Strategy and Human Resources Planning © 2007 Thomson/South-Western. All rights reserved.

Objectives After studying this chapter, you should be able to: Identify the advantages of integrating human resources planning and strategic planning. Understand how an organization’s competitive environment influences strategic planning. Recognize the importance of internal resource analysis. Describe the basic tools for human resources forecasting. Explain the linkages between competitive strategies and HR. © 2007 Thomson/South-Western. All rights reserved.

Objectives (cont’d) After studying this chapter, you should be able to: Understand the requirements of strategy implementation. Recognize the methods for assessing and measuring the effectiveness of strategy. © 2007 Thomson/South-Western. All rights reserved.

Strategic Planning and Human Resources Procedures for making decisions about the organization’s long-term goals and strategies Human Resources Planning (HRP) Process of anticipating and making provision for the movement (flow) of people into, within, and out of an organization. © 2007 Thomson/South-Western. All rights reserved.

Strategic Planning and HR Planning Strategic Human Resources Management (SHRM) The pattern of human resources deployments and activities that enable an organization to achieve its strategic goals Strategy formulation—providing input as to what is possible given the types and numbers of people available. Strategy implementation—making primary resource allocation decisions about structure, processes, and human resources. © 2007 Thomson/South-Western. All rights reserved.

HRP and Strategic Planning Strategic Analysis What human resources are needed and what are available? Strategic Formulation What is required and necessary in support of human resources? Strategic Implementation How will the human resources be allocated? Human Resources Planning Strategic Planning © 2007 Thomson/South-Western. All rights reserved.

Figure 2–1 Linking Strategic Planning and Human Resources © 2007 Thomson/South-Western. All rights reserved.

Step One: Mission, Vision, and Values The basic purpose of the organization as well as its scope of operations Strategic Vision A statement about where the company is going and what it can become in the future; clarifies the long-term direction of the company and its strategic intent Core Values The strong and enduring beliefs and principles that the company uses as a foundation for its decisions © 2007 Thomson/South-Western. All rights reserved.

Step Two: Environmental Scanning The systematic monitoring of the major external forces influencing the organization. Economic factors: general and regional conditions Competitive trends: new processes, services, and innovations Technological changes: robotics and office automation Political and legislative issues: laws and administrative rulings Social concerns: child care and educational priorities Demographic trends: age, composition,and literacy © 2007 Thomson/South-Western. All rights reserved.

Figure 2–2 Five Forces Framework © 2007 Thomson/South-Western. All rights reserved.

Step Three: Internal Analysis Culture Competencies Internal Analysis Composition © 2007 Thomson/South-Western. All rights reserved.

Scanning the Internal Environment Cultural Audits Audits of the culture and quality of work life in an organization. How do employees spend their time? How do they interact with each other? Are employees empowered? What is the predominant leadership style of managers? How do employees advance within the organization? © 2007 Thomson/South-Western. All rights reserved.

Competitive Advantage through People Core Competencies Integrated knowledge sets within an organization that distinguish it from its competitors and deliver value to customers. Sustained competitive advantage through people is achieved if these human resources: Are valuable. Are rare and unavailable to competitors. Are difficult to imitate. Are organized for synergy. © 2007 Thomson/South-Western. All rights reserved.

Composition: The Human Capital Architecture Core knowledge workers Employees who have firm-specific skills that are directly linked to the company’s strategy. Example: Senior software programmer Traditional job-based employees Employees with skills to perform a predefined job that are quite valuable to a company, but not unique. Example: Security guard © 2007 Thomson/South-Western. All rights reserved.

Composition: The Human Capital Architecture (cont’d) Contract labor Employees whose skills are of less strategic value and generally available to all firms. Example: General electrician Alliance/partners Individuals and groups with unique skills, but those skills are not directly related to a company’s core strategy. Example: Independent product label designer © 2007 Thomson/South-Western. All rights reserved.

Figure 2–3 Mapping Human Capital © 2007 Thomson/South-Western. All rights reserved.

Forecasting: A Critical Element of Planning Forecasting involves: forecasting the demand for labor forecasting the supply of labor balancing supply and demand considerations. © 2007 Thomson/South-Western. All rights reserved.

Figure 2–4 Model of HR Forecasting FORECASTING DEMAND Considerations Product/service demand Technology Financial resources Absenteeism/turnover Organizational growth Management philosophy Techniques Trend analysis Managerial estimates Delphi technique BALANCING SUPPLY AND DEMAND (Shortage) Recruitment Full-time Part-time Recalls Techniques Staffing tables Markov analysis Skills inventories Management inventories Replacement charts Succession planning External Considerations Demographic changes Education of the workforce Labor mobility Government policies Unemployment rate (Surplus) Reductions Layoffs Terminations Demotions Retirements FORECASTING SUPPLY © 2007 Thomson/South-Western. All rights reserved.

Forecasting Demand for Employees Quantitative Methods Qualitative Methods Forecasting Demand © 2007 Thomson/South-Western. All rights reserved.

Quantitative Approach: Trend Analysis Forecasting labor demand based on an organizational index such as sales: Select a business factor that best predicts human resources needs. Plot the business factor in relation to the number of employees to determine the labor productivity ratio. Compute the productivity ratio for the past five years. Calculate human resources demand by multiplying the business factor by the productivity ratio. Project human resources demand out to the target year(s). © 2007 Thomson/South-Western. All rights reserved.

Figure 2–5 Example of Trend Analysis of HR Demand BUSINESS  LABOR = HUMAN RESOURCES FACTOR PRODUCTIVITY DEMAND YEAR (SALES IN THOUSANDS) (SALES/EMPLOYEE) (NUMBER OF EMPLOYEES) 2000 $2,351 14.33 164 2001 $2,613 11.12 235 2002 $2,935 8.34 352 2003 $3,306 10.02 330 2004 $3,613 11.12 325 2005 $3,748 11.12 337 2006 $3,880 12.52 310 2007* $4,095 12.52 327 2008* $4,283 12.52 342 2009* $4,446 12.52 355 *Projected figures © 2007 Thomson/South-Western. All rights reserved.

Qualitative Approaches Management Forecasts The opinions (judgments) of supervisors, department managers, experts, or others knowledgeable about the organization’s future employment needs. Delphi Technique An attempt to decrease the subjectivity of forecasts by soliciting and summarizing the judgments of a preselected group of individuals. The final forecast represents a composite group judgment. © 2007 Thomson/South-Western. All rights reserved.

Forecasting the Supply of Employees: Internal Labor Supply Staffing Tables Markov Analysis Skill Inventories Replacement Charts Succession Planning © 2007 Thomson/South-Western. All rights reserved.

Forecasting Internal Labor Supply Staffing Tables Graphic representations of all organizational jobs, along with the numbers of employees currently occupying those jobs and future (monthly or yearly) employment requirements. Markov Analysis A method for tracking the pattern of employee movements through various jobs. © 2007 Thomson/South-Western. All rights reserved.

Figure 2–6 Hypothetical Markov Analysis for a Retail Company © 2007 Thomson/South-Western. All rights reserved.

Internal Demand Forecasting Tools Skill Inventories Files of personnel education, experience, interests, skills, etc., that allow managers to quickly match job openings with employee backgrounds. Replacement Charts Listings of current jobholders and persons who are potential replacements if an opening occurs. Succession Planning The process of identifying, developing, and tracking key individuals for executive positions. © 2007 Thomson/South-Western. All rights reserved.

Highlights in HRM 2 Succession-Planning Checklist Scores RATE THE SUCCESS OF YOUR SUCCESSION PLANNING For each characteristic of a best-practice succession-planning and management program appearing in the left column below, enter a number to the right to indicate how well you believe your organization manages that characteristic. Ask other decision makers in your organization to complete this form individually. Then compile the scores and compare notes. Scores Source: From William J. Rothwell, “Putting Success into Your Succession Planning,” The Journal of Business Strategy 23, no. 3 (May/June 2002): 32–37. Republished with permission—Thomson Media, One State Street, 26th Floor, New York, NY 10004. © 2007 Thomson/South-Western. All rights reserved.

Figure 2–7 An Executive Replacement Chart © 2007 Thomson/South-Western. All rights reserved.

Step Four: Formulating Strategy Strategy Formulation Moving from simple analysis to devising a coherent course of action. SWOT analysis A comparison of strengths, weaknesses, opportunities, and threats for strategy formulation purposes. Use the strengths of the organization to capitalize on opportunities, counteract threats, and alleviate internal weaknesses. © 2007 Thomson/South-Western. All rights reserved.

Corporate Strategy Corporate Strategy Growth and Diversification Mergers and Acquisitions Corporate Strategy Strategic Alliances and Joint Ventures © 2007 Thomson/South-Western. All rights reserved.

Business Strategy Value Creation What the firm adds to a product or service by virtue of making it; the amount of benefits provided by the product or service once the costs of making it are subtracted. Low-cost strategy: competing on productivity and efficiency Keeping costs low to offer an attractive price to customers (relative to competitors). Differentiation strategy: compete on added value Involves providing something unique and distinctive to customers that they value. © 2007 Thomson/South-Western. All rights reserved.

Functional Strategy: Ensuring Alignment External Fit (or External Alignment) Focuses on the connection between the business objectives and the major initiatives in HR. Internal Fit (or Internal Alignment) Aligning HR practices with one another to establish a configuration that is mutually reinforcing. © 2007 Thomson/South-Western. All rights reserved.

Highlights in HRM 4 Source: Company document. © 2007 Thomson/South-Western. All rights reserved.

Figure 2–8 The 7-S Model Source: McKinsey & Company © 2007 Thomson/South-Western. All rights reserved.

Step Five: Strategy Implementation Taking Action: Reconciling Supply and Demand Balancing demand and supply considerations Forecasting business activities (trends) Locating applicants Organizational downsizing Reducing “headcount” Making layoff decisions Seniority or performance? Labor agreements © 2007 Thomson/South-Western. All rights reserved.

Step Six: Evaluation and Assessment Evaluation and Assessment Issues Benchmarking: The process of comparing the organization’s processes and practices with those of other companies Human capital metrics Assess aspects of the workforce HR metrics Assess the performance of the HR function itself © 2007 Thomson/South-Western. All rights reserved.

The Top Ten Measures Of Human Capital Highlights in HRM 5 The Top Ten Measures Of Human Capital Your most important issues Human capital value added Human capital ROI Separation cost Voluntary separation rate Total labor-cost/revenue percentage Total compensation/revenue percentage Training investment factor Time to start Revenue factor Source: “The Top 10 Measures of Human Capital Management,” HRFocus 78, no. 5 (May 2001): 8. Copyright © 2001. Reprinted by permission of the publisher via Copyright Clearance Center. © 2007 Thomson/South-Western. All rights reserved.

Measuring Strategic Alignment Strategy Mapping and the Balanced Scorecard Balanced Scorecard (BSC) A measurement framework that helps managers translate strategic goals into operational objectives financial customer processes learning © 2007 Thomson/South-Western. All rights reserved.

Figure 2–9 Balanced Scorecard © 2007 Thomson/South-Western. All rights reserved.

Figure 2–10 Assessing Internal Fit © 2007 Thomson/South-Western. All rights reserved.

Ensuring Strategic Flexibility for the Future Organizational Capability Capacity of the organization to act and change in pursuit of sustainable competitive advantage. Coordination flexibility The ability to rapidly reallocate resources to new or changing needs. Resource flexibility Having human resources who can do many different things in different ways. © 2007 Thomson/South-Western. All rights reserved.

Key Terms Balanced Scorecard (BSC) benchmarking core competencies core values cultural audits environmental scanning human resources planning (HRP) management forecasts Markov analysis mission organizational capability replacement charts skill inventories staffing tables strategic human resources management (SHRM) strategic planning strategic vision succession planning SWOT analysis trend analysis value creation © 2007 Thomson/South-Western. All rights reserved.

Calculating Turnover and Absenteeism © 2007 Thomson/South-Western. All rights reserved.

Employee Turnover Rates Computing Turnover Rates: © 2007 Thomson/South-Western. All rights reserved.

Employee Turnover Rates (cont’d) Computing Turnover Rates (cont’d): © 2007 Thomson/South-Western. All rights reserved.

Highlights in HRM 6 Costs Associated With The Turnover Of One Computer Programmer (Turnover costs = Separation costs + Replacement costs + Training costs) Separation costs Exit interview cost for salary and benefits of both interviewer and departing employee during the exit interview = $30+$30 = $60 Administrative and record-keeping action = $30 Total separation costs = $60 + $30 = $90 Replacement costs Advertising for job opening = $2,500 Preemployment administrative functions and record-keeping action = $100 Selection interview = $250 Employment tests = $40 Meetings to discuss candidates (salary and benefits of managers while participating in meetings )= $250 Total replacement costs = $2,500 + $100 + $250 + $40 + $250 = $3,140 Training costs Booklets, manuals, and reports = $50 Education = $240/day for new employee’s salary and benefits x 10 days of workshops, seminars, or courses = $2,400 One-to-one coaching = ($240/day/new employee + $240/day/staff coach or job expert) x 20 days of one-to-one coaching = $9,600 Salary and benefits of new employee until he or she gets “up to par” = $240/day for salary and benefits x 20 days = $4,800 Training costs = $50 + $2,400 + $9,600 + $4,800 = $16,850 Total turnover costs= $90 + $3,140 + $16,850 = $20,080 Source: Adapted from the book Turning Your Human Resources Department into a Profit CenterTM by Michael Mercer, Ph.D. (Castlegate Publishers, Inc., Barrington, Illinois). Copyright 2002 Michael Mercer. Reproduced with permission from Michael Mercer, Ph.D., www.DrMercer.com. © 2007 Thomson/South-Western. All rights reserved.

Employee Absenteeism Rates Computing Absenteeism Rates © 2007 Thomson/South-Western. All rights reserved.