Strategic HR Management and Planning

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.

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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Differentiation 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 Linkage of Organizational and HR Strategies Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Global Population Changes Global Economic Interdependence Global Communications Regional AlliancesNAFTA, EU Globalization of Business and HR Globalization Forces Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Global Labor-Management Relations Discrimination Regulations Globally Global Health, Safety, and Security Global Employment Global EmployeeRelations Issues Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Hourly Compensation Costs for ManufacturingProduction 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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Organizational Effectiveness and FinancialContributions 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” Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Overall Strategic Plan Human Resources Strategic Plan HR Activities 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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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? Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Forecasting HR Supply and Demand (cont’d) • Forecasting Methods (cont’d) • Mathematical • Statistical regression 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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Forecasting HR Supply and Demand (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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Managing a Human Resource Surplus (cont’d) • Workforce Realignment (cont’d) • 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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Managing a Human Resource Surplus (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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Managing a Human Resource Surplus (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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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. Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Measures of Strategic HR Effectiveness • Return on Investment (ROI) • Calculation showing the value of expenditures for HR activities. 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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

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 Copyright © 2005 Thomson Business & Professional Publishing. All rights reserved.

Strategic HR Management and Planning