1 Week two - Overview Strategic Planning The purpose of this module is to acquaint you with the importance of Human Resource Planning (HRP) and its connection with strategic business planning. Human Resources Planning is the window to Human Resources Management (HRM). Without a plan, it is difficult to determine which activities should be put into place in order for the organization to meet its strategic directions. HRP answers the basic questions for organizations - what is the supply and demand for staff to be competitive, what skills should those staff have, where will you recruit them, what type of training is needed to make them productive and what labour relations issues can you anticipate and deal with? Learning Outcomes After completing this module, you should be able to: 1. Describe the reasons for integrating HRP and strategic planning. 2. Explain the difference between qualitative and quantitative demand forecasting. 3. Outline the importance of the Human Resources Information System (HRIS) and the external labour market in forecasting supply. 4. Identify methods for dealing with shortages and surpluses in the organization. 5. Describe the areas to consider when evaluating the effectiveness of planning decisions. Weekly Readings Managing Human Resources Chapter 2, "Strategy and Human Resources Planning" What are your Thoughts? 2 A few years ago, it was easy to find a Blockbuster Video store that rented movies on DVD and Blu-Ray in just about any mid to large size urban area in Canada. Question: What changes in the external environment did this company fail to plan for that led to eventual bankruptcy? Strategic Planning Linking Strategic Planning and Human Resources “Competing through people" is only an idea or a philosophy until it is put into practice. In order to put it into practice, it is necessary to understand some of the systems and processes in organizations that link human resources management and strategic management. What is Strategic Planning? Strategic planning is the process through which an organization decides on its corporate direction, objectives and priorities and then aligns its resources to accomplish these objectives and priorities. Strategic plans have a strong external focus on how the organization will position itself in the marketplace relative to competitors in a way that will ensure long term survival, growth and the ability to create value. What is Human Resources Planning? Human resources planning (HRP) is the process that links the human resources needs of an organization to its strategic plan to ensure that staffing is sufficient, qualified and competent enough to achieve the organization's objectives. People are essential to the production of the goods and services that an organization is providing. When positions are vacant, or it is not possible to find skilled people to fill them, the bottom line suffers. HRP 3 coordinates all of the HR functions in a way to ensure that you have the right person in the right job at the right time. Strategic Planning and HRP HRP is a response to Strategic Planning. It makes sense for an organization planning its strategies and future directions, to consider not only finances, profit margins and return on investment, but also to recognize that people are the key to reaching those goals. So ideally, HRP and strategic organizational planning should be done together as Strategic Human Resources Management (SHRM). Strategic Human Resource Management means accepting and involving the HR functions as a strategic partner in the formulations and implementation of the company's strategies through HR activities such as recruiting, selecting, training, and rewarding personnel. Successful organizations recognize that all business decisions have HR implications, and all HR decisions have business implications and if you do the two processes separately you will likely miss something. In an organization that practices SHRM, the HR manager or director sits at the senior management table and is involved in all of the decision making for the organization. Linking Strategic Planning and Human Resources 4 Business/Corporate Mission, Vision, and Values Human Resources Identify purpose and scope Capture underlying Philosophy Clarify long-term direction Establish enduring beliefs and principles Establish foundation of culture Guide ethical codes of conduct External Analysis Opportunities and threats (OT) Environmental scanning (legal, ect.) Industry/competitor analysis Demographic trend External supply of labour Competitor benchmarking Internal Strengths and Analysis weaknesses (SW) Culture, competencies, Composition Forecast demand for employees Core competencies Forecast supply of employees Resources: People, process, systems Strategy Formulation Corporate strategy Productivity and Efficiency Business strategy Quality, service, speed, Innovation Functional strategy: alignment External fit/ 5 alignment and internal fit Strategy Implementation Design structure, systems, etc. Allocate resources Leadership, communication, and change Evaluation Assessment and Reconcile supply and demand Downsizing, layoffs, etc. HR practice: staffing, training, reward, etc. Human capital metrics Balanced scorecard benchmarking Ensuring alignment Agility and flexibility Check your knowledge: HR managers must be concerned with aligning HR planning and which of the following? The knowledge, skills, and abilities of HR professionals The knowledge, skills, and abilities of its employees C o r r e c t a n s w e r . The knowledge, skills, and abilities of the immediate supervisors of its employees The knowledge, skills, and abilities of its top executives 6 You got 1 out of 1 points 1/1 One way human resource planning links to strategic planning is by providing a set of inputs into which of the following? The source of competitive advantage The strategy implementation process The strategic formulation process C o r r e c t a n s w e r . The strategic analysis process You got 1 out of 1 points 1/1 Eldorado Electronics wants to move from the stagnant desktop computer industry into the smart phone industry. To do so, however, it would have to make significant changes to its approach to product development in order to gain an edge in this competitive industry. What is the smartest next step for Eldorado Electronics? It should consider how its strategic plans will affect HR needs and also how its current HR status will affects its strategic plans C o r r e c t a n s w e r . It should apply principles of strategic human resources management It should engage in human resources planning It should consider how its strategic plans will affect its HR needs You got 1 out of 1 points 1/1 The dramatic shifts in the composition of the labour market that are occurring require that HR managers become more involved in planning because these changes affect the full range of a company's HR practices. True False You got 1 of 1 points The Steps In Strategic Planning: Step 1 7 Mission Vision and Values The Mission Statement for an organization answers the question “why does this company exist?” and also identifies its scope of operation. The Mission is enhanced further by a description of the company’s strategic vision, that is, what is its future direction…where are we going? It clarifies the long-term direction of the company and its strategic intent. And finally, there are the core values of the organization or the bedrock beliefs and principles that define what is important to an organization and provide a foundation on which the organization makes its decisions. These values identify how a company will act toward its customers, employees and the public in general. The values also place limits on what behavior is seen as ethical and acceptable. So the three questions to remember at this level are: Mission: Why do we exist? Vision: Where are we headed? Values: How will we act while we’re getting there? Check your knowledge: On the entrance to the Mac Pencil's factory are the words "to provide the world with high-quality and dependable pencils"; What is this an example of? Mission C o r r e c t Strategic Vision Core resources Core Values a n s w e r . You got 1 out of 1 points 1/1 The vision statement ideally clarifies which of the following: The strategic intent of the company The long term direction of the company and its strategic intent C o r r e c t a n s w e r . 8 The short-term direction of the company The CEO's goals for the company You got 1 out of 1 points 1/1 Which of the following best describes the core values of a company? They are the basic purpose of the organization They encompass the systematic monitoring of external opportunities They provide a perspective of where the company is headed They are the strong enduring beliefs and principles used by the company to make decisions C o r r e c t a n s w e r . You got 1 out of 1 points 1/1 Strategic Planning: Step 2 Internal Analysis As organizations conduct external analyses of environmental opportunities and threats, they also analyze their internal strengths and weaknesses. Internal analysis provides strategic decision makers with an inventory of organizational skills and resources as well as performance levels. Internal analysis focuses especially on the “the three C’s”: capabilities, composition and culture. Core Capabilities Core capabilities consists of a combination of three resources: processes, systems (technologies) and people. Processes are standard routines for how will be done and results accomplished. Systems include information systems, databases, proprietary technologies, etc. And 9 "people" included the knowledge, skills and abilities of employees who are most critical to creating value for customers. McDonald’s, for example, has developed core capabilities in management efficiency and training. Organizations can achieve a sustained competitive advantage through people if they are able to meet the following criteria: a. Resources must be valuable – because they can increase effectiveness and/or efficiency b. Resources must be rare – because they are not easily available to the competition c. Resources must be difficult to imitate d. Resources must be organized – so they can be deployed easily and quickly Composition Managers need to know whether people are available internally or externally to execute an organization’s strategy. Using a "Human Capital Map", different skill groups in any organization can be classified according to the degree to which they create strategic value and are unique to the organization. Research suggests that employment relationships and HR practices for different employees vary according to which segment they occupy in the matrix. The four classifications include: Strategic Knowledge Employees Strategic Knowledge Employees - Includes employees who tend to have unique skills that are directly related to the company’s strategic direction and are difficult to replace. Companies tend to make long term commitments to these employees and invest significantly in their training and development. Core Employees 10 Core Employees - These are employees who have skills that are quite valuable to the organization but are not particularly unique or difficult to replace and whose skills could be used in any number of businesses e.g. sales people. Because their skills are transferable, it is quite possible that they could leave to go to another organization so managers frequently make less investment in training and development and tend to focus more on paying for short-term performance achievements. Supporting Labor Supporting Labor - This group typically has skills that are of less strategic value to the firm and are generally available in the labour market (such as clerical workers, maintenance workers, and staff workers in accounting and HR). Individuals in these jobs are increasingly hired from external agencies on a contract basis to support the strategic knowledge workers and core employees. The scope of their duties tends to be limited, and their employment relationships tend to be transaction based, focused on rules and procedures, with less investment in development. External Partners External Partners - This group of individuals has skills that are unique but are not directly related to the company's core strategy (such as lawyers, consultants and research lab scientists). These individuals have skills that are specialized and not readily available to all firms. Companies tend to establish longer-term alliances and partnerships with them and considerable investment is made in the exchange of information and knowledge. Culture Managers conduct culture audits to example the values, assumptions, beliefs and expectations (VABEs) of their workforces. Cultural audits can consist of surveys and interviews to measure how employees feel on a number of critical issues. Cultural audits can link employee attitudes on a variety 11 of factors to things like customer satisfaction and revenue increases. Cultural audits can also be used to determine whether there are different groups or subcultures within the organization that have distinctly different views about the nature of the work and how it should be done. Knowing a company’s corporate culture is a source of competitive advantage and firms are beginning to engage in what is called values-based hiring which is the process of outlining the behaviours that exemplify a firm’s corporate culture and then hiring people who are a fit for them. Check your knowledge: Which term refers to the integrated knowledge sets within an organization that distinguish it from its competitors and deliver value to customers? Organizational Competencies Individual Competencies Human Capital Core Capabilities Check #4 Which of the following can be used to classify different skill groups in an organization by the degree to which they create strategic value and are unique? Internal environmental scanning. A human capital map. Strategic planning. A skills inventory. Check #2 Which term refers to the examination of the attitudes and activities of a company’s workforce? Trend analysis. Behavioural modelling. 12 Environmental scanning. A cultural audit. Check #4 Strategic Planning: Step 3 Formulating Strategy Forecasting techniques provide a lot of specifics about the supply and demand of labour but it is important not to lose sight of the larger strategic picture. SWOT analysis – an exercise that identifies the strengths, weaknesses, opportunities and threats – helps managers to combine the various sources of information into a broader framework for analysis. Strategy formulation builds on SWOT analysis to use the strengths of the organization to capitalize on opportunities, counteract threats, and alleviate internal weaknesses. Strategies can focus on: Corporate Strategies such as growth and diversification, mergers and acquisitions and strategic alliances and joint ventures Business Strategies such as low cost or differentiation Functional Strategies such as vertical fit (the connection between business objectives and the major initiatives in HR) and horizontal fit (the degree to which the entire range of HR practices focus on the same workforce objectives and are mutually reinforcing) Check your knowledge: An organization's growth hinges on which of the following: 13 C o All of the above. r r e c t a n s w e Increased employee productivity. A greater number of employees. Employees developing or acquiring new skills. r . r . You got 1 out of 1 points 1/1 What is a major reason why many mergers do not go well? Strategic planning failures. A competitive business environment. C o Cultural inconsistencies and conflicts. r r e c t a n s w e Failures in context analysis. You got 1 out of 1 points 1/1 In what way can HR best help ensure that a strategic alliance or joint venture goes smoothly in the beginning? Plan labour supply needs for both organizations. Teach employees about the other organization. C o Assess the compatibility of the two organizational cultures. r r e c t a n s w e r . Systematically monitor employee morale for both organizations. You got 1 out of 1 points 1/1 Value creation is what the firm adds to a product or service by virtue of making it; it’s the amount of benefits provided by the product or service once the costs of making it are subtracted. True =T False Forecasting A Critical Element of Planning 14 Although an internal analysis of the three C’s may reveal a great deal about where the organization is today, managers must continually forecast both the needs and the capabilities of the firm for the future in order to do an effective job at strategic planning. Managers must focus on at least three key elements: 1) forecasting the demand for labour, 2) forecasting the supply of labour, and 3) balancing supply and demand considerations. Demand Forecasting Demand for Employees Forecasting is the HR activity of estimating in advance the number and types of people needed to meet organizational objectives. There are two approaches to forecasting: 1. Quantitative Approaches - uses statistical or mathematical techniques. One example of this type of approach is trend analysis which involves forecasting a firm’s employment requirements on the basis of some organizational index. It is one of the most commonly used approaches for projecting HR demand and is typically done in several stages. Other more sophisticated statistical planning methods include modeling or multiple predictive techniques. 2. Qualitative Approaches – these approaches are less statistical and are used in organizations where there is no historical information and where the environment is not very stable. It includes techniques such as management forecasts (which are essentially the opinions/judgements of supervisors, department managers, experts, or others knowledgeable about the organization’s future needs) and the Delphi technique which involves soliciting and summarizing the judgements of a preselected group of individuals. Qualitative approaches tend to be more popular today simply because of the rapid change in organizations. However, whenever possible, the two approaches should be combined to increase the reliability of forecasting. Supply 15 Forecasting Supply of Employees Just as an organization must forecast its future requirements for employees, it must also determine whether sufficient numbers and types of employees are available to staff the openings it anticipates having. It starts with an examination of what is already available internally in terms of staff and skills and continues with an examination externally of what staff could be obtained if a firm needed to look for staff in the external labour market. An internal supply analysis can begin with the preparation of staffing tables - graphic representations of all organizational jobs along with the numbers of employees currently occupying those jobs and perhaps also future employment requirements derived from demand forecasts. Another technique called Markov analysis shows the percentage (and actual number) of employees who remain in each of a firm’s jobs from one year to the next, as well as the proportions of employees who are promoted, demoted, or transferred or leave the organization. Staffing tables, a Markov analysis and turnover rates tend to focus more on the number of employees in particular jobs. Other techniques are more oriented toward the types of employees and their skills, knowledge and experiences. Skill inventories can be prepared that list each employee's education, past work experience, vocational interests, specific abilities and skills, compensation history and job tenure. Up-to-date skill inventories allow an organization to quickly match forthcoming job openings with employee backgrounds. When data is gathered on managers, the inventories are called management inventories. Both skill and management inventories can be used to develop employee replacement charts which list current jobholders and identify possible replacements, should openings occur. Replacement charts can be used with other pieces of information for succession planning – the systematic process of recognizing and creating future leaders who are able to take the positions of the old ones when they leave the organization for any reason. Quality of fill is a newer metric that is used to measure how well new hires are performing so that the company will have enough top performers to achieve its strategic objectives. 16 Balancing Gap Analysis Once a company has assessed both supply and the demand for employee skills, talent and know-how, it can begin to understand its human capital readiness or the current supply of critical talent within the company compared to its need for that supply. Any difference between the quantity and quality of employees required versus the quantity and quality of employees available represents a gap that needs to be closed. Once the assessment of the firm's human capital readiness is complete, managers have a much better foundation on which to build their strategy going forward and the specific requirements for developing the talent to implement their strategy. Check your knowledge: Which of the following best describes forecasting human resources needs? C It is difficult and should only be done on rare occasions o It estimates the number and type of people that are needed to meet organizational objectives r r e c t a n s w e r . It should rely strictly on quantitation approaches, which utilize sophisticate analytical models It is scientific and relatively error-free You got 1 out of 1 points 1/1 Kappa Technology is a firm in the high-technology sector. It needs to hire individuals with very specific knowledge and abilities and it needs to do so quickly. Which aspect of employee forecasting will most important for this company? C o Skills Inventories r r e c t Staffing Tables Markov Analysis Succession Planning You got 1 out of 1 points 1/1 a n s w e r . 17 What is the difference between trend analysis and management forecasts? C o Trend analysis is quantitative and management forecasts are qualitative r r e c t a n s w e r . Trend analysis is used to analyze the business environment and management forecasts predict labour needs Trend analysis has proven success and management forecasts have major shortcomings Trend analysis uses organizational indexes and management forecasts utilize statistical techniques You got 1 out of 1 points 1/1 Which of the following is a graphical representation of all organizational jobs along with the numbers of employees currently occupying those jobs and future employment requirements? An Organization Chart A Skills Inventory Career Planning C o A staffing table r r e c t a n s w e r . You got 1 out of 1 points 1/1 What is the most important information obtained from a Markov Analysis? Human Capital readiness What types of employees work in each department C o What positions are going to be coming open and will require a new hire r r e c t a n s w e r . How many individuals are in each job in each department You got 1 out of 1 points 1/1 Which of the following is the process of identifying, developing, and tracking key individuals so that they may eventually assume toplevel positions? Replacement Selection Target Forecasting C o Succession Planning r r e c t Predicted Change You got 1 out of 1 points 1/1 Embed a n s w e r . 18 The Steps In Strategic Planning: Step 4 Strategy Implementation Through HRP, organizations strive for a proper balance between demand considerations and supply considerations. If demand exceeds supply, then organizations have a variety of options that can be used such as: hiring full time employees, having current employees work overtime, recalling laid-off workers, using temporary or contract workers, and outsourcing or offshoring some of their business processes. However, when forecasts show a surplus of employees, an organization has to look at a different set of options: restricting or freezing hiring, reducing the hours of current employees, layoffs, demotions, terminations, reduction through attrition and early retirement (with or without incentives). Below is some additional information about three major strategies for dealing with surplus employees: layoffs, attrition and termination. Layoffs Layoffs are usually based on either seniority or ability. In unionized environments, the criteria for determining an employee’s eligibility for layoff are usually set forth in the collective agreement and layoffs are usually based on seniority. When seniority is often used to downsize, organizations run the risk of retaining a workforce that is not appropriate for the future ahead. Wherever possible, a clear understanding of where the company is headed is important so that the workforce that is left contributes to future outcomes. The practice of using seniority as the basis for deciding which workers to lay off may also have a disproportionate impact on women and minority workers who often have less seniority than other groups. Under the umbrella of layoff strategies, there are several work reduction options: reduced workweek, reduced shifts, and transfers to related companies. Attrition 19 Attrition refers to the gradual voluntary reduction of the workforce through quits, retirements and deaths. Most organizations can easily estimate how many people will leave the organization and so can slowly reduce the workforce through natural means. Attrition must be supplemented by other practices. Hiring freezes are usually implemented at the same time as the organization adopts a strategy of workforce reduction through attrition. A hiring freeze means the organization will not hire new workers as planned or will hire only in areas critical to the success of the organization. Some organizations attempt to accelerate attrition by offering incentives to employees to leave. These incentives include cash bonuses for people to leave during a specified period, accelerated or early retirement benefits, and free outplacement services. Some of the community colleges in the Ontario that were operating at a deficit, offered incentives to staff to take early retirement in order to reduce salary costs and lower the debt. Using attrition has some advantages and some disadvantages. Employees may gain a feeling of value from their employer through this strategy and work even harder to develop their competencies to manage the potential gaps for those employees leaving the organization. However, as those who leave the organization will not be replaced, the remaining employees may become responsible for assuming the additional workload or a service or program may be deleted. Termination Termination is the permanent removal of an employee from the organization. The purpose of terminations is to reduce the size of the workforce and save salary dollars. Termination is different from firing in which an employee is released for such causes as poor performance, high absenteeism or unethical behaviour. A termination strategy begins with the identification of employees who are in positions that are no longer considered useful or critical to the company’s effectiveness. Employers cannot terminate without some form of compensation to the employee. Severance pay is a lump-sum payment given to terminated employees on the basis of years of service and salary. Severance pay and notice periods for termination vary considerably from one organization to another. Every province has legislation such as the Employment Standards Act which establishes minimum standards for termination and severance pay. 20 Check your knowledge: Which term refers to reducing the workforce through the departure of employees who resign or retire? Termination A worker loan-out program C o Attrition r r e c t a n s w e r . A hiring freeze You got 1 out of 1 points 1/1 Organization is a unionized textiles manufacturing company that is downsizing. What will Organization most likely use when deciding whom to lay off first? The payroll Talent C o Seniority r r e c t a n s w e r . What skills and abilities the company needs to thrive You got 1 out of 1 points 1/1 statement best describes a hiring freeze? It is usually only successful during times of economic crisis It discourages competent employees C o It is a workforce attrition strategy r r e c t a n s w e r . It leaves more talented labour for the competition You got 1 out of 1 points 1/1 Decisions about employee layoffs are usually based on seniority and/or performance. True - T False You got 1 of 1 points Attrition and early retirement are means for organizations to reduce excess labour. 21 True = T False You got 1 of 1 points You got 1 out of 1 points 1/1 The Steps In Strategic Planning: Step 5 Evaluation and Assessment It is important that an organization decides, in advance, how often it will monitor its planning and what criteria will be used to determine success. For example, benchmarking – comparing the organization’s processes and practices with that of other companies that are recognized leaders – allows the organization to measure how fast and how far it has progressed with its plan. Two types of metrics are used – human capital metrics (which assess aspects of the workforce) and HR metrics (which assess the performance of the HR function itself). Benchmarking alone will not give a firm a competitive advantage. One of the tools for mapping a firm’s strategy to ensure strategic alignment is the balanced scorecard. It is a performance metric used to identify and improve various internal functions of a business and their resulting outcomes. The balanced scorecard looks at four areas - financial, customer, processes and learning – and identifies the key metrics that will be measured and are necessary to meet the overall goals of the organization. Horizontal fit - the degree to which internal HR practices are aligned with one another - can be used in evaluation but by itself it is not sufficient to ensure strategic alignment. And finally, no organization can survive if it does not continue to keep itself meaningful and fresh to its customers. Organizational capability is the capacity of the organization to continuously act and change in pursuit of sustainable competitive advantage and successful HRP helps increase this capability. Flexibility is required and includes: Coordination flexibility - rapid reallocation of resources to new or changing needs 22 Resource flexibility - having people who can do many different things in different ways Check your knowledge: Which of the following is a method for measuring a firm's strategic alignment? SWOT Analysis Markov Analysis C o Using a Balanced Scorecard r r e c t a n s w e r . Benchmarking You got 1 out of 1 points 1/1 Embed Which term refers to an enthusiastically adopted tool for mapping a firm’s strategy in order to ensure strategic alignment? C Target Forecasting o Balanced Scorecard r r e c t Replacement Selection Predicted Focus a n s w e r . You got 1 out of 1 points 1/1 An organization states that teamwork and working together are important in its strategy but gives bonuses to individuals who excel independently. What is this an example of? C o A misalignment of internal fit r r e c t a n s w A misalignment of strategy and HR A misalignment of external fit A misalignment of functional strategy You got 1 out of 1 points 1/1 e r . 23 © Durham College. All rights reserved. Avie Products Inc. Case Study Scenario Avie Products Inc. is planning to add a third shift to its production schedule. It currently has 450 workers involved in all aspects of its fertilizer business, best done in Canada. A recent surge in demand from its global customers is driving the need for more workers; however, Simi Meher, the CEO, is concerned that the surge may be temporary, especially in light of the recent economic downturns in the global environment where Avie does business. Questions 1. Which approach would be the best for Avie use to forecast demand for its products? 2. What HR planning would assist Avie in determining how many additional workers it would need for the third shift? 3. Assume that Avie goes ahead with the third shift. What can the company use to evaluate the effectiveness of this strategy in a year's time? 24 4. If the demand for Avie's product should drop in the future and the company is required to lay off some of the staff on the third shift, what would be the best way to determine who, on this shift, should be laid off? (Note that Avie is not unionized.) Completing your Posts Use the "Start a New Thread" button and post your response independently in your groups discussion forum. Once you have done so, the posts of other group members will become visible. Review each group members post and provide a substantial response to at least one other group members viewpoint. ALL posts for this discussion are due by the end of Week 2 @ 11PM ET Reminder: For full marks (10% overall grade) you are to complete 5 of the 7 Case Studies.