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2. Chapter 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 its strategic planning.
Understand why it is important for an organization to do an internal resource analysis.
Describe the basic tools used for human resources forecasting.
Explain the linkages between competitive strategies and HR.
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3. Chapter Objectives (cont’d) After studying this chapter, you should be able to
Understand what is required for a firm to successfully implement a strategy.
Recognize the methods for assessing and measuring the effectiveness of a firm’s strategy.
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4. 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.
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5. 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.
Support strategy creation
Strategy implementation—making primary resource allocation decisions about structure, processes, and human resources.
Create functional strategy to implement corporate strategy
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6. Linking Strategic Planning and HRP
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
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7. Linking Strategic Planning and Human Resources
FIGURE 2.1
Linking Strategic Planning and Human Resources √ √ √ √ √ √ √ √ √ √ √
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8. 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
These elements set the culture for the organization and its employees.
Sets the ethics. What is right/wrong, acceptable/unacceptable.
How to treat customers, suppliers, and each other.
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9. Step Two: Environmental Scanning
The systematic monitoring of the major external forces influencing the organization.
Economic factors: general, regional, and global conditions
Industry and competitive trends: new processes, services, and innovations
Technological changes: robotics and office automation
Government and legislative issues: laws and administrative rulings
Social concerns: child care and educational priorities
Demographic and labor market trends: age, composition, literacy, and immigration
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10. X Five Forces Framework FIGURE 2.2
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11. Step Three: Internal Analysis (3 Cs)
Culture
Composition
Capabilities
Internal Analysis
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12. Culture: Auditing Values, Beliefs, and Attitudes
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?
Before any HR planning can take place, managers have to gain a clear idea of how employees view their organization, which is what the cultural audit helps do.
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13. Capabilities: People as a Strategic Resource
Core Capabilities
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. (Not individuals, but groups of people.)
Are difficult to imitate.
Are organized for teamwork and cooperation.
Does your company today have these HR resources?
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14. Composition: The Human Capital Architecture
Strategic Knowledge Workers
Employees who have unique skills that are directly linked to the company’s strategy.
Example: R&D scientists
Core Employees
Employees with skills to perform a predefined job that are quite valuable to a company, but not particularly unique or difficult to replace.
Example: salespeople
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15. Composition: The Human Capital Architecture (cont’d)
Supporting Labor
Employees whose skills are of less strategic value and generally available in the labor market.
Example: clerical workers
Example: manual labor factory workers
Alliance Partners
Individuals and groups with unique skills, but those skills are not directly related to a company’s core strategy.
Example: consultants
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16. X Mapping Skills of Your Human Capital FIGURE 2.3
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17. Forecasting: A Critical Element of Planning
Forecasting estimates the number and type of people needed to meet organizational objectives
Forecasting involves:
forecasting the demand for labor
forecasting the supply of labor
balancing supply and demand considerations.
How do you forecast HR needs?
What is the forecast based on?
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18. X Model of HR Forecasting FIGURE 2.4
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19. Forecasting Demand for Employees
Quantitative Methods
Qualitative Methods
Forecasting Demand
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20. 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).
Be very careful with quantitative analysis. It implies more accuracy than is possible. How are the operational managers going to use it, if they use it at all? Some of this is engineering envy.
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21. X Example of Trend Analysis of HR Demand FIGURE 2.5
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22. 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.
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23. 1
HR Planning and Strategy Questions to Ask Business Managers (How Will You Answer?)
Workforce planning requires that HR leaders periodically interview their managers to gauge future workforce needs. Here are some sample questions to ask.
What are your mission, vision, and values?
What are your current pressing business issues?
What are our organizational strengths?
Who are our competitors’ organizational strengths? How do we compare?
What core capabilities do we need to win in our markets?•
What are the required knowledge, skills, and abilities we need to execute the winning strategy?
What are the barriers to optimally achieving the strategy?
What types of skills and positions will be required or no longer required?
Which skills should we have internally versus contract with outside providers?
What actions need to be taken to align our resources with strategy priorities?
What recognition and rewards are needed to attract, motivate, and retain the employees we need?
How will we know if we are effectively executing our workforce plan and staying on track?
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24. Forecasting the Supply of Employees: Internal Labor Supply
Staffing Tables
Markov Analysis
Skill Inventories
Replacement Charts
Succession Planning
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25. Forecasting Internal Labor SupplyX
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.
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26. X Hypothetical Markov Analysis for a Retail Company FIGURE 2.6
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27. 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.
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28. An Executive Replacement Chart
FIGURE 2.7
An Executive Replacement Chart
Think of planned and unplanned replacement.
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29. RATE THE SUCCESS OF YOUR SUCCESSION PLANNING2 X
Succession-Planning Checklist
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, compile the scores, and compare notes.
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30. X Assessing a Firm’s Human Capital FIGURE 2.8
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31. 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.
Helps management understand the major facts and forecasts from internal and external analysis.
Use the strengths of the organization to capitalize on opportunities, counteract threats, and alleviate internal weaknesses.
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32. X An Example of a SWOT Analysis
FIGURE 2.9
An Example of a SWOT Analysis
Valero Energy Corporation (Valero) is one of the largest refiners in North America. Its core activities include refining and marketing of petroleum products. With a combined throughput capacity of approximately 3.3 million bpd, Valero is the 15th largest company on the Fortune 500 list. Valero’s large refining capacity gives it a significant competitive advantage. However, rising material and labor costs could affect the company’s margins.
Strengths
Weaknesses
Large refining system Leader in conversion capacity and feedstock flexibility Strong revenue growth and capital expenditure
Weak performance in Canada Litigations High dependence on the United States
Opportunities
Threats
Growing diesel demand Strategic refocus Rising petrochemical capacity in the Middle East
Material and labor cost Stringent regulations
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33. Corporate Strategy Go-it-alone Corporate Strategies Corporate Strategy
Strategic Alliances and Joint Ventures
Growth and Diversification
Mergers and Acquisitions
Corporate Strategy
Go-it-alone Corporate Strategies
Cooperative Corporate Strategies
HR has input to corporate strategy, but as a department it is rarely a driver of the strategy like R&D or Ops is.
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34. 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 (value = benefits — costs).
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.
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35. 3 Key HR Activities Associated with Merger or Acquisition (M&A)
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36. 3
Key HR Activities Associated with Merger or Acquisition Phases (cont’d)
HR is a critical and often overlooked part of an M&A strategy. Cultural compatibility is crucial and HR can identify that, but rarely can they do much about it.
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37. Business Strategy (cont’d)
Functional Strategy: Ensuring Alignment
External Fit/Alignment
Focuses on the connection between the business objectives and the major initiatives in HR.
Internal Fit/Alignment
Aligning HR practices with one another to establish a configuration that is mutually reinforcing.
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38. Step Five: Strategy Implementation
Taking Action: Reconciling Supply and Demand
Balancing demand and supply considerations
Forecasting business activities (trends)
Locating applicants
Organizational downsizing, outsourcing, offshoring
Reducing “headcount”
Making layoff decisions
Seniority or performance?
Labor agreements
Often dictated by seniority.
Global cultural/legal issues.
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39. X
FIGURE 2.10
The 7-S Model
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40. 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
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41. 4 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
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42. Measuring a Firm’s 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
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43. X Building the Metrics Model FIGURE 2.11
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44. X Assessing Internal Fit FIGURE 2.12
5 = Strongly supports the priority, 0= Neutral, –5 = Strongly counterproductive
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45. 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.
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46. Balanced Scorecard (BSC) benchmarking core capabilities core values
cultural audits
environmental scanning
human capital readiness
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
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47. Discussion Questions (page 85)
#3 What criteria must be met if firms are to achieve a competitive advantage through their employees?
#5 What competitive environmental forces influence a firm’s strategy?
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48. Case Study in External Analysis—Bangladesh (7/17/10 NYT)
Cheap labor competes with China, particularly in garments. 20% increase vs 5% decrease in China.
China’s low-paying jobs being exported to Bangladesh, Cambodia, Viet Nam
Bangladesh minimum wage $24/month (in China $117-$147/mo)
China has much better education (92% literacy vs 55% in Bangladesh), better transportation, better electricity
More efficient production
Very complicated analysis
China demanding higher wages, so are other countries
Higher wages mean higher costs for machinery
In Bangladesh, companies say if minimum wage goes to $71/ mo, they will close down. Even if $43/month many will close.
What does this mean for HR management?
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49. Page 89 #2, Bad Hair Day Religious Custom
Case Study
Page 89 #2, Bad Hair Day Religious Custom
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50. X
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51. Employee Turnover RatesX
Employee Turnover Rates
Computing Turnover Rates:
The U.S. Department of Labor suggests the following formula for computing turnover rates:
Thus, if there were 25 separations during a month and the total number of employees at mid month was 500, the turnover rate would be:
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52. Employee Turnover Rates (cont’d)X
Employee Turnover Rates (cont’d)
Computing Turnover Rates (cont’d):
Another method of computing the turnover rate is one that reflects only the avoidable separations (S). This rate is computed by subtracting unavoidable separations (US) from all separations. The formula for this method is as follows:
where M represents the total number of employees at mid month. For example, if there were 25 separations during a month, 5 of which were US, and the total number of employees at mid month (M) was 500, the turnover rate would be:
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53. Employee Absenteeism RatesX
Employee Absenteeism Rates
Computing Absenteeism Rates
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54. 5 X 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
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