Chapter 2 Strategic HR Management & Planning 2–1 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. 2–2 Strategic HR Management Process 2–3 Global Factors • Types of organizations Import/export Multinational Enterprises (MNEs) Global organizations • Legal, Political & Economic Factors Unstable environments, unions, compliance issues • Cultural Factors Hofstede’s five dimensions 2–4 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 2–5 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 2–6 Approaches to Improving Organizational Productivity 2–7 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” 2–8 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 2–9 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. 2–10 HR Planning 2–11 HR Planning Process 2–12 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 2–13 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 2–14 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 2–15 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 2–16 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? 2–17 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 2–18 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 2–19 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 2–20 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 2–21 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 Actions of competing employers Government Other developments and shifts regulations and pressures circumstances affecting the workforce 2–22 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. 2–23 Estimating Internal Labor Supply for a Given Unit 2–24 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 2–25 Making Downsizing More Effective 2–26 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 2–27 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. 2–28 Examples of Strategic and Operational HR Metrics 2–29 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 2–30 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 2–31 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 2–32 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 2–33