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Chapter 2. Strategic HR Management and Planning. SECTION 1 Nature of Human Resource Management . 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.

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chapter 2
Chapter 2

Strategic HR Managementand Planning

SECTION 1Nature ofHuman ResourceManagement

Copyright © 2005 Thomson Business & Professional Publishing.

All rights reserved.

learning objectives
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
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.

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strategic hr management process
Strategic HR Management Process

Figure 2–1

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linkage of organizational and hr strategies
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

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globalization of business and hr

Global Population Changes

Global Economic Interdependence

Global Communications

Regional AlliancesNAFTA, EU

Globalization of Business and HR

Globalization Forces

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types of global organizations
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.

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transition to global organizations
Transition to Global Organizations

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transition to global organizations9
Transition to Global Organizations

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global employment

Global Labor-Management Relations

Discrimination Regulations Globally

Global Health, Safety, and Security

Global Employment

Global EmployeeRelations Issues

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factors affecting global hr management

Political

Economic

Legal

Cultural

Factors Affecting Global HR Management

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global cultural factors
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.

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hourly compensation costs for manufacturing production workers
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

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global economic factors
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.

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organizational effectiveness and strategic hr management
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

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organizational productivity and hr efforts
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

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approaches to improving organizational productivity
Approaches to Improving Organizational Productivity

Figure 2–3

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organizational effectiveness and financial contributions of hr
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”

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customer service and quality products linked to hr strategies
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

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organizational culture and organizational effectiveness
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.

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human resource planning
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

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purpose of hr planning
Purpose of HR Planning

Figure 2–4

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typical division of hr responsibilities hr planning
Typical Division of HR Responsibilities: HR Planning

Figure 2–5

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hr planning process
HR Planning Process

Figure 2–6

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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

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hr planning process26

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.

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benefits of hr planning
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

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scanning the external environment
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

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assessing the internal workforce
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?

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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

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forecasting hr supply and demand
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

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hr forecasting
HR Forecasting

Figure 2–7

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forecasting hr supply and demand cont d
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

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forecasting hr supply and demand cont d34
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

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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

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forecasting hr supply
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.

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estimating internal labor supply for a given unit
Estimating Internal Labor Supply for a Given Unit

Figure 2–8

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developing and using a strategic hr plan
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

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managing a human resources surplus
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.

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managing a human resources surplus cont d
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

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managing a human resource surplus cont d
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

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managing a human resource surplus cont d42
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.

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managing a human resource surplus cont d43
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

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making downsizing more effective
Making Downsizing More Effective

Figure 2–9

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hr planning in mergers and acquisitions
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

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measuring hr effectiveness using hr metrics
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.

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examples of strategic and operational hr metrics
Examples of Strategic and Operational HR Metrics

Figure 2–10

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measures of strategic hr effectiveness
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

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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

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hr measurement and benchmarking
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

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costs per employee of the hr function
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

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assessing hr effectiveness
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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