Chapter 2 Strategic HR Management and Planning

Copyright © 2005 Thomson Business & Professional Publishing.
All rights reserved.
ROBERT L. MATHIS
JOHN H. JACKSON
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Strategic HR ManagementStrategic HR Management
and Planningand Planning
Chapter 2Chapter 2
SECTION 1SECTION 1
Nature ofNature of
Human ResourceHuman Resource
ManagementManagement

Copyright © 2005 Thomson Business & Professional 2–2
Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning 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.

Human Resources as a Core CompetencyHuman Resources as a Core CompetencyHuman Resources as a Core CompetencyHuman 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 ProcessStrategic HR Management ProcessStrategic HR Management ProcessStrategic HR Management Process
Figure 2–1

Linkage of Organizational and HRLinkage of Organizational and HR
StrategiesStrategies
Linkage of Organizational and HRLinkage of Organizational and HR
StrategiesStrategies• 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

Globalization of Business and HRGlobalization of Business and HRGlobalization of Business and HRGlobalization of Business and HR
GlobalGlobal
CommunicationsCommunications
GlobalGlobal
CommunicationsCommunications
Global PopulationGlobal Population
ChangesChanges
Global PopulationGlobal Population
ChangesChanges
Global EconomicGlobal Economic
InterdependenceInterdependence
Global EconomicGlobal Economic
InterdependenceInterdependence
Regional AlliancesRegional Alliances
NAFTA, EUNAFTA, EU
Regional AlliancesRegional Alliances
NAFTA, EUNAFTA, EU
GlobalizationGlobalization
ForcesForces
GlobalizationGlobalization
ForcesForces

Types of Global OrganizationsTypes of Global OrganizationsTypes of Global OrganizationsTypes 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 OrganizationsTransition to Global OrganizationsTransition to Global OrganizationsTransition to Global Organizations

Global EmploymentGlobal EmploymentGlobal EmploymentGlobal Employment
Global EmployeeGlobal Employee
Relations IssuesRelations Issues
Global EmployeeGlobal Employee
Relations IssuesRelations Issues
Global Labor-Global Labor-
RelationsRelations
Global Labor-Global Labor-
RelationsRelations
Global Health,Global Health,
Safety, andSafety, and
SecuritySecurity
Global Health,Global Health,
Safety, andSafety, and
SecuritySecurity
DiscriminationDiscrimination
RegulationsRegulations
GloballyGlobally
DiscriminationDiscrimination
RegulationsRegulations
GloballyGlobally

Factors Affecting Global HR ManagementFactors Affecting Global HR ManagementFactors Affecting Global HR ManagementFactors Affecting Global HR Management
PoliticalPoliticalPoliticalPolitical EconomicEconomicEconomicEconomic
CulturalCulturalCulturalCulturalLegalLegalLegalLegal

Global Cultural FactorsGlobal Cultural FactorsGlobal Cultural FactorsGlobal 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.

HourlyHourly
Compensation CostsCompensation Costs
for Manufacturingfor Manufacturing
Production WorkersProduction Workers
HourlyHourly
Compensation CostsCompensation Costs
for Manufacturingfor Manufacturing
Production WorkersProduction Workers
Figure 2–2
Hourly Costs (in U.S. Dollars)
Source: U.S. Bureau of Labor
Statistics, www.bls.gov; and
www.uschinabiz.com, 2004.

Global Economic FactorsGlobal Economic FactorsGlobal Economic FactorsGlobal 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 andOrganizational Effectiveness and
Organizational Effectiveness andOrganizational Effectiveness and
• 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 EffortsOrganizational Productivity and HR EffortsOrganizational Productivity and HR EffortsOrganizational 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 ProductivityApproaches to Improving Organizational ProductivityApproaches to Improving Organizational ProductivityApproaches to Improving Organizational Productivity
Figure 2–3

Organizational Effectiveness and FinancialOrganizational Effectiveness and Financial
Contributions of HRContributions of HR
Organizational Effectiveness and FinancialOrganizational Effectiveness and Financial
Contributions of HRContributions 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 ProductsCustomer Service and Quality Products
Linked to HR StrategiesLinked to HR Strategies
Customer Service and Quality ProductsCustomer Service and Quality Products
Linked to HR StrategiesLinked to HR Strategies
• High quality products and services are the
results of HR-enhancements to organizational
performance.
Staffing
Customer service

Organizational Culture andOrganizational Culture and
Organizational EffectivenessOrganizational Effectiveness
Organizational Culture andOrganizational Culture and
Organizational EffectivenessOrganizational 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 PlanningHuman Resource PlanningHuman Resource PlanningHuman 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 PlanningPurpose of HR PlanningPurpose of HR PlanningPurpose of HR Planning
Figure 2–4

Typical Division of HR Responsibilities:Typical Division of HR Responsibilities:
HR PlanningHR Planning
Typical Division of HR Responsibilities:Typical Division of HR Responsibilities:
HR PlanningHR Planning
Figure 2–5

HR Planning ProcessHR Planning ProcessHR Planning ProcessHR Planning Process
Figure 2–6

Human Resource Planning (cont’d)Human Resource Planning (cont’d)Human Resource Planning (cont’d)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 ProcessHR Planning ProcessHR Planning ProcessHR 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.
OverallOverall
Strategic PlanStrategic Plan
Human ResourcesHuman Resources
Strategic PlanStrategic Plan
HR ActivitiesHR Activities

Benefits of HR PlanningBenefits of HR PlanningBenefits of HR PlanningBenefits 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 EnvironmentScanning the External EnvironmentScanning the External EnvironmentScanning 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 WorkforceAssessing the Internal WorkforceAssessing the Internal WorkforceAssessing 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)Assessing the Internal Workforce (cont’d)Assessing the Internal Workforce (cont’d)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 DemandForecasting HR Supply and DemandForecasting HR Supply and DemandForecasting 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 ForecastingHR ForecastingHR ForecastingHR Forecasting
Figure 2–7

Forecasting HR Supply and DemandForecasting HR Supply and Demand
(cont’d)(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

• 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 HR Supply (cont’d)Forecasting HR Supply (cont’d)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 SupplyForecasting HR SupplyForecasting HR SupplyForecasting 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 UnitEstimating Internal Labor Supply for a Given UnitEstimating Internal Labor Supply for a Given UnitEstimating Internal Labor Supply for a Given Unit
Figure 2–8

Developing and Using a Strategic HR PlanDeveloping and Using a Strategic HR PlanDeveloping and Using a Strategic HR PlanDeveloping 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 SurplusManaging a Human Resources SurplusManaging a Human Resources SurplusManaging 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 SurplusManaging a Human Resources Surplus
Managing a Human Resources SurplusManaging a Human Resources Surplus
• 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 SurplusManaging a Human Resource Surplus
• 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

• 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.

• 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 EffectiveMaking Downsizing More EffectiveMaking Downsizing More EffectiveMaking Downsizing More Effective
Figure 2–9

HR Planning in Mergers and AcquisitionsHR Planning in Mergers and AcquisitionsHR Planning in Mergers and AcquisitionsHR 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 EffectivenessMeasuring HR Effectiveness
Using HR MetricsUsing HR Metrics
Measuring HR EffectivenessMeasuring HR Effectiveness
Using HR MetricsUsing 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 OperationalExamples of Strategic and Operational
HR MetricsHR Metrics
Examples of Strategic and OperationalExamples of Strategic and Operational
HR MetricsHR Metrics
Figure 2–10

Measures of Strategic HR EffectivenessMeasures 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 periodA = Operating costs for a new or enhance system for the time period
B = One-time cost of acquisition and implementationB = One-time cost of acquisition and implementation
C = Value of gains from productivity improvements for the time periodC = Value of gains from productivity improvements for the time period
BA
C
+
=ROI

Measures of Strategic HR Effectiveness
(cont’d)
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 BenchmarkingHR Measurement and BenchmarkingHR Measurement and BenchmarkingHR 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 FunctionCosts per Employee of the HR FunctionCosts per Employee of the HR FunctionCosts per Employee of the HR Function
Figure 2–11
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.

Assessing HR EffectivenessAssessing HR EffectivenessAssessing HR EffectivenessAssessing 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

Chapter 2 Strategic HR Management and Planning

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Chapter 2 Strategic HR Management and Planning