Ch. 2: Strategy and HR Management Proposition organization follows to compete successfully, thus surviving and growing. STRATEGIC HRM Using Human Capital to gain or keep competitive advantage, leading to greater organizational effectiveness.

Strategic HR Management Process

Strategic Success with HR Consultation Employment security HR planning Selective recruiting, careful selection Competitive wages/incentives Performance enhancement Empowerment Training/cross training Promotion from within Measurement

Operationalizing HR Strategy Thinking Strategically Know the business Focus on key business goals Know what to measure and measure Be future-oriented; allow the organization to be prepared

Some Aspects of HR with Core Competency Potential Excellent service Consultation Advocacy Innovation Quality Performance HR special skills

HR Consulting Contributions to Organizational Effectiveness Maximizing individual, team and organizational performance Customer satisfaction Return on investment / bottom line

Organizational Productivity Measure of the quantity and quality of work done, considering the cost of the resources used. Unit labor cost Ratio of average cost of workers and their average levels of output.

Approaches to Improving Organizational Productivity

HR Effectiveness and Financial Performance The extent to which goals have been met. Efficiency The degree to which operations are done in an economical manner.

Hourly Compensation Costs for Manufacturing Production Workers Source: U.S. Bureau of Statistics, www.bls.gov.

Human Resource Planning Human Resource (HR) Planning Analyzing and identifying the need for and availability of human resources so that the organization can meet its objectives. HR Planning’s Strategic Role Obtain information from managers to develop HR projections for top management to use in strategic planning and setting organizational goals.

Purpose of HR Planning Right people Right human capital Right place Right time

HR Forecasting Strategic HR Planning Yes Develop programs to increase supply or reduce demand Develop programs to decrease supply or increase demand No Match? Forecast HR requirements (demand) Forecast HR availability (supply) Strategic HR Planning

Example of distribution of responsibilities in HR Planning

Small Businesses and HR Planning HR Planning Issues in Small Businesses Attracting and retaining qualified outsiders Management succession between generations of owners Family relationships and HR policies Evolution of HR activities as the business grows

HR Planning Process

Scanning the External Environment Environmental Scanning Process of studying the environment of the organization to pinpoint opportunities and threats. HR Planning Government Influences Economic Conditions Geographic and Competition Concerns Workforce Composition

Assessing the Internal Workforce Jobs and Skills Audit What jobs exist now? How many individuals are performing each job? What are the reporting relationships of jobs? How essential is each job? What jobs will be needed to implement future organizational strategies? What are the characteristics of anticipated jobs?

Assessing the Internal Workforce (cont’d) Organizational Capabilities Inventory HRIS databases—sources of information about employees’ knowledge, skills, and abilities (KSAs) Components Individual employee demographics Individual career progression Individual job performance data

Forecasting HR Supply and Demand The use of information from the past and present to identify expected future conditions. Types of Forecasts HR Demand Internal Supply External Supply Forecasting Periods Short-term—less than one year Intermediate—up to five years Long-range—more than five years

HR Forecasting Methods Judgmental Estimates Rules of thumb Delphi Technique Nominal Groups Mathematical Statistical regression analysis Simulation models Productivity ratios Staffing ratios

Forecasting HR Demand Organization-Wide Estimate for Total HR Demand Unit breakdown for specific skill needs by number and type of employee Develop decision rules (“fill rates”) for positions to be filled internally and externally. Develop additional decision rules for positions impacted by the chain effects of internal promotions and transfers.

Forecasting HR Supply Forecasting External HR Supply Factors: Net migration in area Individuals entering and leaving the workforce Graduation rates Changing workforce composition and patterns Economic forecasts Technological developments Competing employers Government regs and legislation

Estimating Internal Labor Supply for a Given Unit

Forecasting HR Supply (cont’d) Succession Planning Process of identifying a long-term plan for the orderly replacement of key employees.

Workforce Realignment Issues in Matching the Supply of Labor with the Demand for Labor Managing a Human Resources Surplus Outplacement Services HR Planning in Mergers and Acquisitions

Managing a Human Resources Surplus Workforce Reductions and the WARN Act Workforce Downsizing Attrition and Hiring Freezes Voluntary Separation Programs Layoffs Human Resource Surplus

Managing a Human Resource Surplus Outplacement services : Personal career counseling Resume preparation and typing services Interviewing workshops Referral assistance Severance payments Continuance of medical benefits Job retraining

Making Downsizing More Effective

Managing a Labor Shortage Use overtime Add contingent workers Bring back recent retirees Outsource work Reduce turnover Human Resource Shortage

HR Planning in Mergers and Acquisitions Cultural Compatibility Match in factors such as decision-making styles, levels of teamwork, information-sharing philosophies, and the formality of the two organizations HR’s Role Blending cultures Revising the org structure Merging HR activities

Key Factors in Cultural Fit Degree of internal integration Autonomy Adaptability Employee trust Diversity Cultural Fit in Mergers and Acquisitions

Measuring Effectiveness Using HR Metrics HR Metrics = Specific measures as HR performance indicators. Demonstrate HR’s value and track its performance. Characteristics of good HR metrics: Accuracy. Linked to strategic and operational objectives. Clear calculations. Meet information needs. Can be compared internally and externally Can be used to drive HR management efforts

Examples of Strategic and Operational HR Metrics Revenue generated per FTE Net income before taxes per FTE Ratio of managers to non-managers Labor costs as percentage of total operating costs ROI of human capital expenditures HR department expenses as percentage of total expenses Payroll/benefits costs as percentage of revenues Annual turnover rate Benefits costs as percentage of payroll Training expenditures per FTE Average time to fi ll openings Workers’ compensation costs per FTE Number of applicants per opening Absenteeism by employee level/department Note: FTE equals one employee working full-time one year.

Measures of Strategic HR Effectiveness Return on Investment (ROI) Calculation showing the value of expenditures for HR activities. A = Operating costs for a new or enhance system for the time period B = One-time cost of acquisition and implementation C = Value of gains from productivity improvements for the period

Measures of Strategic HR Effectiveness (cont’d) Economic Value Added (EVA) A firm’s net operating profit after the cost of capital (required return) is deducted. Cost of capital is the benchmark for returns for all HR activities. HR and the Balanced Scorecard Financial Internal business processes Customer Learning and growth

Revenue and Income per FTE *Data not reliable. Source: Human Capital Benchmarking Study (Alexandria, VA: SHRM, 2006).

HR Measurement and Benchmarking Comparing specific measures of performance against data on those measures in other “best practice” organizations Common Benchmarks Total compensation as a percentage of net income before taxes Percent of management positions filled internally Dollar sales per employee Benefits as a percentage of payroll cost

Assessing HR Effectiveness HR Audit Formal research effort evaluating current state of HR management in an organization Audit areas: Legal compliance Administrative processes Recordkeeping Employee retention Benefits Absenteeism and turnover control Performance management system