1. Fundamentals of Human Resource Management 2e
Gary Dessler

2. Strategic Human Resource Management
Chapter 3
The human resource manager must formulate management policies and activities that will produce the employee skills and behaviors necessary for a company to achieve its strategic goals.
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3. When you finish studying this chapter, you should be able to:
Outline the steps in the strategic management process.
Explain and give examples of each type of companywide and competitive strategy.
Explain how employers create competitive advantage through human resource management.
Define and give several examples of strategic human resource management.
Learn how to devise human resource practices to support the employer’s business strategy.
When you finish studying this chapter, you should be able to:
Outline the steps in the strategic management process.
Explain and give examples of each type of companywide and competitive strategy.
Explain how employers create competitive advantage through human resource management.
Define and give several examples of strategic human resource management.
Learn how to devise human resource practices to support the employer’s business strategy.

4. What is Strategic Human Resource Management?
Formulating and executing human resource policies and practices that produce the employee competencies and behaviors that the company needs to achieve its strategic aims
Strategic human resource management is critical for achieving the company’s strategic goals by formulating and executing human resource policies and practices that produce the necessary employee competencies and behaviors.

5. What is Strategic Human Resource Management?
Decide what the strategic goals are
Identify the employee skills and behaviors that are required to achieve these goals
Formulate human resource management policies and practices that will produce these required employee skills and behaviors
The process of strategic human resource management is to:
Decide what the strategic goals are
Identify the employee skills and behaviors that are required to achieve these goals
Formulate human resource management policies and practices that will produce these required employee skills and behaviors

6. Sample Hierarchy of Goals Diagram for a Company: Figure 3.1
How a company meets its strategic goals can be summarized in a hierarchy of goals diagram, as seen here.
At the top of the company, the president and staff set strategic goals (such as to “Double sales revenue to $16 million in fiscal year 2011”).
The next level of managers (in this case, vice presidents) then sets goals (such as to “Add one production line at plant”). These goals should flow from and make sense in terms of the goals in the uppermost tier.
Next, the vice presidents’ subordinates set their own goals, as seen in the bottom tier, and so on.
If all employees do their jobs and meet their goals, the company and the CEO will accomplish the companywide strategic goals. This hierarchy of goals flows from the company’s basic planning process, which we will look at next.

7. The Planning Process Set an objective Make forecasts
Determine your alternatives for getting from where you are now to where you want to be
Evaluate your alternatives
Implement and evaluate your plan
The basic planning process always involves setting objectives, forecasting and assessing your basic planning assumptions, determining alternative courses of action, evaluating which options are best, and then choosing, evaluating and implementing your plan.
Managerial planning usually involves a hierarchical aspect in which top management approves a long-term or strategic plan, then each department works with top management to create its own subsidiary budgets, goals, and plans to fit and to contribute to the company’s overall strategic plan.

8. The Strategic Management Process
Figure 3.2 outlines the strategic management process in seven steps, which include:
Defining the business and developing a mission
Evaluating the firm’s internal and external strengths, weaknesses, opportunities, and threats
Formulating a new business direction
Translating the mission into strategic goals
Formulating strategies or courses of action
Steps 6 and 7 involve implementing and then evaluating the strategic plan.

9. The Strategic Management Process
Strategic plan
The company’s plan for how it will match its internal strengths and weaknesses with external opportunities and threats in order to maintain a competitive advantage
The strategic management process begins with a strategic plan, which is the company’s plan for how it will match its internal strengths and weaknesses with external opportunities and threats in order to maintain a competitive advantage.

10. The Strategic Management Process
Strategic planning
The manager formulates specific strategies to take the company from where it is now to where he or she wants it to be
The manager then formulates specific strategies—including human resource strategies and other strategies—to take the company from where it is now to where he or she wants it to be.

11. The Strategic Management Process
Strategy
The company’s long-term plan for how it will balance its internal strengths and weaknesses with its external opportunities and threats to maintain a competitive advantage
A strategy is a course of action; it’s the company’s long-term plan for balancing its internal strengths and weaknesses with external opportunities and threats to maintain a competitive advantage.

12. The Strategic Management Process
The process of identifying and executing the company’s mission by matching its capabilities with the demands of its environment
Finally, strategic management is the process of identifying and executing the company’s strategic plan by matching the company’s capabilities with the demands of its environment.
When we looked earlier at the seven steps in the strategic management process, the first five steps were all part of strategic planning.

13. Worksheet for Environmental Scanning: Figure 3.3
Step 2 of the strategic planning process poses the question, “Are we heading in the right direction?”
Managers can use tools to get a better sense of the economic, competitive, demographic, technological, and political trends that might affect the company. The environmental scanning worksheet, shown here, is a simple tool that helps compile relevant information about the company’s environment.

14. SWOT Matrix with Generic Examples: Figure 3.4
A second tool is the SWOT chart, illustrated here, which mangers use to evaluate the company’s strengths, weaknesses, opportunities, and threats—and to create a strategy that makes sense in terms of each.
The SWOT matrix is the backbone of strategic planning.

15. The Strategic Management Process
Vision statement
A general statement of the company’s intended direction that evokes strong emotions in organization members
Mission statement
Spells out who the company is, what it does, and where it’s headed
Step 3 of the strategic management process is to formulate a new direction.
Based on the environmental scan and SWOT analysis, managers can better decide which products to sell, where to sell them, and how their products or services differ from those of their competitors.
Managers may also formulate a vision statement, which broadly describes where the company is heading and stirs up strong emotions in the organization’s members.
The company’s mission statement then drills down to summarize what the company’s main tasks are now: Who the company is, what it does, and where it’s headed.

16. Using Computerized Business Planning Software
CheckMATE
Uses strategic planning tools, such as SWOT analysis, to enable even users with no prior planning experience to develop sophisticated strategic plans
Business Plan Pro
Contains all the information and planning aids necessary to create a business plan
Business planning software packages assist managers in writing strategic and business plans.
CheckMATE ( uses strategic planning tools, such as SWOT analysis, to help new or veteran managers develop sophisticated strategic plans.
Business Plan Pro from Palo Alto Software contains the information and planning aids necessary to create a business plan. It contains sample plans, step-by-step instructions, and examples for creating the executive summary, market analysis, financial planning spreadsheets, tables for making sales forecasts, and programs for creating monthly sales and yearly profits charts.

17. Types of Strategies Corporate strategy
Identifies the sorts of businesses that will comprise the company and the ways in which these businesses relate to each other
Managers formulate three types of strategic plans: corporate-wide planning, business unit (or competitive) planning, and functional (or departmental) planning.
Let’s look first at corporate strategy, which identifies the sorts of businesses that will comprise the company and how these businesses will relate to each other.
For example, PepsiCo is comprised of four main businesses: Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International, and Quaker Oats North America. Therefore, PepsiCo bases its corporate strategy on expanding abroad and on diversifying into food businesses related to its famous Pepsi brand beverages.

18. Generic Corporate Strategy Options
Diversification
Vertical integration
Consolidation
Geographic expansion
Concentration
Companies can pursue several generic (or standard) corporate strategic options when deciding on how to build their business portfolio:
A diversification corporate strategy implies that the firm will expand by adding new product lines.
A vertical integration strategy means that the firm will expand by, for example, producing its own raw materials or selling its products direct.
A consolidation strategy means reducing the company’s size.
Geographic expansion means expanding the firm into new locations, domestically or internationally.
A concentration strategy means the firm limits itself to one line of business—McDonald’s is an example of such a “one business” business.

19. Competitive Strategy Competitive strategy Competitive advantage
Identifies how to build and strengthen the company’s long-term competitive position in the marketplace
Competitive advantage
Any factors that allow a company to differentiate its product or service from those of its competitors to increase market share
The next level down from the corporate strategy is the business-level or competitive strategy.
A competitive strategy identifies how to build and strengthen each business’s long-term competitive position in the marketplace.
It identifies, for example, how Pizza Hut will compete with Papa John’s or how Wal-mart will compete with Target.
Competitive advantage indicates any factors that allow a company to differentiate its product or service from those of its competitors to increase market share.
Companies use several competitive strategies to achieve competitive advantage, which we will discuss next.

20. Generic Competitive Strategies
Cost leadership
Differentiation
Focusers
One strategy, cost leadership, means that the enterprise aims to become the low-cost leader in an industry.
Dell, for example, maintains its competitive advantage through an Internet-based sales processing and distribution system and by selling direct.
Differentiation, another competitive strategy, means that a company seeks to be unique in its industry along dimensions that are widely valued by buyers.
In practice, Papa John’s Pizza stresses fresh ingredients, Target sells somewhat more upscale brands than Wal-mart does, and Mercedes-Benz emphasizes reliability and quality.
Firms, like Mercedes-Benz, can charge a premium if they are substantially different from competitors in a coveted way.
Focusers carve out a market niche (like Ferrari). They compete by providing a product or service customers can’t get otherwise.

21. Type of Strategy at Each Company Level: Figure 3.5
In this diagram, we see each type of strategy at each company level: At the top is the corporate level strategy, the middle level is the business-level/competitive strategy, and the bottom level is the business/functional strategy.

22. Functional Strategies
Identify the basic courses of action that each department will pursue in order to help the company attain its competitive goals
Each individual business (such as Frito-Lay or Quaker Oats within PepsiCo) is composed of departments, such as manufacturing, sales, and human resource management.
Functional strategies identify the basic courses of action that each department will take to help the business attain its competitive goals.
For example, The Portman Ritz-Carlton Hotel’s human resource management strategies (which include interviewing each candidate and screening them based on values) supports management’s efforts to offer premier customer service as the hotel’s competitive advantage.
The result? The hotel went from a rating of about 75% employee and guest satisfaction to being named the “Best Employer in Asia,” the “Best Business Hotel in China,” and the only winner in Shanghai of the China National Tourism Administration’s Platinum Five-Star award.

23. Strategic Human Resource Management
Human resource strategies
Refer to the specific human resource management functional policies and practices the company uses to help achieve its strategic aims
Effective employers use strategic human resource management to build the employee skills and behaviors that they need to achieve their strategic goals.
Managers use the term human resource strategies to refer to the specific functional policies and practices of human resource management that the company uses to help achieve its strategic aims.

24. Longo Toyota Example
Longo Toyota dealership in El Monte, California uses human resource policies and practices to encourage hiring and developing salespeople who speak languages from Spanish and Korean to Tagalog and Arabic.
With a 60-person sales force that speaks more than 20 languages, Longo’s staff offers a powerful competitive advantage for serving El Monte’s highly diverse customer base.
For example, the Longo Toyota dealership in El Monte, California hires, trains, and rewards a diverse workforce.
It uses human resource policies and practices that encourage hiring and developing its 60 salespeople who speak more than 20 languages, from Spanish and Korean to Tagalog and Arabic.
Longo’s loyal and well-trained salespeople offer a powerful competitive advantage for serving El Monte’s highly diverse customer base.

25. Linking Company-wide and HR Strategies: Figure 3.6
Figure 3.6 illustrates how the company develops a corporate strategic plan by judging its competitive environment against its internal strengths and weakness, and how HR and other functional strategies support this plan.
With regard to human resources, the strategic plan implies certain workforce requirements in terms of employee skills, attributes, and behaviors that the HR management team must deliver so that the company can achieve its strategic goals. This may entail introducing new selection, training, and compensation policies and practices, among other things.
Then, the HR manager must identify how to measure the effectiveness of these new policies and practices in producing the required employee competencies and skills to support management’s strategic goals.

26. HR’s Strategy Execution Role
Top management formulates the company’s corporate and competitive strategies.
Next, the human resource manager creates and implements human resource management policies and practices that make sense in terms of the company’s goals.
Traditionally, the human resource manager’s role in strategic planning has been to execute the strategy.
In other words, top management formulates the company’s corporate and competitive strategies and then the HR manager creates and implements human resource management policies and practices that make sense in terms of the company’s goals.

27. Strategic Management Tools
Strategy map
A graphical tool that summarizes the chain of activities that contribute to a company’s success
Both human resource and other managers use several tools to help them translate the company’s strategic goals into specific human resource management policies and activities.
Three such tools are the strategy map, the HR Scorecard, and the digital dashboard.
The strategy map is a graphical tool that summarizes the chain of activities that contribute to a company’s success.
It shows the “big picture” of how each department’s performance contributes to achieving the company’s overall strategic goals.
It also helps the manager visualize the role his or her department plays in helping to execute the company’s strategic plan.

28. HR’s Strategy Formulation Role
The HR manager is in a good position to supply competitive intelligence, such as details of competitors’ incentive plans and information about pending labor laws.
It is also in the best position to give advice about the company’s internal human strengths and weaknesses.
More recently, human resource managers are increasingly involved in formulating the company’s strategic plan.
The HR manager is in a good position to supply competitive intelligence for strategic planning, such as details regarding competitors’ incentive plans, opinion survey data from employees about customer complaints, and information about pending legislation such as labor laws and mandatory health insurance.
HR is also in the best position to give advice about the company’s internal human strengths and weaknesses.

29. Strategy Map for Southwest Airlines: Figure 3.7
Figure 3.7 presents a strategy map example for Southwest Airlines.
Southwest has a low-cost leader strategy and the strategy map for Southwest succinctly lays out the hierarchy of major activities required for Southwest Airlines to support that strategy and succeed.
At the top is achieving company-wide, strategic financial goals.
The strategy map then shows the chain of activities that help Southwest Airlines achieve these goals, such as boosting revenues and profitability by flying fewer planes (to keep costs down), maintaining low prices, and maintaining on-time flights.
Further down the strategy map, we see that on-time flights and low prices require fast turnaround—and fast turnaround requires motivated ground and flight crews.
The strategy map helps each department (including HR) visualize what it needs to do to support the company’s low-cost strategy.

30. The Balanced Scorecard
A process for assigning financial and nonfinancial goals to the chain of activities required for achieving the company’s strategic aims and for continuously monitoring results
The balanced scorecard isn’t really a scorecard. It refers to a process for assigning financial and nonfinancial goals to the chain of activities required for achieving the company’s strategic aims and for continuously monitoring results.
It essentially takes the strategy map and quantifies it.
It also involves informing all employees of their goals, monitoring and assessing performance, and taking corrective action as required.
The “balanced” scorecard refers to a balance of financial and nonfinancial goals, of short-term and long-term goals, and external goals (such as what the customer thinks) and internal goals (such as Southwest Airline’s airplane turnaround time).

31. The Balanced Scorecard
HR Scorecard
A process for assigning financial and nonfinancial goals or metrics to the human resource management–related chain of activities required for achieving the company’s strategic aims and for monitoring results
The HR scorecard is another tool that HR and other managers use to translate company strategic goals into specific HR management activities.
The HR scorecard assigns financial and nonfinancial goals or metrics to the human resource management-related chain of activities required for achieving the company’s strategic aims and for monitoring results.
For either a balanced or HR scorecard process, managers can use special scorecard software that helps the HR manager visualize and quantify the relationships among:
HR activities, such as the amount of testing or training
The resulting employee behaviors, such as customer service
The resulting company-wide strategic outcomes and performance, such as customer satisfaction and profitability

32. Digital Dashboards Digital dashboard
Presents the manager with desktop graphs and charts, so he or she gets a computerized picture of where the company stands on all the metrics from the HR Scorecard process
A digital dashboard presents the manager with desktop graphs and charts that provide a computerized picture of where the company stands on all the metrics from the HR scorecard process.

33. Three Important Strategic HR Tools: Figure 3.8
Figure 3.8 summarizes the three important strategic HR tools.
To recap, the strategy map graphically displays the chain of activities that contribute to a company's success, and shows employees the “big picture” of how their performance contributes to achieving the company's overall strategic goals.
The HR scorecard is a process for managing employee performance and for aligning all employees with key objectives by assigning financial and nonfinancial goals, monitoring and assessing performance, and quickly taking corrective action.
The digital dashboard presents the manager with desktop graphs and charts that provide a picture of where the company has been and where it's going in terms of each activity in the strategy map.

34. How to Align HR Strategy and Actions with Business Strategy: Figure 3
Figure 3.9 illustrates how to align HR strategy and actions with business strategy.
Step 1: Formulate the business strategy by asking, “What are the strategic goals of the business?”
Step 2: Identify the workforce requirements by questioning, “What employee competencies and behaviors must HR deliver to enable the business to reach its goals?”
Step 3: Formulate HR strategic policies and activities by asking, “Which HR strategies and practices will produce these employee competencies and behaviors?”
Step 4: Develop detailed HR scorecard measures by answering the question, “How can HR measure whether it is executing well for the business, in terms of producing the required workforce competencies and behaviors?”

35. Why Should Human Resource Managers Be Involved in Mergers and Acquisitions?
A recent survey concluded that almost 80% of recent mergers and acquisitions had satisfactory results.
The reason, in part, “is that HR functions now have far greater involvement in the process than in the past—at earlier stages as well” and that HR believes that it is increasingly well-prepared to identify and address the many issues that might derail a merger.
Involving HR managers early in the merger and acquisition process can create a more successful experience for both the employees and the companies involved. HR management can prepare personnel during the M&A process by providing training that fosters self-awareness, cultural sensitivity, and a spirit of cooperation.
A recent survey concluded that almost 80% of recent mergers and acquisitions had satisfactory results.
The reason, in part, “is that HR functions now have far greater involvement in the process than in the past—at earlier stages as well” and that HR believes that it is increasingly well-prepared to identify and address the many issues that might derail a merger.

36. Examples of Human Resource Management’s Specific Merger and Acquisition Roles
Planning stage
Due diligence stage
Integration stage
Companies benefit from human resource managers’ expertise at all three stages of the merger and acquisition process.
In the planning stage, when planning its initial offer, the acquiring team needs information about the acquisition target on matters such as total headcount, benefits and pension obligations, and pending litigation—all HR-related topics generally accessible via public sources.
In the due diligence stage, before finalizing a deal, it is usual for the acquirer (or merger partners) to perform due diligence reviews to ensure that they know what they’re getting into. For human resource teams, due diligence reviews include reviewing organizational structure, employee compensation and benefits, industrial relations, pending employee litigation, human resource policies and procedures, employee benefits, and key talent analysis.
Moving into the integration stage, the human resource team has responsibilities in choosing the management team, communicating effectively with employees, retaining key talent, and aligning the cultures of the organizations.

37. Percent of Successful Mergers in which HR Manager Was Involved: Figure 3.10
Here we see illustrated the significant difference that the involvement of human resource managers has made in the merger and acquisition process, especially when these managers are involved in the due diligence and integration planning stages.

38. Copyright
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