Part 1: Nature of Human Resource
Management
Chapter 2: Strategic HR Management
and Planning
Prepared by Linda Eligh, University of Western Ontario
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Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
Learning Objectives
After you have read this chapter, you should be able to:
1. Explain strategic HR management and how it is linked to
organizational strategies.
2. Define HR planning and outline the HR planning process.
3. Describe the process for forecasting HR supply and demand
including forecasting methods.
4. Discuss the importance surrounding the retention of employees.
5. Describe the process of developing and using a strategic HR plan
including the action to be taken when there is a surplus of
employees or a shortage.
6. Identify why HR metrics must consider both strategic and
operational HR measures.
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Nature of Strategic Human Resources Management
• Strategic Human Resources Management
 The process of linking the HR function with the
strategic objectives of the organization in order to
improve performance.
• Organizational Strategy
 The pattern of decisions in a company that
determines and reveals its objectives, purposes or
goals, and produces the principle policies and plans
for achieving those goals.
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Strategic HR Management Process
Fig. 2-1
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Linkage of Organizational and HR Strategies
Porter’s Competitive 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 and requires a longer HR
planning horizon approach
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Linkage of Organizational and HR Strategies
Porter’s Competitive Strategies (cont.)
Differentiation
Competition through 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.
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Linkage of Organizational and HR Strategies
Porter’s Competitive Strategies (cont.)
Focused Strategy
Occurs when a firm concentrates effort on serving a
distinctively defined market that may include some
combination of a portion of a product line, customer
segment, geographic area or distribution channel.
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Linkage of Organizational and HR Strategies
Miles and Snow’s Strategy Typology
 View of the organization as a complete and integrative
system, in dynamic interaction with its environment.
 Competing firms within a single industry can be
categorized into four basic types:




Defenders
Prospectors
Analyzers
Reactors
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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 Strategic HR Planning
Fig. 2-2
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Typical Division of HR Responsibilities:
HR Planning Fig. 2-3
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Human Resource Planning
• 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 Process
Fig. 2-4
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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
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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
• 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
• 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
 The use of information from the past and present to
identify expected future conditions.
• Forecasting Periods
 Short-term—less than one year
 Intermediate—up to five years
 Long-range—more than five years
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HR Forecasting
Fig. 2-5
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Forecasting HR Supply and Demand
• 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.
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Forecasting HR Supply and Demand
Methods for Forecasting Demand
Quantitative
(Mathematical)
Qualitative
(Judgmental)
Trend analysis
Management forecasts
Ratio analysis
Delphi technique
Scatter plot
Regression analysis
Nominal group technique
Simulation models
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Forecasting HR Supply
• Forecasting External HR Supply
 Factors affecting external supply
 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
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Forecasting HR Supply
• Forecasting Internal HR Supply
 Review skills inventories
 Examine organizational charts or staffing tables
 Utilize a Markov analysis
 Replacement charts
 Implement succession planning
 The
process of identifying longer-term plan for the
orderly replacement of key employees.
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Markov Analysis for a
Hypothetical Sales Office
Fig. 2-6
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Executive Replacement Chart for Hypothetical
Company Fig. 2-7
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Estimating Internal Labour Supply
for a Given Unit Fig. 2-8
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Retention of Human Resources
• Why People Stay or Leave—Links, Fit, and
Sacrifice
 Culture and Values
 A positive,
distinctive company culture aids retention by
creating a “great work environment”
 Management and Retention
 If
a firm is not effectively managed, employees may be
“turned off” by ineffective responses and inefficiencies they
deal with in their jobs. Visionary leadership is important.
 Job Security
 The
extent to which high-caliber top performers are retained
by the company is a key issue with other employees who
view high turnover in this group as a negative.
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Drivers of
Retention
Fig. 2-9
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Keys to Managing
Retention Fig. 2-10
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Managing Retention
• Retention Measurement and Assessment
 Employee Surveys
 Exit Interviews
• Determining Retention Management Actions
 Retention Evaluation and Followup
 Regular
review of turnover data
 Tracking of intervention results and adjustment of
intervention efforts
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Developing and Using a Strategic HR Plan
• The ultimate purpose of the plan is to enable
managers to match the supply of labour with the
demand expected, given the strategies of the
organization.
 Managing a Human Resources Surplus
 Outplacement Services
 HR Planning in Mergers and Acquisitions
 Managing Shortages of Labour
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Managing a Human Resources Surplus
• Workforce Reductions and Legislation
 Employment Standards Acts and Canada Labour
Code sets out employer requirements for advance
notice of a layoff or facility closing.

Sufficient notice to employees and the local community
before a layoff or facility closing involving more than 50
people.

Also covers part-time or seasonal workers in Canada
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Managing a Human Resources Surplus
• Workforce Downsizing
 “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
• Workforce Downsizing (cont’d)
 Positive consequences
 Increased
competitiveness
 Increased productivity
 Negative consequences
 Cannibalization
of HR resources
 Loss of specialized skills and experience
 Surviving employees feel overburdened and demoralized
 Managing survivors
 Provide
explanations for actions and the future
 Involve survivors in transition/regrouping activities
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Managing a Human Resource Surplus
• 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.
 Employees cannot be laid off indefinitely
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Managing a Human Resource Surplus
• Terminations
 Legislation requires that a certain amount of notice must be
provided based and severance may also have to be paid
depending on years of service.
• Reducing Hours
 Reducing an employee’s hours until such time that things can
get back to normal. Options include working fewer days in the
week, job sharing and changing to part time status.
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Managing a Human Resource Surplus
• 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
Fig. 2-11
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Managing Shortages of Labour
• Canada’s aging population a lack of skilled
labour will result in more labour shortages than
surplus situations.
 Overtime
 Hiring temporary employees
 External recruitment
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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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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
• 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 Metrics: Measuring Absenteeism
• Measuring Absenteeism
Sample formula for measuring or computing absenteeism:
Number of person- days lost throu
gh job absence during period
100
(Averagenumber of employees) (Number of work days)
• Other Measures of Absenteeism:
Incidence rate—the number of absences per 100 employees/day
Inactivity rate—the percentage of time lost to absenteeism
Severity rate—The average time lost per absent employee during
a specified period of time
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HR Metrics: Measuring Absenteeism
• Calculations of the costs of absenteeism should
usually include:
 Lost wages
 Benefits
 Overtime for replacements
 Fees for temporary employees, if incurred
 Supervisor’s time
 Substandard production
 Overstaffing necessary to cover absences
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HR Metrics: Measuring Turnover
• Ways to Measure Turnover:
 Job and job levels
 Department, units, and location
 Reason for leaving
 Length of service
 Demographic characteristics
 Education and training
 Knowledge, skills and abilities
 Performance ratings/levels.
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HR Metrics: Measuring Turnover
• Computing the Turnover Rate:
Number of employeeseparations during themonth
 100
T otalnumber of employeesat midmonth
• Costs of Turnover




Separation costs
Replacement costs
Training costs
Hidden costs
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Simplified Turnover Costing Model
Fig. 2-13
$20,000
40%
$28,000
20
3
$ 3,500
$70,000
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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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Performance Benchmarking
Fig. 2-14
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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 (e.g. Employment Equity, OH&S)
 Current job specifications and descriptions
 Valid recruiting and selection process
 Compensation and benefits system
 Employee handbook
 Absenteeism and turnover control
 Grievance resolution process
 Orientation, training and development
 Performance management system
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