Chapter 2
STRATEGIC ROLES OF
HUMAN RESOURCE
MANAGEMENT
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1–1
After studying this chapter,
you should be able to:
1.
Explain what human resource management (HR) is and how it
relates to the management process.
2.
Give at least eight examples of how managers can use HR
concepts and techniques.
3.
Illustrate the HR management responsibilities of line and staff (HR)
managers.
4.
Provide a good example that illustrates HR’s role in formulating
and executing company strategy.
5.
Write a short essay that addresses the topic: why metrics and
measurement are crucial to today’s HR managers.
6.
Outline the plan of this book.
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1–2
Why strategic planning is important
to all Managers
Strategic planning is a guide to what is to be done.
 Organizations exist to achieve some purpose and if they
fail to achieve their ends they have failed.
 Ducker said “there is something to point to and say we
have not worked in vain”.
 These aims or goals – and hard work you put into
accomplishing them- all depend on company’s plan.
 All personnel and other decisions of what people you
hire, what you train them to do, how you appraise and
reward them depend on goals that have evolved from
company’s overall plan.

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The hierarchy of goals
In any organization the goals from the
very top layer to the bottom layer should
be a unbroken chain or hierarchy of goals.
 Example :

◦ President and his staff set strategic goals –
Double sales revenue to $16 million in fin yr
2015
◦ Low level managers set goals such as “Add
one production line in plant A”.
◦ There should be a flow of goals
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Flow of Goals :






Department creates a hierarchy or chain of
departmental goals from top down to lowest
ranked managers.One example is as
follows…….
sales person sells his or her quota
Sales Manager hires good sales people
HR manager creates a good incentive plan
Purchasing head buys enough raw materials
Company CEO accomplishes country wide
strategic goals.
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The Manager’s Human Resource
Management Jobs

Management process
◦ The five basic functions of planning, organizing,
staffing, leading, and controlling.

Human resource management (HRM)
◦ The policies and practices involved in carrying
out the “people” or human resource aspects of
a management position, including recruiting,
screening, training, rewarding, and appraising.
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Basic Planning Process Steps:
Setting objectives
 Forecasting and assessing your
assumptions
 Determining alternative course of action
 Evaluating each options are best
 Choosing and implementing your plan.

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Types of Plans


The business plans provides a
comprehensive view of firm’s situation today
and its goals and plans for the next 3-5
years.
Business Plans involve
◦
◦
◦
◦
◦
◦
(1) description of business
(2) marketing plan
(3) financial plan
(4) management or personnel plan
(5) production oriented plan
(6) Financial plan
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Plans

Marketing Plan◦ Plan regarding the nature of product and
services,the promotions and pricing of products
and services.

Personnel/Human Resource Plan –
◦ Anything the company does or plans to do
requires managers and other personnel ,so
personnel plan.

The production/operation plan –
◦ Planning to meet the future production demands

Financial plans.
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How managers set objectives
Financial goals is the bottom line of planning.
 Setting SMART Goals :

◦ Good Goals are specific,measurable , attainable
relevant and timely.
◦ For example suppose you have automobile sales
person who has been selling only half the amount of
cars he should be selling.
◦ An “unsmart goal would be to tell him “Rick,You have
got to double the number of vehicles you sell next
month”.
◦ A smart goal – “Rick ,By the end of this june two
months from today you have got to sell double the
total no. of vehicles you sold in last two months and
in this three quarters of those new vehicles has to
come from gas guzzlers we have in
inventory.
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How to set motivational goals
Goals are only useful if employees are motivated to
achieve them.
 Assign specific goals – Employees who have specific
goals usually perform better than those who do not.
Setting goals is the best way to motivate them
 Assign measurable goals – Express goals as numbers,
target dates and deadlines.
 Assign challenging but doable goals – Goals should be
challenging but not unrealistic.
 Encourage participation – Participatively set goals that
are more difficult than assigned ones , produce higher
performance

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Management By Objectives
Set organization goals
 Set Department goals
 Discuss Department Goals
 Set individual goals – timetable for
accomplishing goals.
 Give feedback

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HR Department Organizational Chart (Large Company)
Source: Adapted from BNA Bulletin to Management, June 29, 2000.
Figure 1–1
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Strategic Management Process
Strategic planning helps us to review the competitive landscape
and analyze what is the best strategic long term course of
action.
 Introduction :

◦ A strategic plan is the company’s plan for how it will
match its internal strength and weakness with
external opportunities and threats to maintain
competitive advantage.
◦ Essentials of strategic planning – where we are now
in business, where do we want to be and how we
should get there.
◦ Manager designs the strategy to take company from
where it is now to where he/she wants to take the
company
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Strategy – course of action
 Strategic management – is the process of
identifying and executing the
organization’s strategic plan by matching
the company’s capabilities with the
demands of its environment.

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Strategic Management Includes






Defining the business and developing mission
Evaluating the firm’s internal, external
strength ,weaknesses, opportunities and
threats.
Formulating new business direction.
Formulating the mission into strategic goals
Implement the strategic plan
Evaluate the strategic plan
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Define The Current Business



What products do we sell,where do we sell them, and
how our products differ from competitors.
Rolex and casio sells watches but Rolex sells expensive
watches and casio sells relatively inexpensive watches.
So therefore depending on the products the business
plans differ.
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Perform external and internal audits






Are we heading in the right direction ?
Everyone is subject to competitive pressures.
Yahoo search engine was best tool until Google was
launched.
Amazon’s kindle reader launch forced even more book
stores to close.
Environmental scanning worksheet is a guide for
compiling the relevant information about the company’s
environment.
Managers use this to compile and organization company’s
strength,weakness,opportunities and threats.
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reserved.
Leaveraging


Strategy experts counsel against blindly
avoiding strategy that may seem to be
beyond the company’s capabilities. They
argue that there are times when to pursue
great opportunities you should underplay
the firm’s weakness and instead capitalize on
– some companies unique
strength.(leaverage)
Ex: Apple competing with giants like
Microsoft and IBM capitalized on its
competitive strength in innovative products
like iphone.
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Formulate
a
New
Direction
 What should the new business be ?




Where we will sell them and how our products and
services differ from competitors ?
Formulate the vision statement.
Vision statement is a general statement of firms intended
direction and depicts in broad term “what we want to
become “.
Mission statement pin points whether and how the
company will vertically integrate, firm’s product scope,
geographic coverage and competitive advantage.

Mission of Tata Motors :”best in manner which we
operate, best in products we deliver and best in value
system and ethics”
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Translate the mission into strategic
goals
Translate mission – vertical
integration,geographic coverage, and
competitive advantage into strategic goals.
 The operationalizing the mission is
another fact.
 Example :At ford if mission is “Quality is
job one”.The managers had to meet strict
goals such as “no more than one initial
defect per 10,000 cars”.

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Formulate the strategies to achieve
strategic goals
Manager chooses the course of action that
will enable the company to achieve its
strategic goals .
 Example : what goal should Ford pursue to
hit its goal of more than 1 initial defect per
10,000 cars
 Better open up two new high tech plants
 Reduce the number of car lines to better
focus on just a few.
 Pursue partnership with firms that are
known for quality cars.

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Implement strategies and Evaluate
performance



Strategy implementation or execution means
translating the strategies into action.
The company’s manager do this by actually
hiring(or firing) , building or (closing), adding
or eliminating product lines.
Evaluate Performance :
◦ Things don’t turn always as planned.
◦ There is a need to assess the strategic decisions.
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Types of Strategies :
1. Corporate Strategy:
How many and what kind of business we
are in ?
 Ex : Pepsi co. not only makes pepsi
cocacola also into other business :Frito
lay North America(sancks) ,pepsi co
beverages north America,pepsiCo
international,Quaker Oats North
America.Therefor pepsi needs a
corporate strategy.

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Standard Corporate Strategies

Concentration Strategy : The company offers
one product or product line usually in one
market.The firms growing methods are by
…
◦ Market penetration :Boosting sales of current
products by aggressively selling and marketing
into firm’s current markets.
◦ Product Development : Improved products for
the current market.
◦ Horizontal integration :acquiring control over
the competitors in the same or similar market
for the same or similar product.
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2. Diversification Strategy :
Firms will expand by adding new product lines .
 Related diversifications : Diversifying into products or
markets related to the firm
 Conglomerate diversification : Diversifying into products
or markets not related to the firm. Eg pepsi co.
 Vertical integration : Firms expand by making its own
raw materials or directly selling to the customer.Apple
opened its apple stores.
 Consolidation – reducing company size
 Geographic expansion – taking business abroad

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Competitive Strategy



A competitive strategy identifies how to
build and strengthen the business long term
competitive position in market place
Competitive advantage is one of the factors
that allow a company to differentiate its
products and services from those of its
competitors to increase market share.
Strategies to achieve competitive advantage
are
◦ Cost leadership
◦ Differentiation
◦ Focusers
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Strategies :

Cost leadership:
◦ Becoming a low cost leader in the industry.
◦ Eg : Walmart
◦ It maintains competitive advantage through its
satellite based distribution system, site location
and expert control of purchasing and sales cost.

Differentiation :
◦ The firm seeks to be unique in industry along
dimensions that are valued by buyers.Eg :Volvo
stresses safety of cars ,Papa John ‘s stresses fresh
ingredients.
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Human Resource as Competitive
Advantage:
Competitive strategies depend on Highly
trained and committed employees.
 Employees capability and motivation
represents an source of competitive
advantage.
 Apple’s innovative engineers are behind
the successful launch of every product.
 Toyota’s low cost high quality cars not
just the result of sophisticated machines ,
its also well trained ,dedicated employees.

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Functional strategy
Each business has several departments
such as marketing,sales,production, and
human resource management.
 Each department must have marching
orders under the plan.
 Functional strategies identify the broad
activities that each dept must pursue
inorder to help business accomplish
competitive goals.

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Example of Functional Strategy
Ford’s mission statement “Quality is job
one”
 What should the HR dept do to
accomplish this goal ?
 Hr create a more capable work force by
raising hiring standards
 Instituting new techniques and training
practices
 Formulating a merit pay plan for
employees

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Strategic
Fit
 Each department’s strategy needs to fit the parent business’s
competitive aims.
 Example Case : Southwest Airlines is a low cost leader .It
therefore molds its functional departments to
◦ To deliver low cost ,convenient service on routes.
 Limited passenger service
 Frequent reliable departure, highly productive ground crew.
◦
◦
◦
◦
Crew gets only 15 min turnarounds at gates.
SW keeps its plane flying longer hours.
Have more departures with less aircraft
They do not have lunch or premium class service
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Strategic Human Resource
management
Strategic Human Resource management means
formulating,executing human resource policies and
practices that produce employee competencies and
behaviors the company needs to achieve its strategic
aims.
 In formulating the HR strategies the manager’s aim must
be to produce the employee skills and behavior that the
company needs to achieve the strategic aims.
 Management formulates the strategic plan.
 Strategic plan implies certain workforce requirements.

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Shanghai Portman Hotel Example


A Ritz carlton took over the Shanghai
Portman
The new strategy followed by Shanghai
Portman was
◦ To make the hotel an outstanding property by
offering superior customer service
◦ To achieve this employees should be given new
skills and behavior.
◦ De Cocinis Top executive of the Hotel personally
interviewed each candidate selecting employees
who really cared and respected others.
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Albertsons Example

Albertsons Markets had 2500 stores and
230,000.It faced competition from grocery
chains and other online sites.Overall
strategy included ….
◦ Reducing costs
◦ Maximizing financial returns
◦ Becoming more customer focused
◦ Enhancing technology
◦ And energizing employees
Soln : HR helps to cut cost by hiring more
customer focused applicants.Hr strategy includes
screening, training,pay and other HR policies.
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HR Organizational Chart (Small Company)
Figure 1–2
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Employment and Recruiting—Who Handles It? (percentage of all
employers)
Note: length of bars represents prevalence of activity among all surveyed employers.
Figure 1–3
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Source: HR Department Benchmarks and Analysis,” BNA/Society for Human Resource Management, 2002.
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Measuring HR’s Contribution

Strategy
◦ The company’s long-term plan for how it will
balance its internal strengths and weaknesses
with its external opportunities and threats to
maintain a competitive advantage.
 HR managers today are more involved in partnering
with their top managers in both designing and
implementing their companies’ strategies.
◦ Top management wants to see, precisely, how the
HR manager’s plans will make the company more
valuable.
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Strategic HR in action :


When mergers and acquisitions do fail its
often not due to financial or technical issues
but due to personnel related ones.
Some issues
◦
◦
◦
◦
Employee resistance
Mass exits by high quality employees
Declining morale and productivity
Lack of adequate preparation of personnel
involved and failure to provide training which
fosters self-awareness, cultural sensitivity and
sprit of cooperation
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Using HRM
Top executives rarely involved HR managers
in planning merger and acquisition until
2000.
 They get involved only when management
begins integrating two companies into one.
 M&A shows success when HR managers are
involved in earlier stages.
 Cases in which top Management involved
HR managers to apply its expertise
outperformed
than those in which HR was less involved.

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Due Diligence State


Due diligence involves reviewing things like
organizational culture and structure,
employee compensation and benefits,labor
relations, pending employee litigation, human
resource policies and procedures and key
employees.
Eg :Analyzing if the target firm’s health
insurance contracts have termination clauses
that could eliminate coverage for all
employees if you have too many layoffs after
merger
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Integration Stage

There are critical resource issues during the
first few months of merger or
acquisition.They include
◦ Top management team
◦ Ensuring top management leadership
◦ Communicating changes effectively to employees
◦ Retaining key talent
◦ Aligning cultures.
Several global human resource consulting
companies such as Towers Perrin provide merger
related human resource management services.
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The services provide help for







Manage the deal costs
Manage the messages
Secure the top team and key talent
Define and implement an effective HR
service delivery strategy
Develop a workable change management
plan
Design and implement the right staffing
model
Aligning total rewards
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Shaws Example

Shaws supermarket acquired Star Markets several
years ago.Shaws has 126 stores and Star had
54.They worked to ….
◦ Develop preliminary organization designs
◦ Identify the members of top three level of
management
◦ Assess critical managers and employees
◦ Create retention policies for key people
◦ Plan and execute the separation of redundant staff
◦ Develop total reward strategy for combined company
◦ Integrate payroll banefits
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Strategic Management Tools
Strategy map
 HR Score card

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Strategy Map
The strategy map shows how the big picture of
how department’s performance contributes to
achieving company’s overall strategic goals.
 Helps the Manager understand his roles in helping
execute company’s strategic plan.
 Southwest Airlines Example :- It’s a low cost
leader.In order to boost revenues and profitability
it has to fly fewer planes, maintain low prices,
maintain on time flights. On time flights create
fast turnaround that demands for motivated
ground and flight crews.

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HR Scorecard


It’s a process for assigning financial and non
financial goals or metrics to HRM-related
chain of activities required for achieving the
company’s strategic aims and for monitoring
results.
Managers use special scorecard software to
quantify relationships between
◦ HR activities
◦ Resulting employee behavior
◦ Resulting firm wide strategic outcomes and
performance
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Digital Dash boards



It presents the manager with desktop graphs
and charts and so the computerized picture of
where the company stands on all those
metrics from HR scorecard process.
In case of southwest airlines display real time
trends for strategy map activities such as fast
turnaround,attracting and keeping customers ,
and on time flights.
If ground crews are turning planes around
slower today then manager can take
corrective action to avoid financial loss next
day.(end of slide)
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HR Metrics

Absence Rate
[(Number of days absent in month) ÷ (Average number of employees
during mo.) × (number of workdays)] × 100

Cost per Hire
(Advertising + Agency Fees + Employee Referrals + Travel cost of
applicants and staff + Relocation costs + Recruiter pay and
benefits) ÷ Number of Hires

Health Care Costs per Employee
Total cost of health care ÷ Total Employees

HR Expense Factor
HR expense ÷ Total operating expense
Sources: Robert Grossman, “Measuring Up,” HR Magazine, January 2000, pp. 29–35; Peter V. Le Blanc, Paul Mulvey, and Jude T.
Rich, “Improving the Return on Human Capital: New Metrics,” Compensation and Benefits Review, January/February 2000, pp. 13–
20;Thomas E. Murphy and Sourushe Zandvakili, “Data and Metrics-Driven Approach to Human Resource Practices: Using Customers,
Employees, and Financial Metrics,” Human Resource Management 39, no. 1 (Spring 2000), pp. 93–105; [HR Planning, Commerce
Clearing House Incorporated, July 17, 1996;] SHRM/EMA 2000 Cost Per Hire and Staffing Metrics Survey; www.shrm.org.
Figure 1–5
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HR Metrics (cont’d)

Human Capital ROI
Revenue − (Operating Expense − [Compensation cost + Benefit
cost]) ÷ (Compensation cost + Benefit cost)

Human Capital Value Added
Revenue − (Operating Expense − ([Compensation cost + Benefit
Cost]) ÷ Total Number of FTE

Revenue Factor
Revenue ÷ Total Number of FTE

Time to fill
Total days elapsed to fill requisitions ÷ Number hired
Sources: Robert Grossman, “Measuring Up,” HR Magazine, January 2000, pp. 29–35; Peter V. Le Blanc, Paul Mulvey,
and Jude T. Rich, “Improving the Return on Human Capital: New Metrics,” Compensation and Benefits Review,
January/February 2000, pp. 13–20;Thomas E. Murphy and Sourushe Zandvakili, “Data and Metrics-Driven Approach to
Human Resource Practices: Using Customers, Employees, and Financial Metrics,” Human Resource Management 39,
no. 1 (Spring 2000), pp. 93–105; [HR Planning, Commerce Clearing House Incorporated, July 17, 1996;] SHRM/EMA
2000 Cost Per Hire and Staffing Metrics Survey; www.shrm.org.
Figure 1–5 (cont’d)
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HR Metrics (cont’d)

Training Investment Factor
Total training cost ÷ Headcount

Turnover Costs
Cost to terminate + Cost per hire + Vacancy Cost + Learning curve
loss

Turnover Rate
[Number of separations during month ÷ Average number of
employees during month] × 100

Workers’ Compensation Cost per Employee
Total WC cost for Year ÷ Average number of employees
Sources: Robert Grossman, “Measuring Up,” HR Magazine, January 2000, pp. 29–35; Peter V. Le Blanc, Paul Mulvey,
and Jude T. Rich, “Improving the Return on Human Capital: New Metrics,” Compensation and Benefits Review,
January/February 2000, pp. 13–20;Thomas E. Murphy and Sourushe Zandvakili, “Data and Metrics-Driven Approach to
Human Resource Practices: Using Customers, Employees, and Financial Metrics,” Human Resource Management 39,
no. 1 (Spring 2000), pp. 93–105; [HR Planning, Commerce Clearing House Incorporated, July 17, 1996;] SHRM/EMA
2000 Cost Per Hire and Staffing Metrics Survey; www.shrm.org.
Figure 1–5 (cont’d)
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Measuring HR’s Contribution

The HR Scorecard
◦ Shows the quantitative standards,
or “metrics” the firm uses to
measure HR activities.
◦ Measures the employee
behaviors resulting from these
activities.
◦ Measures the strategically
relevant organizational outcomes
of those employee behaviors.
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Benefits of a High Performance Work
System (HPWS)









Generate more job applicants
Screen candidates more effectively
Provide more and better training
Link pay more explicitly to performance
Provide a safer work environment
Produce more qualified applicants per position
More employees are hired based on validated selection
tests
Provide more hours of training for new employees
Higher percentages of employees receiving regular
performance appraisals.
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The New HR Manager

New Proficiencies
◦ HR proficiencies
◦ Business proficiencies
◦ Leadership proficiencies
◦ Learning proficiencies
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The New HR Manager (cont’d)

The Need to “Know Your Employment
Law”
◦ Equal employment laws
◦ Occupational safety and health laws
◦ Labor laws
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Effects CFOs Believe Human Capital
Has on Business Outcomes
Source: Steven H. Bates, “Business Partners,” HR Magazine, September 2003, p. 49
Figure 1–6
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The New HR Manager

Ethics and HR
◦ Ethical lapses (e.g., Enron, Martha Stewart)

Sarbanes-Oxley Act in 2003
◦ Intended to curb erroneous corporate financial
reporting:
 Requires CEOs and CFOs to certify their companies’
periodic financial reports.
 Prohibits personal loans to executive officers and
directors.
 Requires CEOs and CFOs to reimburse their firms for
bonuses and stock option profits if corporate financial
statements subsequently require restating.
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HR Professional Certification

HR is becoming more professionalized.

Society for Human Resource
Management (SHRM)
◦ SHRM’s Human Resource Certification
Institute (HRCI)
 SPHR (senior professional in HR)
 PHR (professional in HR)
certificate
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HR and Technology
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Benefits of technological applications for HR
◦ Intranet-based employee portals through which
employees can self-service HR transactions.
◦ The availability of centralized call centers staffed
with HR specialists.
◦ Increased efficiency of HR operations.
◦ The development of data warehouses of HRrelated information.
◦ The ability to outsource HR activities to
specialist service providers.
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The Plan of This Book: Basic Themes

HR management is the responsibility of every manager—
not just those in the HR department.

HR managers must always stand ready to defend their
plans and contributions in measurable terms.

An HR department’s performance is measured relative to
achieving the company’s strategic aims.

HR managers increasingly rely on IT to help support the
company’s strategic aims.
Virtually every HR-related decision managers make has
legal implications.
Globalization and diversity are important HR issues today.

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Strategy and the Basic HR Process
Figure 1–8
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