Chapter 2 – Strategy and Human Resources Planning
Strategic Planning
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Strategic planning – procedures for making decisions about the organization’s longterm goals and strategies

Human resources planning (HRP) – the process of anticipating and providing for the
movement of people into, within, and out of an organization

Strategic human resources management (SHRM) – the pattern of human resources
deployments and activities that enable an organization to achieve its strategic goals

Dramatic shifts in the composition of the labour force require that managers
become more involved in planning, since such changes affect the full range of HR
practices (recruitment, selection, training, compensation and motivation)

Increased emphasis on HR issues becomes especially critical when organizations
consider global strategies, mergers, relocation of plants, innovation, downsizing,
outsourcing, offshoring, or the closing of operating facilities
Strategic Planning and HR Planning: Linking the Processes
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HR managers are concerned with meshing HRP and strategic planning for the
organization

Through strategic planning, organizations set major objectives and develop plans to
achieve those objectives

There are two ways human resources planning relates to strategic planning
o Strategy formulation  what’s possible? Whether the types and numbers of
people are available to pursue a given strategy?
o Strategy implementation  Once strategy is devised, executives must make
primary resource allocation decisions
Step One: Mission, Vision and Values

Mission – the basic purpose of the organization as well as its scope of operations

Strategic vision – a statement about where the company is going and what it can
become in the future; clarifies the long-term direction of the company and its
strategic intent
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Core values – the strong and enduring beliefs and principles that the company uses
as a foundation for its decisions

Underlying parameters for how the company will act toward customers, employees,
and general public
Step Two: Environmental Analysis

Analysis of external opportunities and threats

Changes in the external environment have an impact on the way organizations are
run and how people are managed

Successful strategic management depends on an accurate and thorough evaluation
of the environment because some changes are good opportunities and some are
threats
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Environmental scanning – systematic monitoring of the major external forces
influencing the organization
The following six forces monitored most frequently:
1. Economic factors, including general, regional, global conditions
2. industry and competitive trends, including new processes, services and
innovations
3. Technology changes, including information technology, innovations, and
automation
4. Government and legislative issues, including laws and administrative rulings
5. Social concerns, including child care, elder care, the environment and
educational priorities
6. Demographic and labour market trends, including age, composition and literacy
Competitive Environment

Analysis of the firm’s competitive environment is central to strategic planning

In strategic planning, firms analyze the competitive environment in order to adapt to
or influence the nature of competition

The more power the force has, the less profitable the industry will be
Customers

Most important assessments a firm can make is identifying the needs of its
customers

Organizations need to know how they’re going to provide value to customers –
foundation for strategy and influences the kinds of skills/behaviours that will be
needed from employees
Rival Firms

Need to know who is your competition, need to think outside the box

Example: Toys R Us  Walmart wasn’t a toy store but moved into toys successfully
New Entrants

To protect their position, companies try to establish entry barriers tot keep new
firms out of the industries
Substitutes

Sometimes the biggest opportunity or threat comes from substitution not from
direct competition

Firms need to adjust their skill base in order to support different technologies or
may need to think about how they could compete in different ways

Example: landline phones, cell phones, internet calling
Suppliers

Suppliers provide organizations with key inputs

Inputs include: raw materials for production, money, information and people
External Supply of Labour

Many factors influence the labour supply (demographic changes in the population,
national and regional economics, education level of the workforce, demand for
specific employee skills, population mobility and governmental policies)

Labour market analysis is aided by Statistics Canada and HRSDC who publish many
studies on the labour force

In an operational level, the change in labour supply directly influences hiring plans
that must take into account the demographic composition of the population in the
area where the organization is located

From a strategic standpoint, changes in the labour supply can limit the strategies
available to firms
Step Three: Internal Analysis

Internal analysis provides strategic decision makers with an inventory of
organizational skills and resources as well as performance levels

Advantages due to physical assets are being supplanted by intangible assets (incl.
people)
The Three C’s: Culture, Competencies, and Composition
Culture: Auditing Values, Beliefs, and Attitudes

Cultural audits – audits of the culture and quality of work life in an organization

Managers often conduct cultural audits to examine the attitudes and beliefs of the
workforce and the activities they engage in

Cultural audits involve discussions with managers of how the organization’s culture
reveals itself to employees and how it can be influenced and improved

Some questions: How do employees spend their time? How do they interact with
each other? Are they empowered? How do employees advance within the
organization?

How do they perform cultural audits?
o In-depth interviews
o Observations over time
o Surveys

Before any HR planning can take place, managers have to have a clear idea of how
their employees view their organization
Competencies: People as a Strategic Resource

Core competencies – integrated knowledge sets within an organization that
distinguish it from its competitors and deliver value to customers

Core competencies are limited in numbers but provide long-term basis for
technology innovation, product development and service delivery

People are a key resource that underlies a firm’s core competencies

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For firms to sustain competitive advantage through people these criteria must be
met: (VRIO)
1. the resources must be valuable – people are a source of competitive advantage
when they improve the efficiency or effectiveness of the company
2. the resources must be rare – people are a source of competitive advantage
when their knowledge, skills, and abilities aren’t equally available to competitors
3. the resources must be difficult to imitate – people are a source of competitive
advantage when employee capabilities and contributions cannot be copied by
others
4. The resources must be organization – people are a source of competitive
advantage when their talents can be combined and deployed to work on new
assignments at a moment’s notice.
Highlights the importance of people and show the closeness of HRM to strategic
management
Composition: The Human Capital Architecture

Managers need to determine whether people are available, externally or
internally, to execute an organization’s strategy

Managers have to make decisions about whom to employ internally, whom to
contract externally, and how to manage different types of employees with
different skills who contribute in different ways to the organization

Managers often contract externally (outsourcing) skill areas that aren’t central to
the firm’s core competencies

HRP plays a big role in helping managers weigh the costs an benefits of using one
approach to employment vs. another

Core Knowledge Workers
o have firm-specific skills that are directly linked to the company’s strategy
o typically engaged in knowledge work that involves autonomy and discretion
o companies tend to make long-term commitments to these employees by
investing in their training and development

Traditional Job-Based Workers
o have skills that are valuable to a company but not unique
o tend to be employed to perform a predefined job
o possible that they could leave to go somewhere else
o managers make less investment in training and development
o focus more on paying for short-term achievements (i.e. salespeople)

Contract Labour
o have skills that are less strategic value and available to all firms,
o increasingly hired from external agencies on a contract basis
o scope of their duties is limited
o little investment is made in development

Alliance Partners
o have skills that are unique - but not directly related to a company’s core
strategy
o
o
companies establish longer-term alliances with them and nurture an on-going
relationship focused on mutual learning
investment is made in the exchange of information and knowledge (i.e.
lawyers)
Forecasting: A Critical Element of Planning

Strategic planning is important for managing the changes that occur in an
organization

Managers must forecast the needs/capabilities of the firm for the future in order
to do an effective job at strategic planning

Managers focus on three key elements
1. forecasting the demand for labour
2. forecasting the supply of labour
3. balancing supply and demand considerations
 Accurate forecasting ensures managers that they have the right number and right
kind of people in the right places at the right times, doing things that provide value
for the organization and the employees
Forecasting Demand for Employees

Two approaches to HR forecasting: quantitative and qualitative

When concentrating on HR needs – quantitative in nature

Organizational demands determines which technique is used

Quantitative approaches – involve the use of statistical or mathematical
techniques, an example is trend analysis

Trend analysis – a quantitative approach to forecasting labour demand based on
an organizational index such as sales
1. Select an appropriate business factor – best available predictor of HR needs.
Most often used is selling price  cost of materials and supplies
2. Plot a historical trend of the business factor in relation to the number of
employees – the ratio of employees to the business will provide a labour
productivity ratio
3. Compute the productivity ratio for at least the past 5 years
4. Calculate human resources demand by multiplying the business factor by the
productivity ratio
5. Project human resources demand out to the target year

Qualitative approaches – attempts to reconcile the interests, abilities, and
aspirations of individual employees with the current and future staffing needs of an
organization

Management forecasts – the opinions (judgments) of supervisors, department
managers, experts, or others knowledgeable about the organization’s future
employment needs

Delphi technique – attempts to decrease the subjectivity of forecasts by soliciting
and summarizing the judgments of a pre-selected group of individuals (works best in
organizations in which dynamic technological changes affect staffing levels)

Forecasting should include both approaches and provide a complete forecast by
bringing together the contributions of both approaches
Forecasting Supply of Employees
 Organization must determine whether sufficient numbers and types of employees
are available to staff anticipated openings
 Staffing Tables and Markov Analysis
o Staffing tables – graphic representations of all organizational jobs, along with
the number of employees currently occupying those jobs and future (monthly
or yearly) employment requirements
o Markov analysis – a method for tracking the pattern of employee movement
through various jobs  shows percentage and number of employees who
remain in each job from year to year, as well as those who are promoted,
demoted, transferred and who leave the company
 Skills Inventories and Management Inventories
o Oriented towards the types of employees and their skills, knowledge and
experience
o Skill inventories – files of personnel education, experience, interests, skills, and
so on that allow managers to quickly match job openings with employee
backgrounds
o Skill inventories allow an organization to quickly match forthcoming job
openings with employee backgrounds
o When data is gathered on managers, these inventories are called management
inventories
 Replacement Charts and Succession Planning
o Replacement charts – listings of current jobholders and people who are
potential replacements if an opening occurs
o Skill and management inventories are used to develop these charts
o Succession planning – the process of identifying, developing, and tracking key
individuals for executive positions
Mergers and Acquisitions
 Mergers have become very popular in recent years yet only about 15% of all
merges are successful
 The failure is due to inconsistencies, as well as conflicts among the managers of
each firm
Strategic Alliances and Joint Ventures
 Sometimes firms pursue cooperative strategies
 Culture issues (national and company) become very important when firms enter
into international joint ventures
 HR plays a vital role in assessing the compatibility of cultures and potential
problems
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As alliances form, HR selects key executives and develops teamwork across the
respective workforces
HR is typically involved in the design of performance assessment and mutual
incentives for the alliance
Business Strategy
 Focused on domain navigation – focused on how the company will compete
against rival firms in order to create value for customers
 Value creation – what the firm adds to a product/service by virtue of making it;
the amount of benefits provided by the product or service once the costs of
making it are subtracted
 Value = benefits – costs
 Companies can increase customer value by decreasing costs to customers or by
increasing benefits
Low-Cost Strategy: Compete on Productivity and Efficiency
 Means keeping costs low enough so that you can offer a great price to customers
(relative to competitors)
 Critical success factors  efficiency, productivity, minimizing waste
 These companies are often largee and try to take advantage of economies in scale
 Low-cast strategy has several links to HR planning
o Productivity  having employees get paid a high amount and being very
motivated and able to work efficiently
o Outsourcing  companies looking to lower their costs may consider
outsourcing, this decision often results in layoffs, transfers etc.
Differentiation Strategy: Compete on Value Added
 Providing something unique and distinctive to customers is another way to
enhance customer value
 Differentiation strategy is often based on high product quality, innovative features,
speed to market or superior service
 Differentiating companies will bend the rules a bit more, allow more flexibility and
customize products/services around customers needs
 I.e. Holts – commitment to fashion & customer service, Four Seasons – quality and
luxury
Functional Strategy: Ensuring Alignment
 Managers need to translate strategic priorities into functional areas of the
organization
 HR policies and practices need to achieve 2 types of fit: external and internal
External Fit
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
Focuses on the connection between the business objectives and the major
initiatives in HR
Example: if a company’s strategy focuses on achieve low cost, HR policies and
practices need to reinforce this idea by reinforcing efficient and reliable behaviour
Internal Fit
 Managers need to ensure that HR practices are all aligned with one another
internally to establish a configuration that is mutually reinforcing
 All HR practices need to focus on the same workforce objectives
Step 5: Strategy Implementation
 Managers must make sure the new plans are implemented effectively
 HR is important to strategy implementation
 While strategy lays out the route that the organization will take in the future,
organizational structure is the framework in which activities of the organization
members are coordinated
 Example: If a strategy requires redeployment or reorganization of employees, HR
will be closely involved
 HR ensures that the best workflow models are active and employees are involved
in sharing their advice
 HR manageres play an important role of the corporate culture, the principles on
which the company is founded, the fundamental ideas around which the business
is built
 HR’s role in strategy implementation focuses on reconciling 1) human resources
demanded and 2) human resources available
Taking Action: Reconciling Supply and Demand
 Demand considerations are based on forecasted trends in business activity
 Supply considerations involve determining where and how candidiates with the
required qualifications can be found to fill vacancies
 Supply considerations have been given m,uch more attention
 When forecasts show a surplus of employees, organizations restrict hiring
Organizational Downsizing, Outsourcing and Offshoring
 In an effort to reconcile labour supply and demand considerations, some
companies eliminate many jobs
 In many cases this movie is a part of a long-term process of restructuring
Making Layoff Decisions
 Decisions about layoffs are based on seniority and/or performance
 There are several options available to employers when dealing w/ a surplus of
employees:
 Layoff Strategies
o Based on seniority/ability
When a company is unionized, the criteria for determining an employee’s
eligbility for layoff are shown in the collective agreement
o Organizational policies and the collective agreement establish and define clearl
the employment rights of each individual and the basis on which layoff
selections will be made and re-employment effected
o Nonunion employees aren't always given the same consideration when it
comes to seniority for layoffs
o Due to the demand for technically skilled workforce, the ability of employees
to change jobs and learn new skills is given a great deal of weight in layoff
decisions
o Disadvantage of overemphasizing seniority  less competent employees
receive the same rewards/security as more compete ones – this system
ignores talent and effort
o There are also work reduction options: reduced workweek, reduced shifts,
transfers to related companies, etc.
o Layoffs are the fastest way to achieve workforce reduction
Attrition Strategies
o Attrition – a natural departure of employees from organizations through quits,
retirements, and deaths
o some businesses have a no-layoff policy – these firms view people as their
most valuable assets
o These types of firms prefer to reduce the workforce through attrition
o Hiring freeze – a practice whereby new workers aren't hired as planned, or
workers who have left the organization aren't replaced
o Advantage: organizations can control/predict compensation expenses
o Disavantage: current employees may be overburdened with work of those who
left; their skills may not match the skill sets of the departed workers, and no
new skills are infiltrating the organization
o The major disadvantage od attrition is: the organization cannot control who
leaves and who stays – valuable employees may be retiring while less needed
ones are still on the job
o Some organizations accelerate attrition by offering incentives to employees to
leave (cash bonuses, accelerated/early retirement benefits, free outplacement
services)
Termination Strategies
o If the purplus of employees is deemed to be permanent, terminations may be
the only option
o Termination – practice initiated by an employer to separate an employee from
the organization permanently
o Purpose: reduce the size of the workforce and save money (different from
firing)
o A termination strategy begins with looking at the employees who are in
positions that aren't considered useful or critical to the company’s
effectiveness anymore  the managers of these employees are contacted
o
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o
o
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about redeployment/termination options  employee is told the news with
much advanced notice
Employers cant terminante without some form of compensation to the
employee
Serverance Pay – a lump-sum paymentgiven to terminated employees
(calculated on the basis of years of service/salary)
Some organizations adopt “golden parachutes” – form of severance pay to
protect their employees from the downsizing effects of mergers  guarantees
by the employer that detail the compensation and benefits that employees will
receive in termination services
Step Six: Evaluation and Assessment
Evaluation and Assessment Issues
 To evaluate performance, firms need to establish a set of parameters that focus on
the desired outcomes of strategic planning, as well as the metrics they will use to
monitor how well the firm delivers against those outcomes
 Benchmarking – the process of comparing the organization’s processes and
practices with those of other companies
 How do they do this? A benchmarking team collects info on its own companies
operations and those of the other firm in order to determine gaps
 Metrics fall into two basic categories: human capital metrics and HR metrics
 Human capital metrics
o Assess aspects of the workforce
 HR metrics
o Assess the performance of the HR function itself
Measuring Strategic Alignment
Strategy Mapping and the Balanced Scorecard
 Balanced Scorecard (BSC) – A measurement framework that helps managers
translate strategic goals into operational objectives
 The model has four related cells:
o Financial
o Customer
o Processes
o Learning
 The logic of BSC is rooted in HR management
Measuring Internal Fit
 Internal fit – HR practices are aligned with one another to establish a configuration
that is mutually reinforcing
 How can organizations assess the internal fit of their HR practices?
o Managers need to identify the key workforce objectives they hope to achieve
Managers would identify each of the Hr practices used to elicit or reinforce
those workforce objectives
o Managers would evaluate each Hr practice on a sale of -5(not supportive) to 5
(supportive)
Its important for managers to assess internal fit and external alignment so make
sure a company is aligned w/ the competitive strategy
o
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Ensuring Strategic Flexibility for the Future
 HR is focused on ensuring flexibility and agility when the environment changes
 Successful HRP helps increase organization capability
 Organizational capability – the capacity of the organization to act and change in
pursuit of sustainable competitive advantage
 Flexibility can be achieved in two ways:
o Coordination flexibility – occurs through rapid reallocation of resources to
new or changing needs (managers can anticipate upcoming events, forecast
economic trends, recognize competitor moves)
o Resource flexibility – results from having people who can do many different
things in many different ways (cross-training, job rotations, team-based work
modes)