-Western. All rights reserved.

Reading 3.3 The Five P’s Model of SHRM Processes Continuum of participation by all employees in specific activities to facilitate formulation and implementation of other activities Copyright © 2005 South-Western. All rights reserved.

Reading 3.3 The Five P’s Model of SHRM Successful SHRM efforts begin with identification of strategic needs Employee participation is critical to linking strategy and HR practices Strategic HR depends on systematic and analytical mindset Corporate HR departments can have impact on organization’s efforts to launch strategic initiatives Copyright © 2005 South-Western. All rights reserved.