Strategic HR Management

ROBERT L. MATHIS JOHN H.
JACKSON
Chapter 2
Strategic HR Management Strategic HR Management and Planning and Planning

SECTION 1
Nature of Human Resource Management
Copyright 2005 Thomson Business & Professional Publishing. All rights reserved. PowerPoint Presentation by Charlie Cook The University of West Alabama
Learning Objectives
After you have read this chapter, you should be able to:
Explain strategic HR management and how it is linked to organizational strategies. Describe how legal, political, cultural, and economic factors affect global HR management. Discuss four dimensions of organizational effectiveness and how HR contributes to each. Define HR planning and outline the HR planning process. Discuss several ways of managing a surplus of human resources. Identify why HR metrics must consider both strategic and operational HR measures.
Copyright 2005 Thomson Business & Professional Publishing. All rights reserved.
22
Human Resources as a Core Competency

Strategic Human Resources Management
The use of employees to gain or keep a competitive advantage, resulting in greater organizational effectiveness.
Core Competencies
The unique capabilities of employees in an organization that create high value and that differentiate the organization from its competition The source of an organizations sustainable competitive advantage.
23
Strategic HR Management Process
Figure 21 Copyright 2005 Thomson Business & Professional Publishing. All rights reserved. 24
Linkage of Organizational and HR Strategies Differentiation Cost Leadership

Competition on the basis of low price and high quality of product or service Relies on building employees to fit specialized needs Requires a longer HR planning horizon approach Competition on the basis of either offering distinctively different products or services or establishing an exclusive image for quality products and services Relies on hiring needed skills. Needs a shorter planning time frame in order to be responsive to dynamic environments
25
Globalization of Business and HR

Global Population Global Population Changes Changes
Global Global Communications Communications
Globalization Globalization Forces Forces
Global Economic Global Economic Interdependence Interdependence
Regional Alliances Regional Alliances NAFTA, EU NAFTA, EU

Copyright 2005 Thomson Business & Professional Publishing. All rights reserved. 26
Types of Global Organizations

Importing and Exporting
Buying and selling goods and services with organizations in other countries
Multinational Enterprise (MNE)

An organization with operating units located in foreign countries.
Global Organization
An organization having corporate units in a number of countries that are integrated to operate worldwide.
27
Transition to Global Organizations
28
Transition to Global Organizations
29
Global Employment
Global Employee Relations Issues
Global LaborManagement Relations
Discrimination Regulations Globally
Global Health, Safety, and Security
210
Factors Affecting Global HR Management

Political Economic
Legal
Cultural
211
Global Cultural Factors

Culture
Societal forces affecting the values, beliefs, and actions of a distinct group of people.
Geert Hofstedes Culture Dimensions

Power Distance: the inequality among the people of a nation. Individualism: the extent to which people prefer to act as individuals instead of members of groups. Masculinity/Femininity: the degree to which masculine values prevail over feminine values. Uncertainty Avoidance: the preference of people in a country for structured rather than unstructured situations. Long-Term Orientation: the preference for long-term values emphasizing the future as opposed to short-term values focusing on the present.
Hourly Compensation Costs for Manufacturing Production Workers
Hourly Costs (in U.S. Dollars)
Source: U.S. Bureau of Labor Statistics, www.bls.gov; and www.uschinabiz.com, 2004.
Global Economic Factors

Sources of Economic Factors
Differences in economic, political, legal, and cultural systems
Global Economic Interdependence

Regional trade and political alliances
NAFTA,
EU, WTO
Global Productivity and Strategic HR Management

Issue: How to increase organizational effectiveness and performance (productivity) in the face of global influences and foreign competition.
Organizational Effectiveness and Strategic HR Management

Effectiveness
The extent to which goals have been met.
Efficiency
The degree to which operations are done in an economical manner.
Dimensions of Organizational Effectiveness

Organizational productivity Financial contributions Service and quality Organizational culture
Organizational Productivity and HR Efforts

Productivity
A measure of the quantity and quality of work done, considering the cost of the resources used. A ratio of the inputs and outputs that indicates the value added by an organization.
Unit
labor cost: computed by dividing the average cost of workers by their average levels of output.
Improving Organizational Productivity

Organizational restructuring Re-designing work Aligning HR Activities Outsourcing analyses and assistance
Approaches to Improving Organizational Productivity
Organizational Effectiveness and Financial Contributions of HR

Return on Investment (ROI)
Difficult to determine returns for HR contributions which affect many facets of the business Former view of HR as a cost center
218
Customer Service and Quality Products Linked to HR Strategies

High quality products and services are the results of HR-enhancements to organizational performance.
Staffing Customer service
219
Organizational Culture and Organizational Effectiveness

Organizational Culture
The shared values and beliefs in an organization Strategy and culture must be compatible and aligned for the organization to be effective. Culture affects recruitment and retention of employees. Culture can enhance or constrain organizational performance. Culture is the climate of an organization.
220
Human Resource Planning

Human Resource (HR) Planning
The process of analyzing and identifying the need for and availability of human resources so that the organization can meet its objectives.
HR Planning Responsibilities
Top HR executive and subordinates gather information from other managers to use in the development of HR projections for top management to use in strategic planning and setting organizational goals
221
Purpose of HR Planning
Typical Division of HR Responsibilities: HR Planning
HR Planning Process
Human Resource Planning (contd)

Small Business and HR Planning Issues
Attracting and retaining qualified outsiders Management succession between generations of owners Evolution of HR activities as business grows Family relationships and HR policies
225
HR Planning Process
HR Strategies
The means used to anticipate and manage the supply of and demand for human resources.
Provide
overall direction for the way in which HR activities will be developed and managed.
Overall Strategic Plan Human Resources Strategic Plan HR Activities

Benefits of HR Planning
Better view of the HR dimensions of business decisions Lower HR costs through better HR management. More timely recruitment for anticipate HR needs More inclusion of protected groups through planned increases in workforce diversity. Better development of managerial talent
227
Scanning the External Environment

Environmental Scanning
The process of studying the environment of the organization to pinpoint opportunities and threats.
Environmental Changes Impacting HR

Governmental Influences Economic conditions Geographic and competitive concerns Workforce composition
228
Assessing the Internal Workforce

Jobs and Skills Audit
What jobs exist now? How many individuals are performing each job? What are the reporting relationships of jobs? How essential is each job? What jobs will be needed to implement future organizational strategies? What are the characteristics of anticipated jobs?
229
Assessing the Internal Workforce (contd)

Organizational Capabilities Inventory
HRIS databasessources of information about employees knowledge, skills, and abilities (KSAs) Components of an organizational capabilities inventory
Individual
employee demographics Individual employee career progression Individual job performance data
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Forecasting HR Supply and Demand

Forecasting
The use of information from the past and present to identify expected future conditions.
Forecasting Methods
Judgmental
Estimatesasking
managers opinions, top-down or
bottom-up Rules of thumbusing general guidelines Delphi techniqueasking a group of experts Nominal groupsreaching a group consensus in open discussion
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HR Forecasting
Forecasting HR Supply and Demand (contd)

Forecasting Methods (contd)
Mathematical
Statistical
regression analysis Simulation models Productivity ratiosunits produced per employee Staffing ratiosestimates of indirect labor needs
Forecasting Periods
Short-termless than one year Intermediateup to five years Long-rangemore than five years
Forecasting HR Supply and Demand (contd)

Forecasting the Demand for Human Resources
Organization-wide estimate for total demand Unit breakdown for specific skill needs by number and type of employee
Develop
decision rules (fill rates) for positions to be filled internally and externally. Develop additional decision rules for positions impacted by the chain effects of internal promotions and transfers.
Forecasting the Supply for Human Resources

External Supply Internal Supply
Forecasting HR Supply (contd)

Forecasting External HR Supply
Factors affecting external
Net
migration for an area entering and leaving the workforce graduating from schools and colleges
Individuals Individuals Changing Economic
workforce composition and patterns forecasts developments and shifts
Technological Actions
of competing employers regulations and pressures
Government Other
circumstances affecting the workforce
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Forecasting HR Supply
Forecasting Internal HR Supply
Effects of promotions, lateral moves, and terminations
Succession analysis
Replacement charts Succession planning
The
process of identifying a longer-term plan for the orderly replacement of key employees.
Source: U.S. Office of Personnel Management, www.opm.gov.
236
Estimating Internal Labor Supply for a Given Unit
Developing and Using a Strategic HR Plan

Issues in Matching the Supply of Labor with the Demand for Labor
Succession Planning Managing a Human Resources Surplus Outplacement Services HR Planning in Mergers and Acquisitions
238
Managing a Human Resources Surplus

Workforce Reductions and the Worker Adjustment and Retraining Notification (WARN Act)
Sets out employer requirements for advance notice of a layoff or facility closing.
60-day Does
notice to employees and the local community before a layoff or facility closing involving more than 50 people. not cover part-time or seasonal workers. fines for not following notification procedure.
Imposes Has
hardship clauses for unanticipated closures or lack of business continuance capabilities.
239
Managing a Human Resources Surplus (contd)

Workforce Realignment
Downsizing, Rightsizing, and Reduction in Force (RIF) all mean reducing the number of employees in an organization. Causes
Economicweak
product demand, loss of market share to
competitors Structuraltechnological change, mergers and acquisitions
240
Managing a Human Resource Surplus (contd)

Workforce Realignment (contd)
Positive consequences
Increase
competitiveness Increased productivity
Negative consequences
Cannibalization
of HR resources Loss of specialized skills and experience Loss of growth and innovation skills
Managing survivors
Provide
explanations for actions and the future Involve survivors in transition/regrouping activities

Downsizing Approaches
Attrition and hiring freezes
Not
replacing departing employees and not hiring new employees retirement buyouts offer incentives to encourage senior employees to leave the organization early.
Voluntary Separation Programs

Early
Layoffs
Employees
are placed on unpaid leave until called back to work when business conditions improve. Employees are selected for layoff on the basis of their seniority or performance or a combination of both.

Downsizing Approaches (contd)
Outplacement services provided to displaced employees to give them support and assistance:
Personal
career counseling Resume preparation and typing services Interviewing workshops Referral assistance Severance payments Continuance of medical benefits Job retraining
243
Making Downsizing More Effective
HR Planning in Mergers and Acquisitions

Cultural Compatibility
The extent to which such factors as decision-making styles, levels of teamwork, information-sharing philosophies, and the formality of the two organizations are similar.
HRs Role in Mergers and Acquisitions

Communicating decisions Revising the organization structure Merging HR activities
245
Measuring HR Effectiveness Using HR Metrics

HR Metrics
Specific measures tied to HR performance indicators.
Development
and use of metrics that can better demonstrate HRs value and track its performance.
Characteristics of good HR metrics:

Accurate
data can be collected. Measures are linked to strategic and operational objectives. Calculations can be clearly understood. Measures provide information expected by executives. Results can be compared both externally and internally. Measurement data drives HR management efforts.
Examples of Strategic and Operational HR Metrics
Measures of Strategic HR Effectiveness

Return on Investment (ROI)
Calculation showing the value of expenditures for HR activities.
C ROI = A+ B
A = Operating costs for a new or enhance system for the time period B = One-time cost of acquisition and implementation C = Value of gains from productivity improvements for the time period
248
Measures of Strategic HR Effectiveness (contd)

Economic Value Added (EVA)
A firms net operating profit after the cost of capital (required return) is deducted. Cost of capital is the benchmark for returns for all HR activities.
HR and the Balanced Scorecard

Financial Internal business processes Customer Learning and growth
HR Measurement and Benchmarking

Benchmarking
Comparing specific measures of performance against data on those measures in other best practice organizations
Common Benchmarks
Total compensation as a percentage of net income before taxes Percent of management positions filled internally Dollar sales per employee Benefits as a percentage of payroll cost
250
Costs per Employee of the HR Function
Source: Adapted from HR Department Benchmarks and Analysis (Washington, DC: Bureau of National Affairs, 131, 140. 2004) To purchase this publication and find out more about other BNA HR solutions visit http://hrcenter.bna.com or call 800-372-1033. Used with permission.
Figure 211 251
Assessing HR Effectiveness
HR Audit
A formal research effort that evaluates the current state of HR management in an organization Audit areas:
Legal
compliance (e.g., EEO, OSHA, ERISA, and FMLA) Current job specifications and descriptions Valid recruiting and selection process Formal wage and salary system Benefits Employee handbook Absenteeism and turnover control Grievance resolution process Orientation program Training and development Performance management system

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ROBERT L. MATHIS JOHN H.

Strategic HR Management Strategic HR Management and Planning and Planning

Human Resources as a Core Competency

Strategic HR Management Process

Linkage of Organizational and HR Strategies Differentiation Cost Leadership

Globalization of Business and HR

Global Global Communications Communications

Globalization Globalization Forces Forces

Global Economic Global Economic Interdependence Interdependence

Regional Alliances Regional Alliances NAFTA, EU NAFTA, EU

Types of Global Organizations

Multinational Enterprise (MNE)

Transition to Global Organizations

Transition to Global Organizations

Global Employee Relations Issues

Global LaborManagement Relations

Discrimination Regulations Globally

Global Health, Safety, and Security

Factors Affecting Global HR Management

Global Cultural Factors

Geert Hofstedes Culture Dimensions

Hourly Compensation Costs for Manufacturing Production Workers

Hourly Costs (in U.S. Dollars)

Source: U.S. Bureau of Labor Statistics, www.bls.gov; and www.uschinabiz.com, 2004.

Global Economic Factors

Global Economic Interdependence

Global Productivity and Strategic HR Management

Organizational Effectiveness and Strategic HR Management

Dimensions of Organizational Effectiveness

Organizational Productivity and HR Efforts

Improving Organizational Productivity

Approaches to Improving Organizational Productivity

Organizational Effectiveness and Financial Contributions of HR

Customer Service and Quality Products Linked to HR Strategies

Organizational Culture and Organizational Effectiveness

Human Resource Planning

Typical Division of HR Responsibilities: HR Planning

Human Resource Planning (contd)

Overall Strategic Plan Human Resources Strategic Plan HR Activities

Scanning the External Environment

Environmental Changes Impacting HR

Assessing the Internal Workforce

Assessing the Internal Workforce (contd)

Forecasting HR Supply and Demand

managers opinions, top-down or

Forecasting HR Supply and Demand (contd)

Forecasting HR Supply and Demand (contd)

Forecasting the Supply for Human Resources

Forecasting HR Supply (contd)

Individuals Individuals Changing Economic

workforce composition and patterns forecasts developments and shifts

of competing employers regulations and pressures

circumstances affecting the workforce

Source: U.S. Office of Personnel Management, www.opm.gov.

Estimating Internal Labor Supply for a Given Unit

Developing and Using a Strategic HR Plan

Managing a Human Resources Surplus

hardship clauses for unanticipated closures or lack of business continuance capabilities.

Managing a Human Resources Surplus (contd)

product demand, loss of market share to

competitors Structuraltechnological change, mergers and acquisitions

Managing a Human Resource Surplus (contd)

competitiveness Increased productivity