Human Resource Management Strategy and Analysis

Human Resource Management Strategy and Analysis
3 This chapter explains how to design and develop an HR system that supports the company’s strategic goals. We cover the strategic management process and how to develop a strategic plan. We also discuss the HR manager’s role in the process of strategy execution and formulation. Finally, we explain why metrics are essential for identifying and creating high-performance human resource policies and practices. Copyright © 2013 Pearson Education

Learning Objectives Explain why strategic planning is important to all managers. Explain with examples each of the seven steps in the strategic planning process. List with examples the main generic types of corporate strategies and competitive strategies. At the conclusion of this chapter, you will be able to: Explain why strategic planning is important to all managers. Explain with examples each of the seven steps in the strategic planning process. List with examples the main generic types of corporate strategies and competitive strategies. Copyright © 2013 Pearson Education

Learning Objectives Define strategic human resource management and give an example of strategic human resource management in practice. Briefly describe three important strategic human resource management tools. Explain with examples why metrics are essential for managing human resources. In addition, you will be able to: Define strategic human resource management and give an example of strategic human resource management in practice. Briefly describe three important strategic human resource management tools. Explain with examples why metrics are essential for managing human resources. Copyright © 2013 Pearson Education

Why Strategic Planning is Important to all Managers
The Human Resource function today continues to play an increasingly visible role in the strategic planning and management process. The HR function requires a new level of skill and competency among HR professionals. HR managers must develop measureable strategies that convincingly showcase the impact of HR on business performance. Successful Human Resource managers have adopted a perspective that focuses on how their departments can play a central role in implementing strategy. In this chapter we look more closely at how managers formulate and implement suchplans, and how they analyze and evaluate their results. We will start with some basicplanning-related definitions. Copyright © 2013 Pearson Education

Goal-Setting and the Planning Process
Strategic planning is important because in a well-run organization the goals come from the top of the organization downward. The process forms a hierarchy of goals. These goals, in turn, should guide everyone in the organization in what they do. The hierarchy of goals A strategic plan is the company’s plan for how it will match its internal strengths and weaknesses with external opportunities and threats. A successful strategic plan helps ensure a competitive advantage. Copyright ©

Sample Hierarchy of Goals Diagram for a Company
In companies, it is traditional to view the goalsfrom the top of the firm down to front-line employees as a chain or hierarchy of goals. A strategic plan is the company’s plan for how it will match its internal strengths andweaknesses with external opportunities and threats. This will allow the organization to maintain a competitiveadvantage. Copyright © 2013 Pearson Education

The Seven Steps in the Strategic Planning Process
The seven steps in the strategic planning process allow you to manage the process in a systematic manner. Let’s discuss them now. Copyright © 2013 Pearson Education

Seven Steps Define the current business
Perform external and Internal Audits Formulate a New direction Translate the mission into Strategic goals Formulate strategies to achieve strategic goals Implement the strategies Evaluate Performance Copyright © 2013 Pearson Education

Human Resources Management 12e Gary Dessler
FIGURE 3–5 The Strategic Management Process The Strategic Management Process Figure 3-5 sums up the strategic management process. This includes (1) defining the business and developing a mission, (2) evaluating the firm’s internal and external strengths, weaknesses, opportunities, and threats, (3) formulating a new business direction, (4) translating the mission into strategic goals, and (5) formulating strategies or courses of action. Step (6) and Step (7) entail implementing and then evaluating the strategic plan. Define the current business and mission The logical place to start is bydefining one’s current business. What products do we sell and where? How do our products or services differ from our competitors? Perform external and internal audits The next stepis to ask, “Are we heading in the right direction?” Formulate a new direction The question now is, what should our new business be? Translate the mission into goals. Next,translate the mission into strategic objectives. “What products will we sell? Where we will sell them?, How our products or services will differ from competitors?” Formulate strategies to achieve the strategic goal Next, the manager chooses courses of action that will enable the companyto achieve its strategic goals. Implement the strategy Strategy execution means translatingthe strategies into action and trying them out. Evaluate performance Things don’t always turn out as planned. At this point, the strategies are tested against reality. If changes are needed, the entire process may be repeated from an earlier step. 6. Implement the strategy Translate the strategy into action by: hiring or firing people, building or closing plants, or adding and or eliminating product lines. 7. Evaluate Performance Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 3–6 Worksheet for Environmental Scanning The environmental scanning worksheet in Figure 3-6 is a simple guide for compiling relevant information about the company’s environment. This includes things like economic, competitive, and political trends that have an effect on the company and its strategy for competing in its market. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

FIGURE 3–7 SWOT Matrix, with Generic Examples The SWOT chart in Figure 3-7 is used in strategic planning by managers to compile an estimate of the company strengths, weaknesses, opportunities, and threats when creating the firm’s strategy. SWOT helps identify the factors that will allow a company to differentiate its product or service from those of its competitors to increase market share and gain a competitive advantage. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Review Importance of strategic planning Goal setting Steps
So far, we have discussed the importance of strategic planning and its impact on the organization. Goal setting allows managers to connect the dots between where things are now and where we want them to be. Finally, the seven steps in the planning process provide a rigorous mechanism to manage the process in a systematic manner. Copyright © 2013 Pearson Education

The Main Generic Types of Corporate Strategies and Competitive Strategies
In practice, managers formulate three strategies. There is corporate-wide strategic planning, business unit (or competitive) strategic planning, and functional (or departmental) strategic planning. We’ll look at each. Copyright © 2013 Pearson Education

Types of Strategies Corporate strategy Competitive strategy
Functional strategy Human resources as a competitive advantage Corporate-level strategy identifies the portfolio of businesses that comprise the company and the ways in which these businesses are related to each other. Managers endeavor to achieve competitive advantages for each of their businesses. Competitive advantages enable a company to differentiate its product or service from those of its competitors. Such differentiation allows a company to increase its market share. Functional strategies identify the basic course of action that each department will pursue in order to help the business attain its competitive goals. Human capital is one of the best competitive advantages because it is hard to duplicate a company’s personnel. “Strategicfit” sums up the idea that each department’s functional strategy should fit andsupport the company’s competitive aims.The “fit” point of view states that all of the firm’s activities must be tailored to or fit its strategy. Copyright © 2013 Pearson Education

FIGURE 3–8 Type of Strategy at Each Company Level In Figure 3-8 we see the three types of strategies that managers use, one for each level of the company. There is corporate-wide strategic planning, business unit (or competitive) strategic planning, and functional (or departmental) strategic planning. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Corporate Strategies Concentration – single product
Diversification – add more products Vertical integration – expand: produce own raw sell products directly Consolidation – firm reduces its size Geographic – enter new market The corporate strategy question is, “How many and whatkind of businesses should we be in?” Witha concentration (single business) corporate strategy, thecompany offers one product or product line, usually in one market. A diversification corporate strategy implies that the firm will expand by addingnew product lines. A vertical integration strategy means the firm expands by, perhaps, producing itsown raw materials, or selling its products directly to consumers. Aconsolidation strategy means the company reduces its size. With geographic expansion, the company grows by entering new territorial markets. Copyright © 2013 Pearson Education

Competitive Strategies
Competitive strategy – identifies how to build the long terms competitive position in the market. 3 strategies: Cost leadership – low cost leader in industry. Eg. Tesco Differentiation – provide unique dimensions. Eg. Volvo -safety Focus – focus to market niche. Eg. Ferrari A competitive strategy identifies how to build and strengthen the business’slong-term competitive position in the marketplace. Cost leadership means becoming the low-cost leader in an industry. In a differentiation strategy,the firm seeks to be unique in its industry along dimensions that are widely valuedby buyers. Focusers carve out a market niche (like Porsche). Copyright © 2013 Pearson Education

Competitive Strategy How HR provide competitive advantage to the firms? Through their HUMAN CAPITAL: Knowledgeable Skilled Engaged employees work hard with self-discipline Copyright © 2013 Pearson Education

Functional Strategy To identify the broad guidelines/activities that each department will follow to help the business accomplish the goals. Eg. Business competitive strategies should develop the HRM policies and practices, in: Selecting, training, motivating employees Strategic FIT: each department functional strategy should fit and support the comp.’s competitive aims. Copyright © 2013 Pearson Education

Management Roles in Strategic Planning
Top Managers’ Role in Strategic Planning – To devise/revise Departmental Managers’ Strategic Planning Roles Help Devising Formulate Supporting functional strategies Execution the plans Devising a strategic plan is top management’s responsibility. Because the consequences of a poor choice can be dire, few top managers delegate total responsibility for strategic planning. The departmental managers’ strategic planning roles involve: Helping devise the strategic plan Formulating supporting, functional/departmentalstrategies Executing the plans Few people know as much about the firm’s competitive pressures, vendor capabilities, and concerns than do the company’s department managers. Copyright © 2013 Pearson Education

Review Managerial roles in strategic planning Types of strategies
Corporate Competitive Functional Strategic fit Managerial roles in strategic planning For this learning objective, we have discussed the types of strategies used by organizations and the important roles of differing levels of managers in strategic planning. Copyright © 2013 Pearson Education

Defining Strategic Human Resource Management with an Example of Strategic Human Resource Management in Practice We’ve seen that once a company decides how it will compete, it turns to formulatingfunctional departmental strategies to support its competitive aims. One of thosedepartments is human resource management. Its functional strategies are humanresource management strategies. Copyright © 2013 Pearson Education

Strategic Human Resource Management
SHRM = Formulating and executing HR policies and practices that produce employee competencies and behaviors the company needs to achieve its mission. Management formulates a strategic planand measurable strategic goals or aims. The plans imply certain workforcerequirements required to achieve thefirm’s strategic aims. Given these workforce requirements, HR management formulates strategies. These HR policies and practices (strategies) helpproduce the desiredworkforce skills, competencies, and behaviors. Copyright © 2013 Pearson Education

FIGURE 3–10 Linking Company-Wide and HR Strategies Figure 3-10 demonstrates the relationship between human resource strategy and the company’s strategic plans. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Review Definition Strategies Policies
In this section, we have defined strategic human resource management as formulating and executing human resource policies and practices. Such policies and practices can produce employee competencies and behaviors the company needs to improve its competitive position. Strategies are then developed for the organization that suggest certain workforce requirements. With these workforce requirements, HR management formulates strategies to produce the desiredworkforce skills, competencies, and behaviors. The Shanghai Portman example speaks to the issue of using effective human resource strategic planning to support the organization. Mergers and acquisitions often fail due to a lack of adequate preparation of the personnel involved. In addition, an M&A may overlooktraining which fosters self-awareness, cultural sensitivity, and a spirit of cooperation. Copyright © 2013 Pearson Education

Three Important Strategic Human Resource Management Tools
Once a company decides how it will compete, it turns to formulatingfunctional departmental strategies to support its competitive aims. One of thosedepartments is human resource management. Its functional strategies are humanresource management strategies. Copyright © 2013 Pearson Education

Strategic HRM Tools Strategy map HR scorecard Strategic HRM Tools Digital dashboard Managers use several tools to help them translate the company’s broad strategic goals into specific human resource management policies and activities. Three important tools include the strategy map, the HR Scorecard, and the digital dashboard. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Strategic Human Resource Management Tools
Strategy map - shows the “big picture” of how each department’s performance contributes to achieving the company’s overall strategic goals. employers quantify and computerize the map’s activities. The strategy map shows the “big picture” of how each department’s performance contributes to achieving the company’s overall strategic goals. Many employers quantify and computerize the map’s activities. The HR Scorecard helps them to do so. The HR Scorecard is not a scorecard. It refers to a process for assigning financial and nonfinancial goals or metrics to important human resource management–related chain of activities. That chain is required in order to achievethe company’s strategic aims and for monitoring results. A digital dashboard presents the manager with desktop graphics and charts. It is a computerized picture of where the company stands on all those metrics from an HR Scorecard perspective. Copyright © 2013 Pearson Education

FIGURE 3–13 Strategy Map for Southwest Airlines The Strategy Map A strategic planning tool that shows the “big picture” of how each department’s performance contributes to achieving the company’s overall strategic goals. Figure 3-13 presents a strategy map example, in this case for Southwest Airlines. Southwest has a low-cost leader strategy. The strategy map for Southwest lays out the hierarchy of main activities required for Southwest Airlines to succeed. At the top is achieving company-wide, strategic financial goals. Then the strategy map shows the chain of activities that help Southwest Airlines achieve its revenues and profitability goals. Southwest needs to fly fewer planes (to keep costs down), maintain low prices, and maintain on-time flights. The strategy map helps each department (including HR) visualize what it needs to do to support Southwest’s low-cost strategy. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

The HR scorecard - refers to a process for assigning financial and nonfinancial goals or metrics to important human resource management–related chain of activities. That chain is required in order to achieve the company’s strategic aims and for monitoring results. Use the scorecard software to do this. Copyright © 2013 Pearson Education

Digital dashboards - presents the manager with desktop graphics and charts. It is a computerized picture of where the company stands on all those metrics from an HR Scorecard perspective. Copyright © 2013 Pearson Education

FIGURE 3–15 Three Important Strategic HR Tools HR Scorecard Strategy Map Digital Dashboard 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. A graphical tool that summarizes the chain of activities that contribute to a company's success, and so shows employees the "big picture" of how their performance contributes to achieving the company's overall strategic goals. An information technology tool that presents the manager with desktop graphs and charts, so he or she gets a picture of where the company has been and where it's going, in terms of each activity in the strategy map. Figure 3-15 summarizes the three important strategic HR tools. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

HR Metrics and Benchmarking
HR metrics – HR managers must have measures (metrics) Eg. Hours of training per employee, productivity per employee, ROI, Profit margins. Benchmarking - comparing the practices of high-performing companies to your own Being able to measure what you are doing is an integral partof the HR strategy process. First, management translates its strategic planinto workforce requirements. Such requirements are tracked in terms of measurable worker competencies andbehaviors (such as outstanding service). Given these workforce requirements, the human resource manager then formulates supportive HR strategies, policies, and practices such as new training programs. Finally, the HR manager picks measures by which to gauge whether his or hernew policies and practices are producing the required employee competencies andbehaviors. Benchmarking means comparing thepractices of high-performing companies to your own, in order to understand what theydo that makes them better. Copyright © 2013 Pearson Education

Review Strategy map HR Scorecard Digital dashboards
For this learning objective, we have studied strategy maps, which help align business strategies with HR practices and policies. We also have discussed the use of an HR Scorecard, which is a process, not truly a scorecard. Next, we looked at digital dashboards, which are visual representations of where things stand with respect to organization strategies and results. Finally, we discussed metrics and benchmarking designed to help compare your company’s results against outside standards. Copyright © 2013 Pearson Education

Strategy and Strategy-Based Metrics
Workforce/talent analytics – to help improve performance and increase job satisfaction Data mining – use of tools, i.e. statistical analysis HR audits – audit to measure current policies and practices Evidence-based HR – use of data, facts to support decisions Benchmarking is only part of the process. HR must also use strategy-based metrics to determine how HR is helping the organization reach its goals. Many companies are using workforce analytics to analyze and track HR data to help improve performance and increase job satisfaction. Data mininginvolves statistical analysis to find hidden or new relationships among different variables. An example is tracking when and who is more likely to buy a certain product. HR audits are a way for an organization to measure current policies and practices. They can then identify areas where improvements can be made based on company goals. Evidence-based HR is the use of data, facts, etc. to support HR proposals, decisions, practices, and conclusions. To do so requires managers to be more scientific in making organizational decisions. The scientific approach requires objectivity, experimentation, quantification, explanation, prediction, and replication. Why should a manager be scientific? For managers, the key point of being “scientific” is to make better decisions. Two things areparticularity important. First, in gathering evidence, managers needto be objective. Being scientific also requires experimentation. An experiment is a test the manager sets up in such a way as to ensure that he or she understands the reasons for the results obtained. The question to be answered is, what’s the evidence and what does it suggest? Copyright © 2013 Pearson Education

High-performance Work Systems
High-Performance Work System (HPWS) A set of human resource management policies and practices that promote organizational effectiveness. A high-performance work system (HPWS) is a set of HR policies and practices that together produce superior employee performance.These policies and practices illustrate the importance of HR metrics and how they help to assess HR performance. They also reveal what HR systems must do to be successful. Such success may include helping workers aspire to manage themselves. HR practices also highlight measureable differences between HR systems in high and low performing companies. Copyright © 2013 Pearson Education

Building A High-Performance Work System
Human Resources Management 12e Gary Dessler Building A High-Performance Work System High-Performance Human Resource Policies and Practices Emphasize the use of relevant HR metrics. Set out the things that HR systems must do to become an HPWS. Foster practices that encourage employee self-management. Practice benchmarking to set goals and measure the notable performance differences required of an HPWS. High-performance work systems became popular in the 1990s. Faced with global competition, U.S. companies needed ways to improve quality, productivity, and responsiveness. Characteristics of high-performance work organizations include multi-skilled work teams, empowered front-line workers, extensive training, labor-management cooperation, commitment to quality, and customer satisfaction. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

Review Strategy and strategy-based metrics Talent analytics
Data mining Audits Evidence-based HR The scientific method High-performance work systems For this learning objective, we have discussed the relationship between business and HR strategies and the metrics used to measure them. Workforce or talent analytics help you understand and track and improve results. Data mininginvolves statistical analysis to find hidden or new relationships among different variables. HR audits are a way for an organization to measure current policies and practices. Evidence-based HR is the use of data, facts, etc. to support HR activities. For managers, the key point of being “scientific” is to make better decisions through objective experimentation. A high-performance work system (HPWS) is a set of HR policies and practices that together produce superior employee performance. All of these elements together are designed to help integrate business goals with HR practices and policies while improving results. Copyright © 2013 Pearson Education

Human Resource Management Strategy and Analysis

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