CHAPTER 2

Strategic HR Management and Planning

2008 Thomson/South-Western All rights reserved.

PowerPoint Presentation by Charlie Cook The University of West Alabama

Chapter Objectives
After you have read this chapter, you should be able to: Explain strategic HR management and how it is linked to organizational strategies. Discuss two possible contributors to competitive advantage and how HR contributes to each.

Describe how legal, political, cultural, and economic factors affect global HR management.
Define HR planning and outline the HR planning process. Describe the means for assessing the external and internal environments of HR management.
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Chapter Objectives (contd)

After you have read this chapter, you should be able to: Discuss several ways of managing a surplus and a shortage of human resources. Identify why HR metrics must consider both strategic and operational HR measures.

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Nature of Strategy and HR Management

Strategy Strategic HR Management

The proposition an organization follows for how to compete successfully and thereby survive and grow.

The use of employees to gain or keep a competitive advantage, resulting in greater organizational effectiveness.

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FIGURE 2-1

Strategic HR Management Process

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Strategic Success with HR Practices

Recognized HR Best Practices
Employment security

Selective recruiting
High wages/incentives Information sharing/participation

Training/cross training
Promotion from within Measurement

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FIGURE 2-2

Common Areas for HR Strategies

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Operationalizing HR Strategy
Thinking Strategically

Understand the business

Focus on key business goals

Know what to measure

Prepare for the future

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FIGURE 2-3

Possible HR Areas for Core Competencies

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HR As Organizational Contributor
HR Contributions to Organization Effectiveness

Organization productivity

Customer service and quality

Financial contributions

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Organizational Productivity
Productivity
Measure of the quantity and quality of work done,

considering the cost of the resources used.

Unit labor cost

Computed by dividing the average cost of workers by

their average levels of output.

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FIGURE 2-4

Approaches to Improving Organizational Productivity

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HR Effectiveness and Financial Performance

Effectiveness
The extent to which goals have been met.

Efficiency
The degree to which operations are done in an

economical manner.

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Global Competitiveness and Strategic HR

Types of Global Organizations

Importing and exporting

Multi-national enterprise

Global organization

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Hofstedes Dimensions of Culture

Inequality of Power Individualism/ Group Orientation

Culture
Long-term/ Short-term Orientation Masculinity/ Femininity

Uncertainty Avoidance

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FIGURE 2-5

Hourly Compensation Costs for Manufacturing Production Workers

Source: U.S. Bureau of Statistics, www.bls.gov. 2008 Thomson/South-Western. All rights reserved.

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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
Effective HR Planning

Right people

Right capabilities

Right time

Right place

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HR Forecasting
Strategic HR Planning

Forecast HR requirements (demand)

Forecast HR availability (supply)

Yes

Match?

No

Develop programs to increase supply or reduce demand

Develop programs to decrease supply or increase demand

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FIGURE 2-6

Typical Division of HR Responsibilities: HR Planning

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Small Businesses and HR Planning

Attracting and retaining qualified outsiders Management succession between generations of owners

HR Planning Issues in Small Businesses

Evolution of HR activities as the business grows

Family relationships and HR policies

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FIGURE 2-7

HR Planning Process

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Scanning the External Environment

Environmental Scanning
The process of studying the environment of the

organization to pinpoint opportunities and threats.

Government Influences Economic Conditions

HR Planning

Workforce Composition

Geographic and Competition Concerns

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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 (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 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.

Types of Forecasts
HR Demand Internal Supply External Supply

Forecasting Periods
Short-termless than one year

Intermediateup to five years

Long-rangemore than five years
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HR Forecasting Methods
Judgmental Estimates Rules of thumb Delphi Technique Nominal Groups Mathematical Statistical regression analysis Simulation models Productivity ratios Staffing ratios

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Forecasting HR Demand
Organization-Wide Estimate for Total HR 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. additional decision rules for positions impacted by the chain effects of internal promotions and transfers.

Develop

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Forecasting HR Supply
Forecasting External HR Supply
Factors affecting external supply:
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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FIGURE 2-8

Estimating Internal Labor Supply for a Given Unit

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Forecasting HR Supply (contd)

Succession Planning
The process of identifying a long-term plan for the

orderly replacement of key employees.

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

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Managing a Human Resources Surplus

Workforce Reductions and the WARN Act

Workforce Downsizing

Attrition and Hiring Freezes Voluntary Separation Programs

Human Resource Surplus

Layoffs

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Managing a Human Resource Surplus (contd)

Outplacement services are 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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FIGURE 2-9

Making Downsizing More Effective

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Managing a Shortage of Employees

Use overtime

Add contingent workers

Bring back recent retirees

Human Resource Shortage

Outsource work

Reduce turnover

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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

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Key Factors in Cultural Fit

Degree of internal integration

Autonomy

Adaptability

Cultural Fit in Mergers and Acquisitions

Employee trust

Diversity

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Measuring Effectiveness Using HR Metrics

HR Metrics
Specific measures tied to HR performance indicators.

and use of metrics that can better demonstrate HRs value and track its performance. Characteristics of good HR metrics: Are accurate. Are linked to strategic and operational objectives. Have clearly understood calculations. Meet information needs. Can be compared internally and internally. Can be used to drive HR management efforts.
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Development

FIGURE 2-10

Examples of Strategic and Operational HR Metrics

Strategic Revenue generated per FTE Net income before taxes per FTE Ratio of managers to nonmanagers Labor costs as percentage of total operating costs ROI of human capital expenditures

Operational Annual turnover rate Benefits costs as percentage of payroll Training expenditures per FTE Average time to fi ll openings Workers compensation costs per FTE Number of applicants per opening Absenteeism by employee level/department

HR department expenses as percentage of total expenses

Payroll/benefits costs as percentage of revenues

Note: An FTE is a measure equal to one employee working full-time for one year.
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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

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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

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FIGURE 2-11 Revenue and Income per FTE

*Data not reliable.

Source: Human Capital Benchmarking Study (Alexandria, VA: SHRM, 2006). 2008 Thomson/South-Western. All rights reserved. 243

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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Assessing HR Effectiveness
HR Audit
A formal research effort that evaluates the current

state of HR management in an organization Audit areas: Legal compliance Administrative processes Recordkeeping Employee retention Benefits Absenteeism and turnover control Performance management system
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