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PowerPoint Presentation by Charlie Cook The University of West Alabama

Chapter 3 The Manager’s Role in Strategic Human Resource Management

Part One | Introduction

Human Resources Management 12e Gary Dessler

Human Resources Management 12e
Gary Dessler

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WHERE WE ARE NOW…

Human Resources Management 12e Gary Dessler

Human Resources Management 12e
Gary Dessler

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Managers must adapt their departments’ personnel activities to the requirements of their firm’s strategic plans. The main purpose of this chapter is to explain the fundamentals of strategic human resource planning.

We’ll explain the “hierarchy of goals,” the overall planning process, and the manager’s roles in strategic planning, strategic human resource management, and creating high-performance organizations.

We’ll also see that managers should make decisions based on evidence; the appendix to this chapter presents an overview of how to measure human resource management activities.

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Explain why strategic planning is important to all managers.
Outline the basic steps in the management planning process.
List the main contents of a typical business plan.
Answer the question, “What should a manager do to set ‘smart’ motivational goals?”
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.

LEARNING OUTCOMES

Human Resources Management 12e Gary Dessler

Human Resources Management 12e
Gary Dessler

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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 identifying and creating high-performance human resource policies and practices.

LEARNING OUTCOMES (cont’d)

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Human Resources Management 12e
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Why Strategic Planning Is Important
To All Managers

The firm’s strategic plan guides much of what is done by all to accomplish organizational goals.
Decisions made by managers depend on the goals set at each organizational level in support of higher level goals.

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The Importance of Strategic Planning

You may not realize it when you’re managing, but your firm’s strategic plan is guiding much of what you do.

Management expert Peter Drucker once said that management “. . . is the responsibility for execution.” Managers are judged by the extent to which you accomplish your unit’s goals.

Those aims or goals—and the hard work you put into accomplishing them—all depend on your firm’s plans for the future.

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FIGURE 3–1 Sample Hierarchy of Goals Diagram for a Company

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Gary Dessler

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The Hierarchy of Goals

In well-run companies, the goals from the top of the organization down to where you’re working should form an unbroken chain (or “hierarchy”) of goals.

The hierarchy of goals diagram in Figure 3-1 summarizes this. At the top of the company, the president and his or her staff set strategic goals. Lower-level managers (in this case, vice presidents) then set goals (such as “Add one production line at Plant A”).

Without a clear plan at the top, no one in the company would have the foggiest notion of what to do. At best, you’d all be working at cross-purposes.

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Fundamentals of Management Planning

The Planning Process

Make forecasts and check assumptions.

Set an objective.

Determine/develop alternative courses of action.

Evaluate the alternatives.

Implement and evaluate your plan.

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Gary Dessler

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The Planning Process

People make plans every day, often without giving it a thought. We plan our routes to school, what courses to take, and what to do on Saturday night. Underlying all those plans, however, is an often unstated planning process. Once implemented, plans must be evaluated to see if they must be revised to better fit changing competitive conditions.

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FIGURE 3–2 Business Plan Table of Contents

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Putting Together the Business Plan

The business plan provides a comprehensive view of the firm’s situation today and of its company-wide and departmental goals and plans for the next 3 to 5 years. Larger firms label their plans “strategic plans.”

There are no rigid rules regarding what such plans must contain. However, they usually include, at a minimum, (1) a description of the business (including ownership and products or services), (2) the marketing plan, (3) the financial plan, and (4) the management and/or personnel plan. Figure 3-2 displays the contents of a typical business plan.

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FIGURE 3–3 Acme Consulting Profit and Loss

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The Financial Plan

“What’s the bottom line?” is the first question managers and bankers ask most. Plans, goals, and accomplishments end up expressed in financial terms.

The financial plan in Figure 3-3 is a projected (or “pro forma” or planned) profit and loss (P&L) statement showing the revenue, cost, and profit (or loss) implications of a company’s marketing, production, and personnel plans. The pro forma P&L predicts that, if plans work out as anticipated, these are the revenues, costs, and profits or losses the firm should produce. It shows the expected bottom line.

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Specific

Measureable

Attainable

Relevant

Timely

How Managers Set Objectives:
SMART Goals

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Setting SMART Goals

Setting effective goals is an essential management skill. Experienced managers have a simple and effective way to check whether their goals are good or not—they use the acronym “SMART.”

Good goals are specific (make clear what to achieve), measurable, attainable; relevant (in terms of what you’re setting the goal for), and timely (they have deadlines and milestones).

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How to Set Motivational Goals

Assign
specific
goals

Assign measurable goals

Assign challenging but doable goals

Motivational Goal Setting

Encourage employee participation

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Using Management by Objectives (MBO)

The MBO Process

Set departmental (supporting) goals.

Set overall organizational goals.

Discuss departmental goals with subordinates.

Set individual goals and timetables.

Give feedback on progress toward goal.

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Management by Objectives (MBO)

The supervisor and subordinate jointly set goals for the latter and periodically assess progress toward those goals.

MBO has benefits. It provides a simple process for working through how the goals at each level will relate to those above and to those below. It also capitalizes on the advantages of employee participation.

The downside is that MBO is time consuming. These programs often involve numerous meetings among employees and supervisors, and then extensively documenting each person’s goals in various electronic or hard-copy formats. All that takes time.

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The Strategic Management Process

Strategy

A course of action the organization intends to pursue to achieve its strategic aims.

Strategic Plan

How an organization intends to match its internal strengths and weaknesses with its external opportunities and threats to maintain a competitive advantage over the long term.

Strategic Management

The process of identifying and executing the organization’s mission by matching its capabilities with the demands of its environment.

Leveraging

Capitalizing on a firm’s unique competitive strength while underplaying its weaknesses.

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In practice, determining what the organization’s long-term, overall plan should be requires some special tools. For example, you need to be able to systematically review the competitive landscape and analyze what your best strategic, long-term courses of action might be. Strategic planning, which we turn to now, provides these special tools. We’ll start with some definitions.

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Business Vision and Mission

Vision

A general statement of an organization’s intended direction that evokes emotional feelings in organization members.

Mission

Spells out who the firm is, what it does, and where it’s headed.

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Managers sometimes formulate a vision statement to summarize how they see the essence of their business down the road. The vision statement is a general statement of the firm’s intended direction and shows, in broad terms, “what we want to become.”

Whereas vision statements usually describe in broad terms what the business should be, the firm’s mission statement summarizes its answer to the question, “What business are we in?”

Managers often use the mission statement to pinpoint whether and how the firm will vertically integrate, as well as the firm’s product scope (diversity), geographic coverage, and competitive advantage.

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FIGURE 3–4 Management Objectives Grid

Company-Wide or Departmental Objective:
Double sales revenue to $16 million in fiscal year 2011

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The management objectives grid in Figure 3-4 spells out each department manager’s assigned goals in support of achieving the firm’s overall goals. In this case, one long-term top management goal is to “Double sales revenue to $16 million in fiscal year 2011.” The grid summarizes the goals each department must achieve if the firm is to meet its overall $16 million sales goal.

Managers use the management objectives grid:

To show each of your department manager’s goals and to list their supporting goals.
To clarify what their own goals should be, given the firm’s goals.
To summarize for their subordinates what their goals are, in light of the department’s goals.
As a quick way to track subordinates’ progress using the grid’s start and end dates.

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FIGURE 3–5 The Strategic Management Process

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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.

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FIGURE 3–6 Worksheet for Environmental Scanning

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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.

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FIGURE 3–7 SWOT Matrix, with Generic Examples

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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.

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FIGURE 3–8 Type of Strategy at Each Company Level

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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.

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Types of Corporate Strategies

Concentration

Vertical integration

Diversification

Corporate Strategy Possibilities

Consolidation

Geographic expansion

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With a concentration (single business) strategy, the firm offers one product or product line, usually in one market. Concentration growth strategies include market penetration, product development, and horizontal integration.

A related diversification strategy implies that the firm will expand by adding new product lines and diversifying so that a firm’s lines of business still possess some kind of fit.

A conglomerate (unrelated) diversification strategy means diversifying into products or markets not related to a firm’s current businesses or to one another.

A vertical integration strategy means the firm expands by, perhaps, producing its own raw materials, or selling its products direct.

A consolidation strategy focuses on reducing a firm’s size.

Geographic expansion is taking the business abroad.

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Types of Competitive Strategies

Cost leadership

Differentiation

Business-Level
Competitive Strategies

Focus/Niche

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Cost leadership means that a firm is seeking to become the overall low-cost leader in an industry.

Firms using a differentiation strategy seek to be unique in their industry along competitive dimensions that are widely valued by buyers.

Focusers are firms that attempt to compete in a narrow market segment (niche) through the provision of a product or service that specify customers can get in no other way.

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Achieving Strategic Fit

The “Fit” Point of View (Porter)

All of the firm’s activities must be tailored to or fit the chosen strategy such that the firm’s functional strategies support its corporate and competitive strategies.

Leveraging (Hamel and Prahalad)

“Stretch” in leveraging resources—supplementing what you have and doing more with what you have—can be more important than just fitting the strategic plan to current resources.

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FIGURE 3–9 Southwest Airlines’ Activity System

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Figure 3-9 graphically illustrates how Southwest Airlines’ activities fit the firm’s low-cost strategy. The larger (pink) circles represent the pivotal aims that support Southwest’s low-cost system. These pivotal aims include limited passenger services and frequent reliable departures. Southwest’s departments each must support these aims. For example, “limited passenger service” means no seat assignments. “Highly productive ground crews” means high compensation, flexible union contracts, and employee stock ownership, or in summary:

High Pay > Highly Productive Ground Crews > Frequent Departures > Low Costs

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Departmental Managers’
Strategic Planning Roles

Help devise
the strategic plan

Formulate supporting, functional/ departmental strategies

Department Managers and Strategy Planning

Execute
the strategic plans

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Departmental managers can play big roles in strategic planning and management. Specifically, they help the top managers devise the strategic plan, formulate functional, departmental plans that support the overall strategic plan, and then execute the plans.

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Strategic Human Resource Management

Strategic Human Resource Management

The linking of HRM with strategic goals and objectives in order to improve business performance and develop organizational cultures that foster innovation and flexibility.

Involves formulating and executing HR systems—HR policies and activities—that produce the employee competencies and behaviors that the company needs to achieve its strategic aims.

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FIGURE 3–10 Linking Company-Wide and HR Strategies

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Figure 3-10 demonstrates the relationship between human resource strategy and the company’s strategic plans.

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FIGURE 3–11 Basic Model of How to Align HR Strategy and Actions with Business Strategy

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Figure 3-11 outlines the basic idea behind strategic human resource management: In formulating human resource management policies and activities, the manager’s aim must be to produce the employee skills and behaviors that the company needs to achieve its strategic aims.

Management formulates a strategic plan that implies certain workforce requirements. Given these requirements, human resource management formulates HR strategies (policies and practices) to produce the desired workforce skills, competencies, and behaviors.

Finally, the human resource manager identifies the measures he or she can use to gauge the extent to which its new policies and practices are actually producing the required employee skills and behaviors.

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Strategic HRM Tools

Strategy map

HR scorecard

Strategic HRM Tools

Digital dashboard

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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.

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FIGURE 3–13 Strategy Map for Southwest Airlines

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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.

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FIGURE 3–14 The Basic HR Scorecard Relationships

HR activities

Organizational performance

Emergent employee behaviors

Strategically relevant organizational outcomes

Achieve strategic goals

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The 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. Figure 3-14 summarizes this process.

Managers use special scorecard software to facilitate this. The computerized scorecard process helps you to quantify the relationships between (1) the HR activities (amount of testing, training, and so forth), (2) the resulting employee behaviors (customer service, for instance), and (3) the resulting firm-wide strategic outcomes and performance (such as customer satisfaction and profitability).

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Creating an HR Scorecard

Outline value chain activities

Define the business strategy

Outline a strategy map

Identify strategically required outcomes

Identify required workforce competencies and behaviors

Create HR Scorecard

Identify required HR policies and activities

Choose HR Scorecard measures

Summarize Scorecard measures on digital dashboard

Monitor, predict, evaluate

The 10-Step HR Scorecard Process

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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.

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Figure 3-15 summarizes the three important strategic HR tools.

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Building A High-Performance Work System

High-Performance Work System (HPWS)

A set of human resource management policies and practices that promote organizational effectiveness.

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.

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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.

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TABLE 3–1 Comparison of Selected Human Resource Practices in
High-Performance and Low-Performance Companies

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That a human resource manager can influence things like “number of qualified applicants per position” and “percentage of jobs filled from within” is apparent. After all, those are the sorts of activities that human resource managers oversee.

Every department manager and supervisor can also play an important role in activities like these and thus build, within his or her own departmental domain, a higher performing organization.

Table 3-1 provides a road map for doing so.

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K E Y T E R M S

business plan

management by objectives (MBO)

strategic plan

strategy

strategic management

vision statement

mission statement

corporate-level strategy

competitive strategy

competitive advantage

functional strategies

offshoring

strategic human resource

management

strategy map

HR Scorecard

digital dashboard

high-performance work system

human resource metric

value chain

HR audit

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FIGURE 3–16 Simple Value Chain for “The Hotel Paris”

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FIGURE 3A-1 Simple Value Chain for “The Hotel Paris”

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Human Resources Management 12e
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FIGURE 3A-2 Revenue per FTE (by Industry)

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Human Resources Management 12e
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FIGURE 3A-3 2007 Target Bonus Percentage for Executives
(Percent of Total Compensation, by Organizational Size)

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Human Resources Management 12e
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FIGURE 3A-4 Sample Metrics from SHRM Measurements Library

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Human Resources Management 12e
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FIGURE 3A-5 Highlights of SHRM® Customized Benchmarking Service

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FIGURE 3A-6 Customized Human Capital Benchmarking Report
for [Your Organization’s Name Here]

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FIGURE 3A-7 Customized Human Capital Benchmarking Report
for [Your Organization’s Name Here]

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TABLE 3–2 Examples of HR System Activities the Hotel Paris Can
Measure as Related to Each Chapter in This Book

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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