Strategic HR Management & Planning

ROBERT L.
MATHIS
JOHN H. JACKSON
Chapter 2
Strategic HR Management
and Planning
SECTION 1
Nature of
Human Resource
Management
Copyright © 2005 Thomson Business & Professional PowerPoint Presentation by Charlie Cook
Publishing. The University of West Alabama
All rights reserved.
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. 2–2
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 organization’s sustainable
competitive advantage.
Strategic HR Management Process
Figure 2–1
Linkage of Organizational and HR
• Cost Leadership
Strategies
• Differentiation
 Competition on the basis of  Competition on the basis of
low price and high quality either offering distinctively
of product or service different products or
 Relies on “building” services or establishing an
employees to fit specialized exclusive image for quality
needs products and services
 Requires a longer HR  Relies on hiring needed
planning horizon approach skills.
 Needs a shorter planning
time frame in order to be
responsive to dynamic
environments
• Focus
Globalization of Business and HR
Global Population
Changes
Global Globalization Global Economic

Communications Forces Interdependence
Regional Alliances
NAFTA, EU
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.
Transition to Global Organizations
Transition to Global Organizations
Global Employment
Global Employee
Relations Issues
Global Labor- Discrimination Global Health,

Management Regulations Safety, and
Relations Globally Security
Factors Affecting Global HR Management
Political Economic
Legal Cultural
Global Cultural Factors
• Culture
 Societal forces affecting the values, beliefs, and actions of a
distinct group of people.
• Geert Hofstede’s 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.
Figure 2–2
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
Figure 2–3
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”
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
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.
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
Purpose of HR Planning
Figure 2–4
Typical Division of HR Responsibilities:
HR Planning
Figure 2–5
HR Planning Process
Figure 2–6
Human Resource Planning (cont’d)
• 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
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
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
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?
Assessing the Internal Workforce (cont’d)
• Organizational Capabilities Inventory
 HRIS databases—sources 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
Forecasting HR Supply and Demand
• Forecasting
 The use of information from the past and present to
identify expected future conditions.
• Forecasting Methods
 Judgmental
 Estimates—asking managers’ opinions, top-down or
bottom-up
 Rules of thumb—using general guidelines
 Delphi technique—asking a group of experts
 Nominal groups—reaching a group consensus in open
discussion
HR Forecasting
Figure 2–7
(cont’d)
• Forecasting Methods (cont’d)
 Mathematical
 Statisticalregression analysis
 Simulation models
 Productivity ratios—units produced per employee
 Staffing ratios—estimates of indirect labor needs
• Forecasting Periods
 Short-term—less than one year
 Intermediate—up to five years
 Long-range—more than five years
(cont’d)
• 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 (cont’d)
• Forecasting External HR Supply
 Factors affecting external
 Net migration for an area
 Individuals entering and leaving the workforce
 Individuals graduating from schools and colleges
 Changing workforce composition and patterns
 Economic forecasts
 Technological developments and shifts
 Actions of competing employers
 Government regulations and pressures
 Other circumstances affecting the workforce
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.
Estimating Internal Labor Supply for a Given Unit
Figure 2–8
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
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 notice to employees and the local community before
a layoff or facility closing involving more than 50 people.
 Does not cover part-time or seasonal workers.
 Imposes fines for not following notification procedure.
 Has hardship clauses for unanticipated closures or lack of
business continuance capabilities.
Managing a Human Resources Surplus
(cont’d)
• Workforce Realignment
 “Downsizing”, “Rightsizing”, and “Reduction in Force”
(RIF) all mean reducing the number of employees in
an organization.
 Causes
 Economic—weak product demand, loss of market share to
competitors
 Structural—technological change, mergers and acquisitions
Managing a Human Resource Surplus
(cont’d)
• Workforce Realignment (cont’d)

 Positive consequences
 Increasecompetitiveness
 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
(cont’d)
• Downsizing Approaches
 Attrition and hiring freezes
 Not replacing departing employees and not hiring new
employees
 Voluntary Separation Programs
 Early retirement buyouts offer incentives to encourage senior
employees to leave the organization 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.
(cont’d)
• Downsizing Approaches (cont’d)

 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
Making Downsizing More Effective
Figure 2–9
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.
• HR’s Role in Mergers and Acquisitions
 Communicating decisions
 Revising the organization structure
 Merging HR activities
Measuring HR Effectiveness
Using HR Metrics
• HR Metrics
 Specific measures tied to HR performance indicators.
 Development and use of metrics that can better demonstrate
HR’s 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
Figure 2–10
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
Measures of Strategic HR Effectiveness
(cont’d)
• Economic Value Added (EVA)

 A firm’s 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
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 2–11
Assessing HR Effectiveness
• HR Audit
 A formal research effort that evaluates the current
state of HR management in an organization
 Audit areas:
 Legal compliance
 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.

Global Globalization Global Economic

Global Labor- Discrimination Global Health,

Hourly Costs (in U.S. Dollars)

Source: U.S. Bureau of Labor

• Return on Investment (ROI)

• High quality products and services are the

• Forecasting the Demand for Human Resources

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

• Workforce Realignment (cont’d)

• Downsizing Approaches (cont’d)

• Economic Value Added (EVA)

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