1.

Define Strategy, Corporate Strategy & Business Strategies

Strategy -Strategy is the formulation of organizational missions, goals, and objectives, as

well as action plans for achievement that explicitly recognize the competition and the impact of
outside environmental forces. Strategy is the plan for how the organization intends to achieve its
goals. The means it will use, the courses of action it will take, and how it will generally operate
and compete constitute the organization’s strategy.

Corporate Strategy- Company-wide strategies, sometimes referred to as corporate

strategies, are focused on overall strategy for the company and its businesses or interests.
Examples of corporate strategies include decisions to compete internationally or to merge with
other companies. Strategies at this level are usually focused on long-term growth and survival
goals and will include major decisions such as the decision to acquire another company.

Business Strategies- Business strategy focuses on one line of business (in a diversified
company or public organization), while corporate strategy examines questions about which
competitive strategy to choose. Corporate strategies focus on long-term survival and growth.
Business-level strategy concerns itself with how to build a strong competitive position.
Organizations try to become (or remain) competitive based on a core competence, which can be
defined as a specialized expertise that rivals don’t have and cannot easily match.

2. HR implications of Restructuring, Growth and Stability and

Business strategies.

Strategies are not idiosyncratic—that is, unique to each organization that develops one. Many
executives and senior managers put in an incredible number of hours forging the strategy for the
firm, and they believe the strategy they developed, with much sweat and tears, is unique to their
organizations. In one sense, pure, unique organizational strategies do exist, because
organizations
are extremely complex and no two are identical. In another sense, they do not, because it is
possible to group strategies into categories or generic types. In the same way we can group our
friends into personality categories of introvert and extrovert, we can group organizations by
strategy. By their simplicity, these typologies, or classification schemes, aid our understanding.
The more we add variables to approximate the reality of an organization, the more the typology
becomes unwieldy
These identifiable, basic strategies can be classified into (1) corporate strategies and (2) business
strategies.

Corporate Strategies
Grouped within corporate strategies are three options: restructuring, growth, and stability.

Restructuring Strategies
When an organization is not achieving its goals, whether these goals are business goals of
profitability or social goals of helping rehabilitate prisoners, corporate strategy becomes one of
trying to deal with the problem. Restructuring options include turnaround, divestiture,
liquidation, and bankruptcies.

Turnaround- A turnaround strategy (sometimes called a retrenchment strategy) is one in which

managers try to restore money-losing businesses to healthy profitability or government agencies
to viability. Turnaround methods include getting rid of unprofitable products, layoffs, making the
organization more efficient, or attempting to reposition it with new products

Divestiture-Divestiture refers to spinning off a business as a financially and managerially

independent company or selling it outright. Quaker Oats sold its Snapple beverage business for
$1.4 billion less than it paid for it because too many new entrants restricted the old oatmeal
company’s ability to grow into a soft drink powerhouse. Sometimes fit is the problem, not
finances. One pharmaceutical company divested itself of a cosmetics business; the scientists in
the pharmaceutical company had no respect for the cosmetic unit because they had been trained
to apply their scientific knowledge to discovering miracle drugs, not making faces prettier.

Liquidation- The least attractive alternative is liquidation, in which plants are closed, employees
are released, and goods are auctioned off. There is little return to shareholders under this option.
Nevertheless, an early liquidation may allow some resources (including human resources) to be
salvaged, whereas a bankruptcy does not. Bombay Company, a retailer of home furniture and
accessories in the U.S. and Canada, was liquidated in 2008.

Bankruptcy - Bankruptcy occurs when a company can no longer pay its creditors, and, usually,
one of them calls a loan. The company ceases to exist, and its assets are divided among its
creditors.

Restructuring strategies, like growth strategies, have profound effects on human resource issues,
such as managed turnover, selective layoffs, transfers, increased demands on remaining
employees, and renegotiated labor contracts.

Growth Strategies
Many organizations in the private sector target growth as their number-one strategy. By this they
mean growth in revenues, sales, market share, customers, orders, and so on. To a large extent,
the implications of a growth strategy for HR practices are profound. A firm in a growth stage is
engaged in job creation, aggressive recruitment and selection, rapidly rising wages, and
expanded orientation and training budgets, depending on how the organization chooses to grow.
Growth can be achieved in several ways: incrementally, internationally , or by mergers and
acquisitions.
Incremental Growth- Incremental growth can be attained by expanding the client base,
increasing the products or services, changing the distribution networks, or using technology.
Procter & Gamble uses all these methods:
• Expanding the client base (by introducing skin-care lotion and hair conditioner for babies),
• Increasing the products (by adding Pringles potato chips to a product mix of cleaning and
health care products),
• Changing the distribution networks (by adding drugstores to grocery stores), and
• Using technology to manage just-in-time customer purchasing.

International Growth - Seeking new customers or markets by expanding internationally is

another growth option. Operating a business in a foreign country, particularly one that is not in
North America or Europe, poses problems for the Western HR manager.

Mergers and Acquisitions- Quantum leaps in growth can be achieved through acquisitions,
mergers, or joint ventures. An acquisition occurs when one company buys another, whereas a
merger typically is seen as two organizations merging to achieve economies of scale.
Acquisitions and mergers have an obvious impact on HR: They eliminate the duplication of
functions, meld benefits and labor relations practices, and, most importantly, create a common
culture.

Stability Strategies
Some organizations may choose stability over growth. For many reasons, some executives,
particularly small business owners, wish to maintain the status quo. They do not wish to see their
companies grow. The executive team is content to keep market share, doing what it has always
been doing (this is a neutral or even a do-nothing strategy). HRM practices remain constant, as
they are assumed to be effective for current strategy. Others see this as a temporary strategy
(pause and proceed with caution) until environmental conditions are more favorable for growth.
Or perhaps the organization grew very rapidly, such as Dell did by growing 285 percent in two
years, and needed time to handle the growing pains. We have not included chapters on stability
strategies because the HRM issues would, by definition, be subsumed under another generic
strategy.

Business Strategies
Strategy, as discussed, seems to imply that only corporate-wide plans are made and these are
used to manage and control the various units that exist within an organization. But many large
organizations operate several businesses under the same or different names, and each of these
businesses might have its own strategy. For example, Alcan Aluminum Ltd. operates two
“divisions” or businesses, one that focuses on primary metals and the other on fabrication. Each
has a different business strategy, although the overall corporate strategy is growth.
Business strategy focuses on one line of business (in a diversified company or public
organization), while corporate strategy examines questions about which competitive strategy to
choose. Corporate strategies focus on long-term survival and growth. Business-level strategy
concerns itself with how to build a strong competitive position. Organizations try to become (or
remain) competitive based on a core competence, which can be defined as a specialized expertise
that rivals don’t have and cannot easily match.

3. Define Strategic HRM

Strategic HRM is the management of HR philosophies, policies, and practices to enable the
achievement of the organizational strategy. Ideally, these philosophies, policies, and practices
form a system that attracts, develops, motivates and trains employees who ensure the survival
and effective functioning of the organization and its members. There is an emerging view that
the discipline of HRM should be split into two areas, much like accounting and finance or sales
and marketing.
One area would deal with transactional activities, such as payroll, which are routine but
necessary, just like accounting. The second area would function like a decision science,
concerned with the effective utilization of human capital, much like finance.

4. The Importance of Strategic Planning

There are two main reasons strategic planning is so important:

i. Employees help an organization achieve success because they are its strategic resources
ii. The planning process itself results in improved goal attainment

Employee as a Strategic Resources-

 Human resources can deteriorate if skills and knowledge become obsolete. Suppose, for
example that the current workforce may be valuable because of his manual skills, but the
Market for the company’s manufactured products is declining.
 Investment in employee’s skills increases the value of the Organization’s human capital.
 The value of this human capital must be captured within the strategic HR plan

Human assets offer organizations a competitive advantage:

 An organization that manages its human resources strategically is more likely to survive
and profit
  Human assets must be managed and matched to the organizational strategy

5. Aligning Porter’s strategic approach with HR strategy

Strategy 1-
Low-Cost-Provider
A firm competing on cost leadership attempts to be the low-cost provider of a product or service
within a market place. The product or service must be perceived by the consumer to be
comparable to that offered by the competition and to have a price advantage. McDonalds
uses this approach, as do Zellers and Timex. Buyers are price sensitive, and businesses appeal
to this price consciousness by providing products or services at prices lower than those of
competitors. Survival is the ultimate goal, but organizations price low to gain market share (by
underpricing competitors) or to earn a higher profit margin by selling at the going market rate.
This strategy requires the company to balance the delivery of a product that still appeals to
customers with not spending too much on gaining market share. McDonald's could deliver a
cheaper hamburger, but would it have any taste? McDonald's could under price its competitors,
but it may risk its survival by going too low. The key is to manage costs every year. The
adoption of a low-cost-provider strategy by a firm has immediate implications for HR strategy
Costs are an important element of this strategy, so labor costs are carefully controlled. Efficiency
and controlling costs are paramount

The implications of lowcost provider strategy for six key components of HR are discussed below
-

The Employee - To keep wages low, jobs have to be of limited scope so that the company can
hire people with minimal skills at low wages. The job requires highly repetitive and predictable
behaviors. There is little need for cooperative or interdependent behaviors among employees.
Another way to cut costs is to eliminate as many of the support or managerial layers as possible.
The impact of cutting costs in this way is that employees may have to do more with less, make
more decisions, and so on, which would require a more skilled employee.

HR planning- At the entry level, succession planning is minimal, ensuring only the feeder line
to the next level. Outside labor markets are monitored to ensure that entry-level people are in
adequate supply The availability and use of fringe workers-those who are retired, temporarily
unemployed, students, and so on-is part of the planning strategy, particularly if the employment
market is offering better opportunities to the normal supply of low-skilled workers.
At the executive level, succession management assumes the same importance as in other
organizations.

Selection - Recruitment is primarily at the entry, or lowest, level and is from the surrounding
external labor market. Recruitment is by word of mouth, and application forms are available on-
site, thus saving the costs of recruiting in newspapers. Most other positions are staffed internally
through promotions. Thus, career paths are narrow.

Compensation-
A low-cost-provider strategy includes lower wages and fringe benefits. Beyond the legal
minimum pay requirements, firms with this strategy carefully monitor what their competitors are
paying in the local labor market. These firms strategy tends to be a lag strategy, where they
attempt to pay wages slightly below industry norms One way of achieving these lower costs is
top outsource production to sites with lower labor costs. In the United States, this means moving
production from high-wage states, such as New York, to low-wage states, such as New Mexico.
In Canada, wages are very similar across provinces, so firms analyze wage rates in countries
such as India, which pay employees substantially less for similar productivity.

Training- Training is minimal, as few kills are required. Any training is based on increasing
efficiency in the current job, or specialization for the current position. Such training is fast and
inexpensive. McDonald's can train a new hamburger flipper or cashier within a few hours. There
is little to no investment in the long-term development of the employee, nor in the acquisition of
skills for jobs other than the current one. The training staff is lean, with the organization relying
on outside suppliers for its limited training needs. However, most training takes place on the job
in the form of direct instruction from or coaching by the supervisor.

Performance Evaluation- Short-term results, with explicit and standardized criteria, are used to
evaluate an employee's performance. The feedback is immediate and specific. Individuals are
held accountable only for their own behavior or results, not for that of the team or the company.
Only the supervisor provides input for the performance evaluation. Forms are kept to a
minimum, and rating is done against check marks.

Labor Relations- Low-cost providers try to prevent the formation of a union because they
believe that unions drive up wages. Unions find low cost providers, such as McDonald's, difficult
to unionize. (Employees working part-time hours have little interest in unionization because
they believe that this is a part-time job that they will leave in the near future, and they are
unlikely to benefit from belonging to a union, to which they have to pay fees. It is also difficult
to organize those working night shifts.) Furthermore, employees quit often, and many low-
cost providers absorb turnover rates of 300 percent annually as a cost of doing business. High
turnover has the primary advantage of keeping compensation levels low.
Strategy 2: The Differentiation Strategy
In most markets, buyer preferences are too diverse to be satisfied by one undifferentiated
product. Firms providing features that appeal to a particular market segment are said to compete
on a differentiation strategy. A firm competing on the basis of a differentiation strategy will offer
something unique and valuable to its customers. BMW, HP, Rolex, scientific instruments
divisions are firms that compete successfully by charging a price premium for uniqueness. The
primary focus is on the new and different.

A firm can Differentiate itself from its competitors in many ways.

 Having Quality products
 Offering superior customer service
 Having a more convenient location
 Using proprietary technology
 Offering valuable features
 Demonstrating unique styling, and
 Having a brand name reputation

These features can be anything. Common examples show some firms competing on service,
engineering design, image, reliability, technological leadership and quality. Most of the time,
these competitive advantages are combined, such as by linking quality products with proprietary
technology and superior customer service, thus providing the buyer with more value for the
money.
A differentiation strategy calls for innovation and creativity among employees. HRM is affected
in fundamentally different ways in organizations that want to use employees brains rather than
their limited (mainly manual) skills in the low-cost-provider strategy. The starting point for
aligning HR programming with a differentiation strategy is the employee. 

The Employee- Organizations competing on a differentiation strategy require from their

employees creative behavior, a long-term focus, interdependent activity, and some risk taking, as
well as an ability to work in an ambiguous and unpredictable environment. Their employees'
skills need to be broad, and employees must be highly involved with the firm. Organizations
encourage employees to make suggestions, through both informal and formal suggestion
systems, for new and improved ways of doing their job.
HR planning- In a company that has a differentiation strategy and that recognizes people are the
key to competitive advantage, HR planning is taken seriously for example, at Sumitomo Metals
in Japan, the business planning group reports to HR because the company understands that
identifying what needs to be done is less difficult than planning how to do it. Succession
management is critical as employees have to possess many attributes to move ahead in the
organization. Thus, a strong emphasis on developing skills for the future is part of the promotion
policy.
Selection- Companies with a differentiation strategy need employees who have a broad range of
skills and the ability to learn from others. An innovative atmosphere requires employees who are
self motivated and do not require a great deal of supervision.

Compensation- Compensation plans affect employee behavior more directly than most HR
practices. For example, Drucker describes a compensation scheme he implemented at General
Electric (GE) in which pay for performance was based only on the previous year's results
However, compensation is carefully designed in firms that have a differentiation strategy. Pay
rates may be slightly below average market rates but there are substantial opportunities to
increase those base levels through incentive pay. Pay for performance is a large part of the
compensation package and will be dependent on individual, group, and corporate results.
Training- Companies with a differentiation strategy have a strong training team. The focus of
training is on both skills and attitudes. Process skills, such as decision making, the ability to
work in teams, and creative thinking, are emphasized as much as skills needed for the current
job. The training itself is seen as an opportunity to generate new ideas and procedures. Indeed,
customs and cross-functional teams might be included in the training program.
Performance evaluation – In companies with a differentiation strategy, performance appraisal
is based not on short-term results but instead on the long-term implications of behavior.
Processes that are deemed to lead to better results in the long term are rewarded. Thus,
companies encourage and appraise attitudes such as empowerment, diversity sensitivity, and
teamwork in an effort to build future bottom-line outcomes. Working beyond the job is
encouraged, not punished. Failure is tolerated, although management tries to distinguish between
bad luck and bad judgment or stupidity.

6. Characteristics of an Effective HRM Strategy

The Purpose of HR strategy is to capitalize on the distinctive competencies of the organization

and add value through the effective use of human resources. Effective HRM strategies include
external and internal fit and a focus on results.

External Fit- HR programs must align with or fit the overall strategy of the organization. If the
business strategy is to differentiate from competitors based on superior service, then selection
and training programs should be developed to hire and train people in the skills and behavior
necessary to deliver superior service.
Internal Fit- We look at the two types of internal fit: a fit with other functional area, such as
marketing, and a fit among all HR programs. Fit with other functional areas is important.
HR programs must also be consistent with each other. That is training, selection and appraisal
must work together to support a strategy. If the training department decides to teach employees
to use the internet to handle customer service, the staffing department must hire people who
either are computer literate or who have the kinds intelligence that enable them to learn computer
skills rapidly.

Focus on results- The hard work of deciding on strategy is not its formulation but its
implementation and the tracking of results. Many HR managers do not have the resources or
skills to measure results to see if the goals have been achieved. Unless the strategy contains
performance measures -that is, results oriented – it will be difficult to know how successfully the
strategy was implemented.