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Noe11e_ch_02_FINAL.pptxChapter 2
Strategic Human Resource Management
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Learning Objectives
LO 2-1 Describe the differences between strategy formulation and strategy implementation.
LO 2-2 List the components of the strategic management process.
LO 2-3 Discuss the role of the HRM function in strategy formulation.
LO 2-4 Describe the linkages between HRM and strategy formulation.
LO 2-5 Discuss the more popular typologies of generic strategies and the various HRM practices associated with each.
LO 2-6 Describe the different HRM issues and practices associated with various directional strategies.
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Introduction
Strategic management includes
Having the goal to deploy and allocate resources for a competitive advantage
Integrally involving the HRM function
Using a business model to create value for customers
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What Is a Business Model?
Accounting Concepts
Fixed Costs
Variable Costs
Margins
Gross Margin
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Margins are the difference between what you charge for your product and the variable costs of that product. They are called contribution margins because they are what contributes to your ability to cover your fixed costs. Fourth, the gross margin is the total amount of margin you made and is calculated as the number of units sold times the contribution margin
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What Is Strategic Management? 1 of 5
Strategic Management
A process
An approach to addressing the competitive challenges an organization faces
Managing the “pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.”
Developing strategies for achieving the company’s goals in light of its current environment
LO 2-1
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Strategic Management is a process for analyzing a company's competitive situation, developing the company's strategic goals, and devising a plan of action and allocation of resources that will help a company achieve its goals.
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What Is Strategic Management? 2 of 5
Strategic HRM
“The pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals.”
Strategic management is a process to address the organization’s competitive challenges by integrating goals, policies and action sequences into a cohesive whole.
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What Is Strategic Management? 3 of 5
Components of the Strategic Management Process
Strategy Formulation
Strategic planning groups decide on strategy
Strategy Implementation
Organization follows through on the strategy
LO 2-2
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Success of the strategic management process depends largely on the extent to which the HRM function is involved. Strategic Management has two distinct phases:
Strategy Formulation: Strategic planning groups decide on a strategic direction by defining the company’s mission and goals, its external opportunities and threats, and its internal strengths and weaknesses.
Strategy Implementation: The organization follows through on the strategy that has been chosen. This includes structuring the organization, allocating resources, ensuring that the firm has skilled employees in place, and developing reward systems that align employee behavior with the strategic goals. This process entails a constant cycling of information and decision making.
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Figure 2.2 A Model of the Strategic Management Process
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What Is Strategic Management? 4 of 5
Linkage Between HRM and the Strategic Management Process
Strategic choice
Where to compete?
How to compete?
With what will we compete?
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What Is Strategic Management? 5 of 5
Role of HRM in Strategy Formulation
With what will we compete?
Four levels of integration between HRM and the strategic management function
administrative linkage
one-way linkage
two-way linkage
integrative linkage
LO 2-3 and 2-4
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Four levels of integration exist between the HRM function and the strategic management function: administrative linkage, one-way linkage, two-way linkage, and integrative linkage. Administrative linkage is the lowest level of interaction. HRM function’s attention is focused on day-to-day activities. In one-way, the firm’s strategic business planning function develops the strategic plan then informs the HRM function of the plan. Although one-way linkage does recognize the importance of HR in implementing the strategic plan, it precludes the company from considering HR issues while formulating the strategic plan. This level of integration often leads to strategic plans that the company cannot successfully implement. Companies with integrative linkage have their HRM functions built right into the strategy formulation and implementation processes. Two-way linkage allows for consideration of HR issues during the strategy formulation process and are interdependent.
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Figure 2.4 Linkages of Strategic Planning and HRM
SOURCE: Adapted from K. Golden and V. Ramanujam, “Between a Dream and a Nightmare: On the Integration of the Human Resource Function and the Strategic Business Planning Process,” Human Resource Management 24 (1985), pp. 429–51.
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Figure 2.5 Strategy Formulation
Adapted from K. Golden and V. Ramanujam, “Between a Dream and a Nightmare,” Human Resource Management 24 (1985), pp. 429–51
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Strategy Formulation
Mission
Goals
External Analysis
Internal Analysis
Strategic Choice
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Strategic management process include mission, goals, external and internal analysis and strategic choice.
Mission is a statement of the organization’s reason for being; it usually specifies the customers served, the needs satisfied and/or the values received by the customers, and the technology used.
Goals are what it hopes to achieve in the medium- to long-term future; they reflect how the mission will be operationalized.
External analysis consists of examining the organization’s operating environment to identify the strategic opportunities and threats. Examples of opportunities are customer markets that are not being served, technological advances that can aid the company, and labor pools that have not been tapped. Threats include potential labor shortages, new competitors entering the market, pending legislation that might adversely affect the company, and competitors’ technological innovations.
Internal analysis attempts to identify the organization’s strengths and weaknesses. It focuses on the quantity and quality of resources available to the organization—financial, capital, technological, and human resources. Organizations have to accurately assess each resource to decide whether it is a strength or a weakness.
Strategic choice is the organization’s strategy and describes the way the organization will attempt to fulfill its mission and achieve long-term goals.
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Table 2.2 SWOT Analysis for Google, Inc.
| STRENGTHS |
| Expanding Liquidity |
| Operational Efficiency |
| Broad Range of Services Portfolio |
| OPPORTUNITIES |
| Growing Demand for Online Video |
| Growth in Internet Advertising Market |
| Inorganic Growth |
| WEAKNESSES |
| Issues with Chinese Government |
| Dependence on Advertising Segment |
| Loses at YouTube |
| THREATS |
| Weak Economic Outlook |
| Invalid Clicks |
| Microsoft-Yahoo! Deal |
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Table 2.2 shows SWOT analysis for Google Inc. External analysis and internal analysis combined constitute what has come to be called SWOT (strengths, weaknesses, opportunities, threats) analysis. It is HRM’s role to keep close tabs on the external environment for human resource– related opportunities and threats, especially those directly related to the HRM function: potential labor shortages, competitor wage rates, government regulations affecting employment. It is important that all people-related business issues identified in the HRM function be considered during strategy formulation. An analysis of a company’s internal strengths and weaknesses also requires input from the HRM function. A company’s failure to consider the strengths and weaknesses of its workforce may result in its choosing strategies it is not capable of pursuing
Strategy Implementation 1 of 12
Strategic implementation requires that
“An organization has a variety of structural forms and organizational processes to choose from when implementing a given strategy”
Five variables
organizational structure
HRM tasks
task design
selection, training, and development of people
reward systems
types of information and information systems
LO 2-5
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Figure 2.6 Variables to Be Considered in Strategy Implementation
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Figure 2.6 presents the variables that determine success in strategy implementation: organizational structure, task design, selection, training and development of people and reward systems, and types of information and information systems. HRM has primary responsibility for task, people, and reward systems and can directly affect structure and information and decision processes.
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Strategy Implementation 2 of 12
Vertical Alignment
HR practices and processes address the strategic needs of the business.
The link between strategy and HR practices is primarily through people.
Job analysis and design
Recruitment
Selection systems
Training and development programs
Performance management systems
Reward systems
Labor relations programs
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Vertical alignment occurs when HR practices and processes are aimed at addressing the strategic needs of the business.
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Figure 2.7 Strategy Implementation
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This figure presents the strategic management process from strategic choice to firm performance, illustrating the relationships among HR needs, practices, capability and actions. HRM function implements strategy as Figure 2.7 shows, through administering HRM practices: job analysis/design, recruitment, selection systems, training and development programs, performance management systems, reward systems, and labor relations programs.
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Strategy Implementation 3 of 12
| HRM Practices |
| Job Analysis/Design |
| Recruitment/Selection |
| Training/Development |
| Performance Management |
| Pay Structure/Incentives/Benefits |
| Labor-Employee Relations |
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Strategy Implementation 4 of 12
Pay Structure, Incentives, and Benefits
High pay and/or benefits relative to competitors can help company attract and retain high-quality employees, but might have a negative impact on overall labor costs.
Tying pay to performance can elicit specific activities and levels of performance from employees.
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Strategy Implementation 5 of 12
Labor and Employee Relations
Employees – asset or expense?
How much should employees participate in decision making?
What rights do employees have?
What is the company’s responsibility to employees?
The approach a company takes in making these decisions can result in successfully achieving its short and long-term goals or ceasing to exist.
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Strategy Implementation 6 of 12
Strategic Types
Porter’s Cost and Differentiation
Value can be created by reducing costs.
Value can be created by differentiating a product or service so the company can charge a premium price relative to its competitors
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Strategy Implementation 7 of 12
HRM Needs in Strategic Types
Role behaviors
Behaviors required of an individual in his or her role as a job holder in a social work environment
Cost strategies – companies define the skills they require and invest in training employees in these skill areas.
Differentiation strategies - Employees are expected to exhibit role behaviors that include cooperating with others, developing new ideas, and taking a balanced approach to process and results.
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Role behaviors are the behaviors required of an individual in his or her role as a jobholder in a social work environment. These role behaviors vary on a number of dimensions. Additionally, different role behaviors are required by the different strategies.
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Strategy Implementation 8 of 12
Directional Strategies
Concentration
Internal Growth
Mergers and Acquisitions
Downsizings
LO 2-6
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Strategy Implementation 9 of 12
Concentration Strategies
Require that the company maintain the current skills that exist in the organization
Need for skill-based training and fair compensation
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Concentration Strategy- A strategy focusing on increasing market share, reducing costs, or creating and maintaining a market niche for products and services.
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Strategy Implementation 10 of 12
Internal Growth Strategies
Companies must constantly hire, transfer and promote individuals.
Compensation weighted towards achievement
Joint ventures require conflict resolution
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Internal Growth Strategy- A focus on new market and product development, innovation, and joint ventures.
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Strategy Implementation 11 of 12
Mergers and Acquisitions
On the increase
HR needs to be involved
People issues can cause problems
Different organizational cultures
Conflict resolution
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External Growth Strategy- An emphasis on acquiring vendors and suppliers or buying businesses that allow a company to expand into new markets.
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Strategy Implementation 12 of 12
Downsizing
Trend has slowed since 2008
Tends to fall short of meeting companies’ financial and organizational objectives, and has negative effects on employee morale and productivity
The HRM function must “surgically” reduce the workforce by cutting only the workers who are less valuable in their performance
Early retirement programs usually result in rehiring
Survivor morale issues
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Downsizings is the planned elimination of large numbers of personnel, designed to enhance organizational effectiveness.
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Figure 2.9 Layoff Events and Separations 2009–2013
Jump to long description in appendix
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, “Mass Layoffs Summary,” May 13, 2013, www.bls.gov/news.release/mslo.nr0.htm.
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The Role of Human Resources in Providing Strategic Competitive Advantage 1 of 2
Emergent Strategies
Consist of the strategies that evolve from the grassroots of the organization
Can be thought of as what organizations actually do, as opposed to what they intend to do
Usually identified by those lower in the organizational hierarchy
Intended Strategies
The result of the rational decision-making process used by top managers as they develop a strategic plan.
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The Role of Human Resources in Providing Strategic Competitive Advantage 2 of 2
Enhancing Firm Competitiveness
Develop a human capital pool that gives the company the unique ability to adapt to an ever-changing environment.
Learning organization
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Recently managers have become interested in the idea of a “learning organization,” in which people continually expand their capacity to achieve the results they desire. This requires the company to be in a constant state of learning through monitoring the environment, assimilating information, making decisions, and flexibly restructuring to compete in that environment. Companies that develop such learning capability have a competitive advantage. Although certain organizational information-processing systems can be an aid, ultimately the people (human capital) who make up the company provide the raw materials in a learning organization.
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Appendix of Image Long Descriptions
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Appendix 1 Figure 2.2 A Model of the Strategic Management Process
The process involves strategy formulation, which includes the firm’s mission, goals, external analysis (opportunities and threats), and internal analysis (strengths and weaknesses). These lead to strategic choice and human resource needs (skills, behaviors, and culture). These, in turn, result in strategy implementation, including HR practices (recruitment, training, performance management, labor relations, employee relations, job analysis, job design, selection, development, pay structure, incentives, and benefits), human resource capability (skills, abilities, and knowledge), human resource actions (behaviors, and results – productivity, absenteeism, turnover), and firm performance (productivity, quality, and profitability). Emergent strategies can impact each of these areas. The final step is strategy evaluation.
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Appendix 2 Figure 2.6 Variables to Be Considered in Strategy Implementation
A diagram shows HRM has primary responsibility for three of the five implementation variables: task, people, and reward systems. In addition, HRM can directly affect the two remaining variables: structure and information and decision processes. These variables are affected by product market strategy and performance.
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Appendix 3 Figure 2.7 Strategy Implementation
Strategic choice
Human resource needs, including skills, behaviors, and culture
HRM practices, including recruitment, training, performance management, labor relations, employee relations, job analysis, job design, selection, development, pay structure, incentives, and benefits
Human resource capability, including skills, abilities, and knowledge
Human resource actions, including behaviors and results (productivity, absenteeism, and turnover)
Firm performance, including productivity, quality, and profitability
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Appendix 4 Figure 2.9 Layoff Events and Separations 2009–2013
The graph shows a high of 8,000 layoff events and 800,000 separations in the first quarter of 2009, to a low of 3,000 layoff events and 350,000 separations in the third quarter of 2012.
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