Ch. 2: Strategy and HR Management
STRATEGY
Proposition organization follows to compete
successfully, thus surviving and growing.
STRATEGIC HRM
Using Human Capital to gain or keep
competitive advantage, leading to greater
organizational effectiveness.
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Strategic HR Management Process
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Strategic Success with HR
Consultation
 Employment security
 HR planning
 Selective recruiting, careful selection
 Competitive wages/incentives
 Performance enhancement
 Empowerment
 Training/cross training
 Promotion from within
 Measurement
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Operationalizing HR Strategy
Thinking Strategically
Know the business
Focus on key business goals
Know what to measure and measure
Be future-oriented; allow the
organization to be prepared
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Some Aspects of HR with Core Competency
Potential
Excellent service
Consultation
Advocacy
Innovation
Quality
Performance
HR special skills
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HR Consulting Contributions to
Organizational Effectiveness
Maximizing individual, team and
organizational performance
Customer satisfaction
Return on investment / bottom line
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Organizational Productivity
Productivity
Measure of the quantity and quality of work
done, considering the cost of the resources
used.
Unit labor cost
Ratio of average cost of workers and
their average levels of output.
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Approaches to Improving Organizational Productivity
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HR Effectiveness and Financial
Performance
Effectiveness
The extent to which goals have been met.
Efficiency
The degree to which operations are done in
an economical manner.
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Hourly Compensation Costs for Manufacturing Production Workers
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Source: U.S. Bureau of Statistics, www.bls.gov.
Human Resource Planning
Human Resource (HR) Planning
Analyzing and identifying the need for and
availability of human resources so that the
organization can meet its objectives.
HR Planning’s Strategic Role
Obtain information from managers to develop
HR projections for top management to use in
strategic planning and setting
organizational goals.
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Purpose of HR Planning
Right people
Right human capital
Right place
Right time
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HR Forecasting
Strategic HR Planning
Forecast HR
requirements
(demand)
Yes
Forecast HR
availability (supply)
Match?
Develop programs
to increase supply
or reduce demand
No
Develop programs
to decrease supply
or increase demand
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Example of distribution of responsibilities in HR Planning
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Small Businesses and HR Planning
Management succession
between generations of
owners
Attracting and retaining
qualified outsiders
HR Planning
Issues in Small
Businesses
Evolution of HR activities as
the business grows
Family relationships and
HR policies
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HR Planning Process
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Scanning the External Environment
Environmental Scanning
Process of studying the environment of the
organization to pinpoint opportunities and
threats.
Government Influences
Economic Conditions
HR Planning
Workforce Composition
Geographic and
Competition Concerns
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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
(cont’d)
Organizational Capabilities Inventory
HRIS databases—sources of information
about employees’ knowledge, skills, and
abilities (KSAs)
Components
Individual employee demographics
Individual 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.
 Types of Forecasts
HR Demand
Internal Supply
External Supply
 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 Methods
Judgmental
Estimates
Mathematical
Rules of thumb
Statistical regression
analysis
Delphi Technique
Simulation models
Nominal Groups
Productivity ratios
Staffing ratios
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Forecasting HR Demand
Organization-Wide Estimate for Total HR
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
Forecasting External HR Supply
Factors:
Net migration in area
Individuals entering and leaving the workforce
Graduation rates
Changing workforce composition and patterns
Economic forecasts
Technological developments
Competing employers
Government regs and legislation
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Estimating Internal Labor Supply for a Given Unit
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Forecasting HR Supply (cont’d)
Succession Planning
Process of identifying a long-term plan for the
orderly replacement of key employees.
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Workforce Realignment
Issues in Matching the Supply of Labor
with the Demand for Labor
Managing a Human Resources Surplus
Outplacement Services
HR Planning in Mergers and Acquisitions
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Managing a Human Resources
Surplus
Workforce Reductions
and the WARN Act
Workforce Downsizing
Attrition and Hiring Freezes
Human
Resource
Surplus
Voluntary Separation
Programs
Layoffs
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Managing a Human Resource
Surplus
Outplacement services :
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
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Managing a Labor Shortage
Use overtime
Add contingent
workers
Bring back recent
retirees
Human
Resource
Shortage
Outsource work
Reduce turnover
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HR Planning in Mergers and
Acquisitions
Cultural Compatibility
Match in factors such as decision-making
styles, levels of teamwork, information-sharing
philosophies, and the formality of the two
organizations
HR’s Role
Blending cultures
Revising the org structure
Merging HR activities
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Key Factors in Cultural Fit
Degree of internal
integration
Autonomy
Adaptability
Cultural Fit
in Mergers and
Acquisitions
Employee trust
Diversity
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Measuring Effectiveness Using HR
Metrics
HR Metrics = Specific measures as HR
performance indicators.
Demonstrate HR’s value and track its performance.
Characteristics of good HR metrics:
Accuracy.
Linked to strategic and operational objectives.
Clear calculations.
Meet information needs.
Can be compared internally and externally
Can be used to drive HR management efforts
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Examples of Strategic and Operational HR Metrics
Strategic
Operational
Revenue generated per FTE
Annual turnover rate
Net income before taxes per
FTE
Benefits costs as percentage of
payroll
Ratio of managers to nonmanagers
Training expenditures per FTE
Labor costs as percentage of
total operating costs
Workers’ compensation costs per
FTE
ROI of human capital
expenditures
Number of applicants per
opening
HR department expenses as
percentage of total
expenses
Absenteeism by employee
level/department
Payroll/benefits costs as
percentage of revenues
Note: FTE equals one employee working full-time one year.
Average time to fi ll openings
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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 period
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Measures of Strategic HR
Effectiveness (cont’d)
Economic Value Added (EVA)
A firm’s net operating profit after the cost of capital
(required return) is deducted.
Cost of capital is the benchmark for returns for all HR
activities.
HR and the Balanced Scorecard
Financial
Internal business processes
Customer
Learning and growth
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Revenue
and
Income
per FTE
*Data not reliable.
Source: Human Capital Benchmarking Study
(Alexandria, VA: SHRM, 2006).
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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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Assessing HR Effectiveness
HR Audit
Formal research effort evaluating current
state of HR management in an organization
Audit areas:
Legal compliance
Administrative processes
Recordkeeping
Employee retention
Benefits
Absenteeism and turnover control
Performance management system
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