SHRM Learning System 2015 - Strategy p2

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Business & HR Strategy

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The 2015 SHRM Learning System for SHRM-CP/SHRM-SCP is filled with user-friendly
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Acknowledgments
SHRM acknowledges the contributions of its volunteer leaders and staff members who have served as
subject matter experts for the SHRM Learning System for SHRM-CP/SHRM-SCP.
Subject matter experts

Brad Boyson, CHRP, HRBP, HRMP, SPHR, Margaret AndreefTMalejkovic, Esq.
GPHR Matejkovic Law LLC
Executive Director, SHRM MEA Richfield, Ohio, U.S.
Dubai, United Arab Emirates
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Todd Ph.D., FCIPD, CHRP, SPHR, HR Consultant
GPHR,HRMP Andover, Massachusetts, U.S.
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Contents
Introduction to Strategy Domain ............................................................................................ !
Functional Area #15: Business and HR Strategy ..............................................................2
Introduction ............................................................................................................................. .4
Section 1: The Role of Strategy ............................................................................................... S

What Is Strategy? ................................................................................................................. 6
Role of Value in Strategy ................................................................................................... 12
Strategic Planning Process ................................................................................................. 18
Section 2: Strategy Formulation ........................................................................................... 24

Information Gathering and Analysis .................................................................................. 25
Environmental Scanning .................................................................................................... 27
SWOT Analysis ................................................................................................................. 30
Industry Analysis .............................................................................................................. .32
Defining Mission, Vision, and Values .............................................................................. .38
Setting Goals ...................................................................................................................... 41
Section 3: Developing Strategy .............................................................................................49

) Developing Strategies That Fit ......................................................................................... ,50
Business Strategy: How We Will Compete ....................................................................... 50
Corporate Strategy: Where We Will Compete .................................................................. 55
Communicating Strategy ................................................................................................... 67
Section 4: Implementing Strategy ........................................................................................ 72

Implementation of Strategy ................................................................................................ 73
Allocating Resources .................................................................... ;.................................... 74
I Managing Initiatives .......................................................................................................... 76
) Managing Change .............................................................................................................. 79
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Section 5: Evaluating Strategic Performance ...................................................................... 88
Performance Evaluation and Reporting ............................................................................. 89
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Defining Performance Objectives ...................................................................................... 89
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STRATEGY
Common Organizational Metrics ....................................................................................... 95

Using Business Intelligence ............................................................................................... 99
Section 6: PI"Oviding Leadenhip ......................................................................................... l 09

Leadership and Strategy ................................................................................................... II 0
Leadership Characteristics ............................................................................................... 111
Theories about Leadership ............................................................................................... 113
Global Leadership Models ............................................................................................... 120
Key Leadership Skills ...................................................................................................... 122
Bibliography .............................................................................................................................137
Glossary ....................................................................................................................................140
Index ...........................................................................................................................................142
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) Introduction to Strategy Domain

This domain in the SHRM Learning System<!\> for SHRM-CP/SHRM-SCP
includes one Functional Area: "Business and HR Strategy.''
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Throughout the module, brief scenarios describe how the behavioral
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competencies listed in the SHRM Body of Competency and KnowledgeT" apply
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to the Functional Area under discussion. The scenarios are titled, for example,
) "Leadership and Navigation Competency in Action" and are identified by the
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competency icons described in the HR Competencies module.
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Progress check questions are included at the end of each section to help you
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monitor your learning. These will be most useful if you check your written
responses against the recommended answers and the content of the section.
While this module includes legal content, it should not be construed as legal
advice or as pertaining to specific factual situations. No general statement of law,
no matter how seemingly simple, can be applied to any particular factual
situation without a full, careful, and confidential analysis of all relevant facts, the
employer's policies and practices, and the applicable laws of the jurisdiction(s)
in which the employer operates.
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The content in this domain accounts for 10% of the SHRM-CP exam and20%
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OftheSHRM-SCPexam.
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© 2015SHRM
Business and HR Strategy involves organizational planning to achieve success
and create value for stakeholders. HR demonstrates value by contributing its
perspective and expertise to development of the enterprise strategy, and by
developing, implementing, and evaluating an HR strategy aligned with the
organization's goals, values, and tactics, as defined in the enterprise strategy.
Responsibility Statements: Sample Application of Competencies:
Key responsibilities for all HR professionals include: • Business Acumen-The ability to understand
• Developing results-oriented metrics and and apply information to develop the
scorecards that contribute to organizafional organization's strategic plan.
success. • Critical Evaluation-The ability to interpret
• Using knowledge of business and metrics to information and data to make business
make workforce and business decisions. decisions and recommendations.
• Ensuring that all HR initiatives demonstrate • Leadership and Navigation-The ability to
measurable value to the organization. direct and contribute to initiatives and
• Demonstrating a working knowledge of the labor processes within the organization.
market and its relation to organizational success. • Consultation-The ability to provide guidance
• Benchmarking the competition and other relevant to organizational stakeholders.
comparison groups, to better understand market • Communication-The ability to effectively
position and competitive advantage. exchange information with stakeholders.
• Creating an action plan for managing talent • Relationship Management-The ability to
within the confines of the labor market. manage .interactions to provide service and
• Maintaining advanced knowledge of key industry support to the organization.
metrics and how the organization compares to
the standard. Knowledge Topics:
• In conjunction with other leaders, establishing • Approaches for linking organizational and HR
measurable goals and objectives that create a strategies
culture of accountability, and regularly monitoring
• Balanced scorecard utilization
results against goals in support of business
strategy. • Business intelligence factors
• Evaluating critical activities in terms of value • Change management techniques
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added, impact, and utility derived from cost- • Competitive analysis techniques
) benefit analyses, revenue, profit-and-loss • Conflict management techniques
estimates, and other leading or lagging
indicators. • Due diligence techniques
• Applying consistently to internal HR processes • Effective communication techniques
and policies the principles of finance, marketing, • Ethical decision-making framework
economics, sales, technology, and business • Goal-setting approaches
systems.
• HR systems integration approaches
• Maintaining a systems-wide perspective when
) • Labor market analysis
making business decisions.
) • Leadership theories, approaches, and evaluation
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Key responsibilities for advanced HR professionals • Leading and lagging indicators
include: • Mission, vision, and values creation
• In conjunction with other leaders, developing a • Organizational growth strategies, evolution
business strategy aligned to the organization's stages, and success factors
goals and objectives.
• Project management methods
• Aligning HR strategy, goals, and objectives with
overall business strategy and objectives, to drive • Quality assurance techniques
business results. • Strategic management considerations
• Developing and evaluating business cases • Strategic planning stages (i.e., strategy
proposed for HR and other functional projects formulation, development, implementation, and
and initiatives. evaluation)
• Developing strategies for employment branding • PEST factors
) and marketing communications that will reach
• SWOT and environmental scanning techniques
internal and external audiences.
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• Identifying key talent requirements to
) successfully execute the business strategy.
• Developing and implementing an action plan for
capturing, developing, and managing the talent
needed to execute the business strategy,
including the effective management of a global
workforce.
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introduction
This Functional Area focuses on the pivotal activity of strategy, a process that
helps to align all ofthe other Functional Areas in the SHRM Body of
Competency and Knowledge. The alignment of HR strategy with the
organization's strategy ensures that programs in talent acquisition, rewards,
employee engagement, training and development, diversity, and corporate social
responsibility help move the organization closer to its goals.
Functional Area Overview

In line with the SHRM Body of Competency and Knowledge, this Functional
Area covers the following topics:
• Section 1, "The Role of Strategy," introduces key concepts related to
strategic management, including value, the value chain, and stakeholders. It
describes the role of strategic goals, mission, vision, and value in shaping
initiatives and defining functional objectives.
e Section 2, "Strategy Formulation," describes the ways in which the
organization and HR can create a proper fit between their strategies and their
internal and external environments. This requires extensive, objective, and
continuous research.
• Section 3, "Developing Strategy," looks at the different types of strategies
that organizations can implement and the way in which the HR strategy can
be aligned with the enterprise strategy.
• Section 4, "Implementing Strategy," looks at the way in which strategic
goals are translated into functional initiatives that are aligned with the
enterprise strategy and are effectively managed.
• Section 5, "Evaluating Strategic Performance," considers the critical activity
of evaluating strategic actions. In fast-changing environments, evaluation is
especially important for adjusting or shifting strategy, but governance and
transparency also require measurement, analysis, and fact-based decision
making.
• Section 6, "Providing Leadership," focuses on the way strategy is translated
into action through effective leaders. Critical leadership qualities and skills
are discussed here.
4 © 2015 SHRM
Section 1:
Th ,..tenDo 1 ("t..atag..J
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HR responsibilities related to this section include:
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• Applying consistently to internal HR processes and policies the principles of finance,
marketing, economics, sales, technology, and business systems.
• Maintaining a systems-wide perspective when making business decisions.
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This section is designed to increase your knowledge of:
o HR systems integration approaches.
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o Strategic management considerations.
o Strategic planning stages (i.e., strategy formulation, development, implementation, and
evaluation).
STRATEGY Business and HR Strategy
What Is Strategy?
A strategy is essentially a plan of action for accomplishing an
organization's long-range goals. The strategy details separate activities
(tactics or initiatives) that must be coordinated over time. The strategy must
look inward, toward the strengths and vulnerabilities of the organization,
and outward, toward possible external influences, opportunities, and
obstacles.
Some business theorists disagree about the nature of strategy. There are
rational strategists who see the process as identifying alternatives for
direction, gathering data to analyze their relative advantages, and choosing a
direction that is matched well to the organization's mission and vision, its
strengths, and external opportunities. A control system-which could
include targets, budgetary approval processes, alignment of divisional or
functional strategies with the corporate strategy, and periodic assessments of
strategic and tactical results-keeps the organization in line with the
strategic position that has been chosen. The business strategist Michael
Porter is usually associated with this design perspective.
Another group believes that strategy cannot be planned rationally, because no

planner can ever know everything, especially about the future. This school of
thought believes that strategy emerges in response to environmental
opportunities and threats. An emergent strategy is essentially a pattern that can
be discerned in the decisions and actions that an organization's leaders take. The
theorist Henry Mintzberg is often associated with emergent strategy. The idea
has grown more compelling as organizations grapple with a rate of
environmental change that seems almost exponential.
In truth, both approaches to strategy have value. In our less theoretical real
world, we need strategic planning, the process of setting goals and designing a
path toward a competitive position, and strategic management, the actions that
leaders take to move their organizations toward those goals and create value for
all stakeholders. The strategic plan helps create alignment of efforts and provides
a layer of control, and strategic management makes incremental adjustments to
the plan as needed and to the organization itself. These adjustments often
represent the innovative capacity of the organization.
6 © 2015 SHRM
Requirements for Strategic Planning and Management

Organizations that are successful at strategy understand certain concepts:
• Alignment of effort. Strategic alignment is necessary to maintain

organizational focus on a defined mission and goals. As the strategy is
progressively elaborated at other levels within the organization-in business
divisions and/or functional areas-each unit must examine its plan against
the organization's. Will the unit's strategic activities help move the
organization toward its goal? Similarly, each time the organization's strategy
must be adjusted, the organization must be mindful of the logic behind the
original plan and the value of the original goal.
• Control of drift. At the same time, strategic drift should be avoided.

Strategic drift happens when an organization keeps doing what it is used to,
perhaps making incremental changes, until it is no longer on track toward its
desired destination. When this happens, an organization may have to
transform itself and its plans.
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• Focus on core competencies. Strategic organizations know what they are
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good at and focus their efforts on where those competencies will have the
most effect. Necessary but not core competencies can be outsourced to
reliable suppliers. The trick here, however, is to ensure alignment of
competencies with the changing environment. In "The Big Lie of Strategic
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Planning," Roger L. Martin notes that organizations may rely too heavily on
strategies that exploit their core competencies without asking whether those
are the right core competencies-whether these competencies will fulfill the
market's interests. For example, there was a time in product marketing when
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the most valued competency was the ability to create a dominant, universally
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known and valued brand. Now the trend is more toward niche branding.
Moving from one competency to another requires changes in perspective,
knowledge, and technical skills.
• Systems thinking. Wayne Cascio and Herman Aguinis define a system as a

"collection of interrelated parts, unified by design and created to attain one or
more objectives." These parts are internal but also external. They include
internal goals and capabilities along with industry forces, stakeholder
expectations and needs, and environmental influences. Their interrelations
are sometimes but not always apparent, but they must be discerned and
© 2015 SHAM 7
understood. Strategic decisions must integrate all of these parts and account
for all the ways in which they may interact-recognizing both opportunities
for synergy and risks of conflict. These decisions require a curious mind that
seeks information and tests possible connections. They also require an active
risk management mindset and acceptance of a certain degree and type of risk.
• Structure as a strategic lever. A strategic lever magnifies the results of an

organization's efforts. An organization's structure must be aligned with its
strategy. For example, a strategy that requires collaboration and innovation
across disciplines and regions will not thrive in an organization with a strong
"silo" mentality.
• Culture as a strategic lever. As Peter Drucker said, "Culture eats strategy

for breakfast." As a strategy is managed and implemented, the members of
the organization will apply shared experiences, perspectives, expectations,
and values to solving problems and making decisions. Therefore, the
organization's culture and strategy must be in alignment. Execution may be
enhanced or dampened by the organizational culture-defined by Edgar
Schein as ''the basic assumptions and beliefs that are shared by members of
an organization, that operate unconsciously and define in a basic 'taken for
granted' fashion an organization's view of itself and its environment." If the
leaders want to pursue a strategy that requires different behaviors from the
organization, then the organization's culture must be transformed. For
example, an organization following a strategy that relies on innovation and
agility will need a culture that values diversity and change and that
encourages individual initiative, problem solving, and decision making.
Benefits of Strategy
Strategic management provides an organization with:
• Consistent, long-term goals. Such goals result in wasting fewer resources

on activities that are unrelated to those goals or are ineffective in supporting
the attainment of those goals.
• Consistent decision making by leaders. Strategy provides guideposts

throughout the organization, from top to bottom. Each action, each
investment of resources must be assessed in light of the organization's long-
term goals.
8 © 2015 SHAM
• Better competitive and external vision. The process of making decisions

and managing risks requires gathering and monitoring information about the
external environment. This can determine strategic choices and influence
organizational preparation for positive and negative outcomes. We should
note here that all organizations, including nonprofits, must be aware of their
competitive and external environments. Nonprofits must compete for
resources from sources whose priorities and capacities may change. They
may need to adjust their own operational priorities and focus in response to
client needs.
• Better internal vision. Strategic management provides a better internal

vision of what resources the organization can apply to its strategic goals and
how they may need to be developed or supplemented.
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Mistakes to Avoid
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There may be a number of reasons why organizations fail to reap the benefits of
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strategic planning and management:
• Taking shortcuts. Effective strategy requires extensive research, detailed

analysis, and honest evaluation of the organization and its competitive
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situation. Poorly researched, vague, or overly ambitious strategies are usually
not successful and make a poor argument for strategy.
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• Little follow-through. Often, strategic planning is a pro forma exercise that
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produces a plan that is placed in a desk drawer. This perception may be due
to the early association of strategies with annual budgets, but there could be
other reasons as well. Louis Gerstner, Jr. (a former CEO of IBM) pointed out
in 1973 that strategic plans should lead to decisions. Because these decisions
are risky, require complex execution, or are in conflict with the current
organizational culture, leaders may be reluctant to translate intent into action.
Strategy requires leadership and good decision makers.
• Overreliance on the comfortable and familiar. Strategy often requires

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change and risk taking. Risks must be taken methodically, with due
I diligence, and transparently, according to agreed standards and guidelines.
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) • insufficient commitment from management. Sometimes the task of setting
) ·- strategy is handed off to consultants; senior management and the board are -
© 2015 SHRM 9
not committed to the process or directly involved. It is difficult then to obtain

their support for strategic initiatives.
• Insufficient involvement of the rest of the organization. If the strategy is

developed by a small management group, it will be more difficult to
convince the entire organization of the wisdom of the decisions and the value
of changes, effort, and sacrifices.
• Inadequate communication. The strategic intent and decisions may not be

shared with the entire organization. This negates one of the primary benefits
of strategy-that it becomes a guidepost to decision making at all levels and
in all parts of the organization.
Levels of Strategy
There are three levels of strategy: organizational or corporate level, business unit
level, and operational level. The organizational strategy focuses on the future of
the organization as a single unit-a general vision of the future it seeks and the
long-term goals. Business unit strategies address questions of how and where the
organization will focus to create value. These types of strategies are discussed in
Section 3 in this Functional Area. The third level, operational strategy, reflects the
way in which organizational and business unit strategies are translated into action
at the functional level through functional strategies.
The strategic planning and management processes described later in this

Functional Area are repeated at each level, and unit and functional leaders must
assume the same strategic mindset that the organization's leaders have adopted.
As mentioned earlier, these levels of strategy must be aligned. For HR, this means
that the HR strategy will be consistent and supportive of the other levels and all
policies, programs, and processes are selected and evaluated for their strategic
impact. HR resources must be spent on strategic activities that add value at all
points in the employment management cycle: workforce planning, talent
acquisition and retention, rewards and engagement, and development of necessary
skills and future leaders. The function must organize itself and acquire necessary
strategic competencies, such as the abilities to manage risk and change, use data
to make better decisions, manage a global and diverse enterprise, and, most
importantly, lead the HR function as part of a larger organization.
10 © 2015 SHRM
Role of HR in Strategy
HR can have a direct impact on the organization's strategy through its input into
the organizational strategic process and through its own strategic initiatives. As
you reviewed the preceding sections on the requirements of strategy and
mistakes to avoid, you were probably thinking that there were many points at
which HR could contribute to the organization's strategic planning and
management-from improving leaders' abilities to manage change to making
sure that talent management activities are aligned with critical competencies,
both current and future.
Contributing fully will require that HR develop certain strategic skills, many of
which are discussed in the different Functional Areas of this Learning System.
Wayne Cascio and Herman Aguinis note that strategically focused HR should be
adept at:
• Scanning and sensing changes in the ontside environment. This skill is

discussed in the next section, "Strategy Formulation." HR professionals
should develop a habit of looking at events in the outside world in terms of
how they could influence HR and the organization.
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• Building bridges. HR needs to build bridges with internal and external
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stakeholders where interdependencies exist. This demonstrates the ability to
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think in terms of systems-to see issues from multiple perspectives and to
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use complementary strengths to help each other toward strategic goals. The
concept of stakeholders will be discussed in a moment. It also figures
prominently in the "Structure of the HR Function" Functional Area in the
Organization module.
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• Developing appropriate strategic responses. This requires creativity and
) control: the ability to analyze a challenge, develop innovative responses, and
select the best option; the ability to set objectives, motivate a team toward
these objectives, and report accomplishments to management. Some of these
skills are discussed in this Functional Area, but you will find information
about measuring perfonnance in the "Technology and Data" Functional Area
in the Organization module and about motivation in the "Employee
Engagement" Functional Area in the People module.
© 2015SHRM 11
In addition, you will see examples of how the behavioral competencies described
in the SHRM Body of Competency and Knowledge affect HR performance
throughout this Functional Area.
Role of Value in Strategy

A critical aim of strategic management for the organization, its business
units, and its functions is to protect and enhance the value of the
organization's assets and to add new value where possible. The assumption
behind strategic planning and management is that purposeful activity will
yield greater value. Before strategic planning can begin, an organization
must consider this question of value: how it creates value and what activities
are critical to the creation, retention, and increase of value.
Value can be defined and measured differently. In a general sense, it refers

to an organization's success in meeting its strategic goals, but those goals
can be diverse. (Note that "value" is not the same as "values." Organization
values will be discussed later and relate to guiding principles and beliefs.)
The definition of value can be influenced by mission. For example, a for-

profit corporation will see value as bound up in its assets and its ability to
generate value above the costs of production (added value). A military
organization, on the other hand, will measure value by its effectiveness in
fulfilling its mission to safeguard and protect.
The definition of value will also be influenced by culture at an

organizational, global, and workplace level. A common conflict after
mergers, for example, is a lack of agreement about what constitutes value.
One set of management may see value as shareholder returns, while the
other is more concerned about employee well-being and security. Conflicts
over value can be driven by differences in ethnic cultures in different
workplaces within a global organization or in a single ethnically diverse
workplace. Or value may be defined by functional culture. Operations may
see the organization's core value as output, while sales may see it as
satisfied customers.
HR must understand these varying perceptions of value because they will

drive strategic goals throUghout the organization and-affect the-ways in
12 © 2015 SHRM
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which HR can support the organization in its entirety. When perceptions

conflict within the organization-perhaps as a result of a change in strategic
direction, a global organization that comprises multiple national cultures, an
acquisition or merger, or rcstructuring-HR can provide critical guidance
about acknowledging and resolving these cultural conflicts.
This topic will focus on who is involved in creating value in an

organization, how value may be defined by the organization's stakeholders,
and how those stakeholder perspectives may influence strategy development
and management.
Value Chain
The value chain represents the process by which an organization creates the
product or service it offers to the customer. It is described as a chain because
it represents the sequential and simultaneous contributions of a number of
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intemal and extemal participants. Each participant adds an element of value,
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and the total value is more than the sum of its parts. The concept of the value
chain, as illustrated in Figure I, stems from the work of Michael Porter (in
Competitive Advantage: Creating and Sustaining Superior Pe1jormance) and
the business process reengineering (BPR) movement led by Michael Hammer
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in the 1990s.
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) Primary Activities
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Secondary
Activities
Figure 1: Value Chain
© 2015 SHRM 13
The value chain shows the interconnections of various participants in

delivering value to an end customer. Primary activities (which may vary
according to the enterprise's activity) contribute directly to the value created.
Primary patticipanls may be part of the organization or external. For example,
those involved in fulfillment for a commercial enterprise might be distributors
and retailers. A nongovernmental organization may participate with
governmental or independent local nonprotits to deliver value to their
customers.
The value created by the primary activities depends, in turn, on secondary

activities that provide essential services to the line functions. These secondary
activities include, for example, the organization's administrative staff and HR
management.
This value chain diagram is not completely realistic since few enterprises
control the entire chain of production and distribution. Often the chain is
actually a network that contains various suppliers and vendors to whom work
has been outsourced and multiple distribution channels.
Understanding all the steps and functions involved in creating value allows
strategists to identify critical steps, vulnerabilities and inefficiencies, and areas
for improvement. In Exploring Co1porate Strategy, Gerry Johnson, Kevan
Scholes, and Richard Whittington list some key questions that can be used to
analyze the strategic implications of the value chain/network:
• Where are the costs and value created? What shares do various links
represent?
• Which activities must be considered central to the organization's mission and
therefore reflect core activities?
• Where are the more profitable activities? For example, in the printer
industry, it was discovered that the sale of toner and ink cartridges was more
profitable than the sale of printers.
• What activities could be profitably outsourced? Johnson eta!. note that the
more an organization outsources, the more critical the outsourcing
competency becomes.
• What is the proper relationship with suppliers: strategic partners or vendors?
What characteristics arc needed in partners/suppliers?
14 © 2015 SHRM
I An enterprise can achieve competitive advantage by being superior in one
functional area in the value chain. Examples of superior performance are

Samsung in production capabilities, Apple in creative designs, and H&M
clothing retailers in merchandising. An organization can also achieve advantage
) by more effective coordination among various functions, like the home
) furnishings giant IKEA and the management services firm Accenture.
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) A global value chain layers differentlocations onto different functions and can
be complex to organize and manage. However, it also enhances opportunities
to reduce risk, share knowledge, and achieve Operational economies.
Stakeholder Concept
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An organization's stakeholders are the receivers of the organization's value, and
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they perceive that value in distinctive ways. A familiarity with the stakeholder
concept can help global HR professionals appreciate the complex definitions of
value that may exist throughout a global organization.
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The stakeholder concept proposesthat any a

. complex environnient in whichitaffects and is affected. by a
-. - - - - ' - - -- - -
of forces
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.... orstakeholderswho
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audits
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activities.
- - -
) Business objectives may be more comph:x, shaped bythe needs ofthe various
) groups.
)
) The stakeholder concept was first offered in the mid-1980s by R. Edward

) Freeman as an alternative to the shareholder perception of the corporation, which
believes that the objective of a business is to create as much wealth as possible,
)
which is returned to shareholders in the business, and that managers' objectives,
l both in the short and long term, should be maximization of profit. The
) stakeholder concept recognizes the different types of value an organization
) creates.
)
Figure 2 illustrates the stakeholder concept.

)
© 2015SHRM 15
,I
STRATEGY Business and H R Strategy
Investors
Trade associations t Governments
Communities _,.....
"' <---+ Political groups
Customers
t
Employees
Figure 2: Stakeholder Concept
Some (but not all) investors may see value as monetary (a dividend or an increase
in share value), but communities may see an enterprise's value as a source of
employment and neighborhood enrichment and stability. Customers may see value
as convenience, reliability, or innovation. Governments value "good corporate
citizens," while political patties expect contributions and supportive actions.
Suppliers value economic stability, fair treatment, and control over their businesses.
Trade associations can gain from the enterprise's leadership, innovation, and
reputation. Employees are probably the most complex stakeholder. They rely on the
financial success ofthe enterprise for their own well-being, but they may also
expect opportunities to learn new skills and advance. They and their families also
expect safe and humane working conditions.
There is considerable debate about these alternative perceptions of the objective of

organizations, specifically about how the needs of the various stakeholders are
addressed. How are the needs of the stakeholders prioritized? Does the firm
negotiate to reach a mutually acceptable objective? Is it sufficient for the firm and
the stakeholders simply to open a conversation so that they better understand each
other's motivations?
Understanding stakeholder perspectives in a global organization may be

challenging, since stakeholder values may differ among societies. For example:
• Customers' expectations of service may vary widely. In China, customers

ex peel special treatment to be given to those who have personal relationships
with cultures,Iavoritism would anger customers.
16 © 2015 SHRM
• Suppliers to an organization in a culture that values long-term

l relationships might not understand being asked to reapply for supplier
J status periodically, but in a country where short-tem1 savings are valued,
) the request is expected.
• Employees in different countries look for different kinds of benefits.

,I
Motorola found that in China it was expected to build dwellings for blue-
collar employees who came from other cities or the countryside.
Employees in countries with high taxation levels may value nontaxable
benefits; employees in countries without single-payer health-care systems
may value health benefits packages.
• Communities, political groups, religious institutions, and governments

will have different relationships with organizations based on their cultures
and administrative systems and on the organizations' own histories.
• Shareholders, boards of directors, and senior management have

expectations that lie along a spectrum between a belief that an
organization's first responsibility is to maximize financial return to
investors and the opposite conviction that the organization must put first its
moral obligations to employees and society.
'j
The chief human resources officer (CHRO) for a research institute has been
asked to develop a new pertormance management system for the
organization. The system will be an important source of information about
what technical knowledge and skills reside in the organization and where
Relationship they are located. Although the CHRO knows that this HR service focuses on
Management the entire organization, the CHRO is well aware that the key stakeholders
Competency
here are the lab directors. Their ability to fulfill their unit missions depends on
in Action
having the right talent for the present and the future. The lab directors need
to see how the pertormance management system will produce the people
they need in key positions. So the CHRO and the HR staff working on this
project initiate a series of interviews with the lab directors to understand their
) current and future talent needs more fully and to discuss issues with the
) current periormance management system that can be corrected in the new
,. service. The CHRO has demonstrated an awareness of the organization and
. !
its constituents' individual needs and has taken steps to make sure that HR
)
is providing the necessary service and support
J
J
)
© 2015 SHRM 17
HR's Role in Defining and Creating Value

HR's unique cross-functional (and possibly global) perspective of the organization's
most critical asset-its workforce--equips HR leaders to consult and advise on
aligning workforce assets with strategy demands. HR can help identify performance
and organizational and global culture gaps and plan ways to bridge them.
The HR function can also apply value chain analysis to its business, identifying
its cost centers, the source of the critical value it produces, its core competencies,
and activities that may be candidates for outsourcing, such as benefits
management and administration.
. The key value that global HR. contributes to the value chain is the quality and
availability ol' "pivotal talent pools,''th.ose employees whose skills are critical
·.to the organization;s strategy(John.Boutfreau aii.dPeterRarnstad, "Talentship
and the New Paradigm for Human Resource Management"). HRprotects
- -- -
value when it manages laborsupply to supportoptim!tlproductivity. It
·It
;.cah':iddvalllewheri ..
Strategic Planning Process

Strategic planning involves positioning the organization for the future. The
future can be 18 months, three years, five years, or even longer for particularly
audacious and complex goals. Traditionally, strategic planning includes four
phases, as shown in Figure 3.
..
Evaluation \
Development
Implementation /
Figure 3: Strategic Planning Process
18 © 2015 SHAM
)
) STRATEGY Business and HR Strategy
The planning process is usually shown as a cycle that is repeated periodically.

Ideally, the organization can capture its experience and build on that in the
period covered by the next strategic plan.
During formulation, those planning strategy-let us call them the strategists-

gather and analyze internal and external infonnation to determine the
organization's current position and capabilities, opportunities, and constraints.
)
The outcome of fonnulation is a set of strategic statements that describe the
)
organization's mission, vision, goals, and values. These statements may be
formal or infonnal, written or implicit in leaders' actions. Whatever fonn they
take, they provide a direction for the strategies that will be developed in the next
phase of planning.
)
During the development phase, organizational strategies will be detennined. As
) discussed in Section 3 in this Functional Area, these strategies will consider how
the organization will compete in its industry (its competitive advantage) and
)
where it will compete (the markets and industries in which it chooses to
)
compete). Based on these strategies, business units and functions will develop
)
their own strategies and examine their own readiness to implement the
)
organizational and functional strategies.
J
)
During implementation, strategies are into specific initiatives and
)
funded. Objectives are established for use during the final phase, evaluation.
)
Strategic decisions are communicated with the entire organization. Initiatives are
)
implemented and data about their effectiveness and efficiency is gathered.
J
)
During evaluation, performance data is analyzed against the agreed metrics. The
success of the strategic initiatives is repmied to management, who may opt to
persist, adjust, or shift the strategic plan.
The model suggests neatness and linearity, but like strategy itself, strategic
planning is dynamic. Initiatives are usually evaluated continually, not at the end
l of the strategic planning period. Based on these evaluations or new information,
)
such as new competitive actions or the appearance of new external risks or
)
constraints, strategists may need to cycle back, gather new information, and
)
adjust the plan accordingly.
© 2015 SHRM 19
Progress Check
Directions: Choose the best answer to each question.
1. The focus of strategic planning is on goals and how they will be achieved. What is the focus
of strategic management?
( ) a. How leaders act in alignment with those goals
( ) b. Tracking allocation of resources toward strategic goals
( ) c. Identifying future talent
( ) d. Satisfying stakeholders
2. What is the key benefit of developing consistent, long-term goals?

( ) a. It shows the interaction of planning, people, and process to achieve goals.
( ) b. It separates strategic intentions from the effects of organizational culture.
( ) c. It decreases the influence of external factors.
( ) d. It reduces resources wasted on nonstrategic activities.
3. One ofHR's strategic abilities, according to Cascio and Aguinis, is scanning and sensing
changes in the outside environment that could affect HR's role in supporting the
organization's strategy and in implementing the HR strategy. Which is an example of
scanning and sensing the external environment?
( ) a. Creating alignment between the HR and organizational strategies
( ) b. Conducting annual employee surveys
( ) c. Gathering information about technologies that could increase HR productivity
( ) d. Networking with leaders of other functions to build consultative relationships
4. Why is a systems-thinking approach necessary in strategic management?

( ) a. It creates greater efficiency in resource utilization.
( ) b. lt makes sure that all of the organization's strengths are being deployed.
( ) c. It provides a deeper understanding of strategic assets in each function or unit.
( ) d. It helps see potential interactions of the organization's components.
5. How is organizational culture connected with the topic of strategy?

( ) a. A strong culture can eliminate the need for strategic planning.
( ) b. Culture should be seen as a strategic lever.
( ) c. Culture should not affect a choice of strategy.
( ) d. Strategy should be planned first, and then steps should be taken to create a
supportive culture.
20 © 2015 SHRM
6. The leader of the HR function is creating a multiyear budget. How will the existence of an
organizational strategy help?
( ) a. The leader will be more able to identify and prioritize strategic HR activities.
( ) b. The strategy statements provide annual budget ranges for each function.
( ) c. It will help HR compete with other functions for limited resources.
( ) d. The strategy will not help materially, since this is simply a budgeting activity.
) 7. What type of organizational activity is most likely to succeed in the strategic planning and
) management processes?
( ) a. Strategies are developed by the functions with little involvement of senior
management.
) ( ) b. Senior management develops a high-level strategy intended solely for publication
) in the annual report.
( ) c. HR is asked to analyze current competencies against a proposed strategy.
( ) d. Function leaders make well-reasoned strategic decisions based on their
operational needs.
8. A paper products company divides its business into commercial and consumer divisions. The
commercial division decides to expand its market share by forming key account teams to provide
its most important customers with better service. What type of strategy does this illustrate?
) ( ) a. Organizational strategy
) ( ) b. Business unit strategy
( ) c. Competitive strategy
) ( ) d. Functional strategy
)
9. How are the concepts of value and the value chain related to strategy?
( ) a. Value points to economic metrics that can be used to measure strategic success.
( ) b. Value chain analysis identifies areas critical to strategic success.
( ) c. The value chain defines what is important for the organization's stakeholders.
( ) d. These concepts relate primarily to for-profit enterprises.
I 0. Why should an HR leader begin the functional strategic planning process by identifying and
)
analyzing stakeholders?
( ) 1 a. Stakeholders control the budget.
( ) b. Stakeholders are external to the organization.
( ) c. The leader will better understand the value HR must deliver.
( ) d. The leader will improve legal compliance.
© 2015 SHAM 21
11. What would be considered a current HR strategic task?

( ) a. Securing off-site backup and storage of employee transactions and records
( ) b. Developing a system to track the number of people leaving the organization
( ) c. Creating a training program for conducting safe and legal terminations
( ) d. Working with senior and line managers to forecast workforce needs for the
strategic planning period
12. What action occurs during strategy development?

( ) a. A company allocates resources to enable it to reach a new market for its products.
( ) b. A company decides to market its products internationally.
( ) c. A company motivates employees to increase international sales.
( ) d. A company decides to cut back on its international advertising campaign.
22 © 2015 SHRM
Progress Check Answers

1. a (p. 6)
2. d (p. 8)
3. c (p. 11)
)
4. d (p. 7)
)
5. b (p. 8)
)
6. a (p. 8)
)
7. c (p. 9)
J
8. b (p. 10)
)
9. b (p. 12)
)
10. c (p. 15)
J
11. d (p. I 8)
)
12. b (p. 19)
)
)
)
.)
)
.)
)
) © 2015 SHRM
23
)
Section 2:
Strategy Formulation

• Demonstrating a working knowledge of the labor market and its relation to organizational
success.
• Benchmarking the competition and other relevant comparison groups, to better understand
market position and competitive advantage.
• In conjunction with other leaders, establishing measurable goals and objectives that
create a culture of accountability, and regularly monitoring results against goals in support
of business strategy.
• Identifying key talent requirements to successfully execute the business strategy.

• Business intelligence factors.
• Goal-setting approaches.
• Labor market analysis.
• Mission, vision, and values creation.
• PEST factors.
• SWOT and environmental scanning techniques.
Information Gatherina and Analvsis - .

The first stage of strategic planning is the gathering of internal and external
information, the careful sorting of information into significant patterns,
) prioritizing and weighting critical elements, further research, and then initial
) high-level decisions about what the organization wants to be and how it can
make that happen.
This analytical phase can lead to a more accurate understanding of the

organization's environment from a risk management perspective. This will lead
to the way in which the organization positions and grows itself to take advantage
of opportunities and manage riskier activities. Risk management is an integral
part of strategic management, and it is discussed in the "Risk Management"
) Functional Area in the Workplace module.
)
Information gathering and analysis can also lead to greater self-awareness and a
) better understanding of the constraints and levers on strategy. Constraints are all
) those factors that will make a chosen strategy more difficult to achieve-for
) example, an organizational culture that does not align with the characteristics
) required for rapid decision making and creativity or an aging workforce that may
) increase payroll costs without offering higher productivity levels or new skills. It
might also include an organizational structure that inhibits collaboration across
> functions or innovation. (Organizational structure is discussed in the "Structure
) of the HR Function" Functional Area in the Organization module.) Strategic
levers work in the opposite direction. They are organizational characteristics or
industry conditions that will enhance the chances of achieving strategic goals.
They could include ample financial reserves that can fund research and
development or weakening competitors or changes in processes that increase
productivity or quality.
Without this level of awareness, an organization is likely to head down a road

that will, at best, be much bumpier, take longer, and require detours and repairs
that consume resources. At worst, a determined and blind management can drive
the organization off a cliff.
This section looks at some of the more common tools used to gather and analyze
infonnation. The tools may appear simple. That is because using them n:yuires
) expert knowledge, skills, and judgment from inside and outsidetheurganization.
© 2015 SHRM 25
Being able to answer a simple question about the strength of an organization's

financial position or its talent pool may require extensive analysis, surveys, and
testing against specific scenarios.
Improving Your Business and Organizational "Radar"

While HR professionals may not have all the analytical skills to perform
complex financial and risk analyses, they can develop their skills at gathering
information. In this way, they can learn more about the industries in which
their organizations compete and external factors that can influence the
actions of management and HR. Best practices in this area include:
• Regularly reading the business press-including more international
publications such as The Economist-and being aware of the latest
business philosophies and trends. "Reading" is too limiting here. HR
professionals should also find informative social networking platforms
that they can follow.
• Staying current with the latest academic HR research. HR professionals
can use relationships with local academics to stay on top of the latest
developments in HR theory and practice. They can also visit the websites
of institutions known for their HR research publications.
• Becoming regular users of third-patty information from government
agencies (e.g., labor and trade departments), international bodies like the
World Bank and United Nations agencies, nonprofits, and professional
associations, such as the Society for Human Resource Management.
• Scanning annual reports from businesses or groups with comparable
markets and workforces. Annual reports can provide insight into the
issues other organizations are wrestling with and the solutions they have
tried.
HR professionals must also focus on expanding and deepening their channels

of information-inside and outside the organization. Networking within the
organization can provide a sense of developing management philosophies,
preferences, and attitudes. Developing contacts within the stakeholder
communities in which the organization operates can uncover emergent
issues. An HR manager can become more aware of educational challenges
facing local school districts, challenges that may affect the future pool of
workers. Networking can also serve to build allies for later actions.
26 © 2015 SHRM
Information gathering is a skill that must be used regularly and constantly

l updated and expanded as new sources and information channels develop.
)
)
Environmental Scanning
Environmental scanning may be defined as a process that involves a
systematic survey and interpretation of relevant data to identify extemal
. I oppmiunities and threats and to assess how these factors affect the organization
currently and how they are likely to affect the organization in the future. It
provides the extemal data that will be needed to complete the SWOT analysis,
which will be discussed next.
)
) Francis Aguilar, a consultant on business strategy, noted the purpose of
environmental scanning was to "(!) lessen the randomness of information
flowing into the organization and (2) provide early wamings for managers of
changing extemal conditions."
'
p An HR professional is visiting the SHRM website and sees an article
about a recent lawsuit filed by temporary workers at a very major
software firm. The temporary workers claim that they fulfill the definition
of regular employees and should be reclassified accordingly and receive
Business
Acumen compensation and benefits retroactive to their date of engagement. This
Competency sets ott alarms in the HR professional's mind, whose own organization
\
' in Action uses temporary workers in a similar manner and could be affected by an
unfavorable ruling.
) The HR professional takes this issue to the HR director. They consult
with the firm's legal counsel and decide to prepare for any eventuality by
gathering data about the firm's use of temporary workers, including
contracts and manner of working, and developing strategies to reinforce
the independent contractor aspects of these positions. This action
demonstrates an awareness of the ways in which external events can
have a direct effect on an organization's HR activities.
PESTEL Analysis
.) The environmental scanning process is systematized by searching for
1 environmental forces organized under specific categories. This process is
) commonly referred to as a PEST analysis-for political, economic, social, and
) technological categories. However, the acronym has expanded lu PES TEL to
reflect-the complexity offorces affecting modern -enterprises-political, ·
© 2015 SHRM 27
economic, social, technological, environmental, and legal. Some theorists argue

for additional categories such as demography and ethics.
A PESTEL analysis can be conducted on different levels: for the entire

enterprise or for individual units and functions. lt requires that those
performing the analysis adopt a broader and more long-range perspective
than they may ordinarily use.
At the same time, analysts must restrict their horizons and the directions
they scan or the organization will drown in data whose analysis may absorb
too much time or whose complexity may paralyze decision making.
The general process is similar to some of the steps used in the risk
management process. PESTEL analysts:
• Assemble a list of possible events or trends that exist now or could
materialize within a defined time frame. This could be done through
brainstorming meetings, interviews or focus groups with experts in
certain areas, or literature reviews.
• Identify the potential impacts on the organization. These should include
positive and negative or immediate and long-range effects. Analysts
should also look for possible ripple effects on apparently unconnected
processes or parts of the organization.
• Research the impacts more thoroughly to understand possible causes,
their dimensions, and connections with other events or trends. For
example, trending information may be obtained from government
agencies or industry associations.
• Assess their importance based on the strength of the data.
Figure 4 on the following pages explains what types of events or trends

might appear in each of the PES TEL categories and then illustrates the
way the events might affect an enterprise and HR.
Note that each of these categories can include unique ethical

considerations. For example, political analysis may include examining
levels of corruption.
28 © 2015 SHRM
I
)
Political
• Regulatory environment and actions An organization's leaders The company decides to
)
• Taxation policies are debating expanding go ahead, and HR
• Treaties and tariff structures the business into a considers what guidance
) • Immigration policies country because to provide those who will
corruption and bribery be working in this country
• Governance legislation
make it difficult to do and those who will be
,I
• Government stability
business there. assessing these
• Levels of corruption
employees' performance.
Economic
• Business forecasts Expansion plans could be A business case

• Labor availability and cost curtailed by signs of analyzing the purchase of
• Price for services and materials increased costs of a new H R information
(inflation/deflation rates) financing or difficulty in management system
obtaining investment. could emphasize the
• Household income
savings in interest by
)
• Consumer confidence
making the purchase
• Availability and cost of capital
now.
) • Income disparities
) Social
• Demographic shifts in age, ethnic The organization HR must assess its

) background channels an increasingly policies and implement
• Education and skills profiles large portion of its monitoring to make sure
• Housing patterns marketing budget into that social media are
• Patterns of discrimination social media aimed at a used in an equitable
growing youth manner tor recruiting and
• Family structure
demographic. that employees know
,\ • Values
what social media activity
• Lifestyles and purchasing habits
conforms to company
• Media use
policy.
) • Effect of globalization on local
culture
Technological
)
) • New centers of technological The organization may HR has to review its
training and expertise have to invest more recruiting program to
• Innovative technology and heavily in data security identify and attract new
applications of technology measures. sources of highly skilled
• Unequal access to technology workers in this area.
• Trends in patent law and intellectual
property protection
) • New or changing technical
standards
)
• Technological vulnerability
Figure 4: PESTEL Analysis (continued on next page)

)
© 2015 SHAM 29
· Environmental
• Decreasing carbon consumption The organization looks to HR will have to find ways
limits the size of its facilities to accommodate the
• Increased use of alternative-fuel footprint to decrease its same number of
vehicles carbon consumption. employees in a smaller
• Unequal effect of environmental workplace.
damage or policies
• Increased interest in environmental
impact
• Vulnerability of reliable and potable
water supplies
• Need for innovative technology and
practices
Legal
• Increased civil litigation in Senior management HR works with legal
workplaces increases its budget for counsel to implement
• Increased shareholder legal actions legal services arid its risk alternative dispute
• Unequal access to legal contingency reserves resolution within local
representation earmarked for legal legal and contract
• Trends in evidence requirement and issues. bounds.
penalties
• Increased cost for defense
• Trends in findings for corporate
negligence
Figure 4: PESTEL Analysis (concluded)
SWOT Analysis
The SWOT analysis is a simple and effective process for assessing an
organization's strategic capabilities in comparison to threats and opportunities
identified during environmental scanning.
The SWOT analysis process involves answering four basic questions:

• S-What are the organization's internal strengths?
• W-What are the organization's internal weaknesses?
• 0-What external opportunities might the organization be able to take
advantage of?
• T-What external threats must the organization accept or manage in order to
succeed?
30 © 2015 SHRM
I STRATEGY Business and HR Strategy
I Strengths and weaknesses refer to the internal environment, while opportunities

and threats come from the external environment. The opportunities represent
favorable or advantageous circumstances that could be used to produce a desired
effect, while threats are an indication of possible danger, harm, or menace.
) Strengths and oppotiunities can be leveraged; weaknesses and threats arc
) problems that must be solved and are often more difficult to control.
I \
Information gathered from environmental scanning can be used to complete a

) SWOT analysis. As with environmental scanning, meetings can be used to
) generate items and sort them into the four categories. Later analysis could focus
) on weighting strengths and weaknesses relative to specific environmental
) changes (threats or opportunities).
)
A SWOT analysis can underscore the need for addressing cultural misalignment
or skill gaps before committing to a strategy. It is often performed as companies
are considering entering new markets, expanding globally, or entering into a new
strategic alliance.
Again, as with all aspects of strategic planning, a SWOT analysis of a global

)
organization is more complicated. It must consider variations in performance,
competitive situations, exchange rates, labor supply, and various political,
cultural, and legal influences in each lqcale. However, it can still be done.
Figure 5 on the next page shows a classic four-quadrant model of an HR function's

SWOT analysis. This HR function bas ranked its items and identified key strengths
J
and weaknesses. Considering its environmental scan and discussions with
)
management, it has identified three opportunities and two threats that could affect
)
its strategic capabilities. The sam,e process could be applied to specific HR
strategic activities, such as global talent management programs, self-service online
employee benefit centers, or programs in workplace harassment.
There are some criticisms of using the SWOT analysis at an enterprise level. Some
people believe that an enterprise-level analysis inevitably becomes less specific
)
and that the generalizations do not offer any material help when making strategic
)
decisions. The tool can be useful, however, to analyze functions or business units
)
or to compare the organization's strategic capabilities with those of key
)
competitors.
)
© 2015 SHAM 31
Internal
External
Figure 5: SWOT Analysis
Industry Analysis
Another consideration that will influence strategy is the organization's industry.
This includes the relative health and direction ofthe entire industry and the rules
that govern its behaviors.
Industry Life Cycle

Industries, individual products, and organizations have a characteristic life
cycle. This life cycle includes four phases: introduction, growth, maturity, and
decline.
In the introduction phase, revenue is low because there is little awareness of

products, services, or processes and because of the market's resistance to
change. During growth, all of this changes, although the rate of change will
vary by industry (or enterprise or product). Eventually the market is saturated,
and growth occurs only through replacement of products or customers. Finally,
demand declines either because the need no longer exists or the need is
satisfied more effectively by a new technology.
32 © 2015 SHRM
Introduction ·. Maturity
Revenue
)
Time
Figure 6: Industry, Business, or Product Life Cycle
) It may be useful to think of the industry that produced landline telephones. The
)
initial market was very small, but it expanded with a growing infrastructure of
) telephone lines and switches and with a growing understanding of the
) telephone's business and social usefulness. Sales of landline telephones slowed,
) despite the best effort of marketers who would tempt the consumer with new
) shapes and colors. The introduction of cell phone technology sent the industry
) into a decline. Think about how much of the world's population survives quite
) well today without landlines.
\
) The competitors within an industry must either reinvent themselves by moving
) into a new industry-or by creating a new industry through innovation--or
accept declining resources and opportunities.
The consulting firm Arthur D. Little (ADL) proposed that firms compete
) differently in each industry life-cycle phase based on their own competitive
) position. The tool the firm created, the ADL Matrix, defines these competitive
) positions as weak, tenable, favorable, strong, and dominant. For example, in the
introduction phase a firm perceived as having a dominant position is justified in
J pursuing an aggressive strategy to build market share, but a weak competitor must
decide if it has the resources to compete at this stage, when the revenue pool to be
) shared by all competitors will be smalL In a declining industry, the dominant and
) strong competitors can afford to hang on and perhaps use their resources to
introduce a disruptive innovation that will restart the life cycle. The other
) competitors will usually plan phased or immediate withdrawals from the marke!.
How does the industry and business life cycle affect HR? The critical success
factors change· as an industry or business evolves, and HR must be prepared to
)
)
)
© 2015 SHRM 33
support the organization's changing talent and competency needs. During the
introductory phase, innovation and energy are critical, but as businesses grow,
they must become more efficient to meet growing demand. During maturity, they
must wring efticiency out of every aspect of the business. During decline, they
must be able to adapt by downsizing and tightening their focus on specific
products or markets.
Figure 7 illustrates the way in which HR activities change during this

evolutionmy cycle.
I
i
CSF•
Time
* Critical success factor
Figure 7: HR and the Industry Life Cycle
Porter's Five Forces

Michael Porter's "Five Forces" framework was originally designed to identify
industries that were more likely to be profitable and would provide a return on
investment. Applying the framework, however, reveals a great deal of subtle
information about the dynamic forces within an industry. The analysis can be
used with PESTEL and SWOT to identify oppmtunities and threats more clearly
and to foresee possible changes in the competitive landscape.
The model is based on the premise that every industry or sector (even nonprofits)
,,1
! faces similar competitive challenges. These challenges are categorized as shown
'
'! in Figure 8 and described below.
:l
34 © 2015 SHRM
\
)
Figure 8: Porter's Five Forces Framework
) • Threat of substitution. How easy is it for a competitor to capture customers

) by offering a similar product or a product that satisfies the same need but
perhaps in a different way?
• Threat of entry. How easy is it for a new competitor to enter the industry?
How much capital investment is required? How much time does it generally
take for a new entry to become a threat to market share?
• Bargaining power of suppliers. How vulnerable are organizations in this

industry to the actions of upstream supply chain partners? Are there few
)
suppliers or many? What would happen if a supplier went out of business or
j
was bought by a competitor?
)
)
• Bargaining power of buyers. How vulnerable are organizations to actions
by customers? Do consumers view products as valued brands or commodities
to be shopped for and purchased at the lowest price? How great an influence
does a single large customer have over an organization's decisions? Would a
customer be likely to acquire the seller?
)
© 2015 SHRM 35
• Rivalry among existing competitors. All ofthe other forces have the
potential to increase the intensity of competition within the industry. A
concentration of suppliers or buyers will trigger competition, and the
insecurity caused by easy entry into the market and substitution can lead to
price-cutting wars and product or service design aimed at locking customers
in. In an industry that is expanding, competition may not be as fierce as it is
in a shrinking industry.
Strategic Investment Decisions

Other tools have been developed to assist organizations in prioritizing where
they will invest their resources. Two well-known tools were developed by
consulting firms for large corporations. However, the concept of prioritization
can be applied in many different settings and by small as well as large
enterprises. It can even be applied to investing in human resources. For example,
HR managers may use prioritization matrixes to assess investment in developing
certain talent.
Growth Share Matrix

This tool was developed by the Boston Consulting Group. Analysts· can place a
business unit, a product or service, or a branch in one of four grids, as shown in
Figure 9.
Market
share
Market
,j growth rate
i]
Figure 9: Growth Share Matrix
36 © 2015 SHRM
)
)
The quadrants are formed by two axes: the rate of growth in this market and the
size of share an entity holds.
• Stars have large shares of the business in fast-growing markets. Stars hold
)
value in terms of the revenue they wi II produce or their value if sold. They
are prime candidates tor acquisition.
• Dogs have small shares of the business in slow-growing or declining
markets. They are prime candidates for divestiture.
• Question marks are perplexing. They are doing poorly in a growing market.
But why? Can they be fixed? Will the cost of fixing them offset the revenue
they can produce?
!
• Cash cows have done and continue to do well, but their market is mature and
their growth potential is limited. They are, however, a good source of income
that can be used to acquire or build stars or fix question marks.
Nine-Box Matrix
The prioritization matrix shown in Figure I 0 is sometimes referred to as the GE-
)
)
McKinsey matrix.
)
)
) Divestment
)
J
Divestment Divestment
)
)
Business Unit's Ability to Compete
Figure 10: Nine-Box Matrix
The data to be prioritized is placed in the appropriate box on the grid. (Sometimes
these points are shown as circles whose sizes relate to the strength of confidence in
the assessment.) Any point in the three more deeply shaded boxes (investment and
) growth,_selectivc growth) would be.considercd a investment, while points in
)
© 2015 SHRM 37
the other boxes (selective investment, divestment) represent poor opportunities.

Opportunities in the remaining boxes must be carefully weighed.
Defining Mission, Vision, and Values

Before a strategy can be mapped, a destination must be chosen. This destination
is an image of how the organization defines its purpose (its mission), the future it
hopes to see (its vision), and the principles it agrees will guide its behavior (its
values). In some organizations, the development of strategic statements about
mission, vision, and values is deliberate and formal. The statements themselves
are seen as an important communication of expectations to stakeholders. Some
organizations may develop these positions informally through a pattern of
decisions and actions but not articulate them publicly-perhaps because they
believe there is a competitive advantage to restricting this information. This can
be effective if these decisions and positions are well communicated throughout
the organization. Some organizations see this entire process as empty public
relations and so miss an opportunity to be proactive in guiding actions and
defining the organization's identity and character.
These strategic statements serve many purposes:

• In times of crisis they guide management's thinking and decisions.
Individual initiatives can be held up against the mission statement to see if
they arc truly aligned with the organization's strategy. Employees will
understand expectations and will be more likely to behave, on a daily basis,
in accordance with the organization's values.
• They reflect the type of organizational culture that will be required to attain
the mission and vision and to support the values described. In some cases a
shift in strategy may necessitate a change in culture. These statements can
sketch the outlines of this new culture.
• They can contribute to the employer's brand and make recmiting and
onboarding efforts more focused and effective.
• Stakeholders can see how they arc included and can challenge leaders to
fulfill these pledges.
Mission and Vision Statements

A mission statement specifies what activities the organization intends to pursue and
what course management has charted for the future-a very concise statement of its
38 © 2015 SHAM
I
'
strategy. It names its major stakeholders and the value it intends to deliver to them.
It communicates a sense of purpose to all of the organization's stakeholders:
employees, customers, vendors, shareholders and investors, and its community. The
language of the statement often expresses a sense of priorities.
)
A vision statement is a vivid, guiding image of the organization's desired future-
) the future it hopes to attain through its strategy. The vision statement is the ultimate
\ picture of what leadership envisions for the organization. The key to a solid vision is
) that it conjures up a similar picture for each member of the organization. The
purpose of the vision statement is to inspire and motivate. It can be aspirational.
Often today these guiding statements can be found on organizations' websites.

Sometimes they are brief films rather than written statements. Exhibit II shows
)
)
examples of mission statements from two leading global organizations, the L'Oreal
group and the nonprofit Habitat for Humanity International. Together they illustrate
the key tasks of mission and vision statements .
. Organization Statements
)
) L'Oreal Mission:
L' Oreal has set itself the mission of offering all women and men
worldwide the best of cosmetics innovation in terms of quality,
efficacy, and safety. It pursues this goal by meeting the infinite
diversity of beauty needs and desires all over the world.
) Vision:
Our ambition for the coming years is to win over another billion
)
customers around the world by creating the cosmetic products
) that meet the infinite diversity of their beauty needs and desires.
Habitat for Mission:
) Humanity Seeking to put God's love into action, Habitat for Humanity brings
International people together to build homes, communities, and hope.
Vision:
A world where everyone has a decent place to live.
) Sources: www.loreal.com and www.habitat.org

)
Figure 11: Sample Mission and Vision Statements
You can find several distinctive notes in the mission statement for L'Oreal group.
It identifies its area as cosmetics and its scope as global. Its stakeholders include
) women and men, and it aims to meet their diverse needs with quality, effective,
and safe produels.-Onewould not expect-to-see the group '-s strategy include
© 2015 SHRM 39
J
J
\
ventures into services such as spas or hotels. Habitat for Humanity emphasizes its
focus on housing as a way to support individuals and communities. It does not
focus on the environment, health care, or political action. Its vision is global and
highly aspirational.
Organizational Values
Organizational values (to be distinguished from the economic value an enterprise
produces for its stakeholders) are beliefs that are important to an organization and
often dictate employee behavior. Grant defines values as principles to guide
decisions and actions. Organizations sometimes allow their values to be defined by
the employees. Workshops are convened with employees recognized and respected
throughout the organization as representative of what the organization believes in.
Using group creativity and decision-making techniques, the employees reach
consensus on core values. This method is effective when the organization's culture
is well aligned to its aspirational values. If there is a gap between the
organization's present values and those that will sustain its mission, then the
organization will have to set itself to the challenge of changing its culture.
To return to the previous examples, we can note that L'Oreal espouses six
"founding values":
• Passion
• Innovation
• Entrepreneurial spirit
• Open-mindedness
• Quest for excellence
• Responsibility (a concern for customer safety and environmental impact)
Habitat for Humanity lntemational notes its Christian principles but also its
commitment to avoid proselytizing. It does not require entities or individuals with
whom it works to adhere or convert to a different faith or to listen to a
conversation intended to convert someone.
Other values include:

• Advocating for affordable housing.
• Promoting dignity and hope.
• Suppmiing sustainable development, built on lasting community changes.
mutual trust and shared accomplishment, and responsible use of resources.
40 © 2015 SHRM
Articulating the HR iviission, Vision, and Values

.I The process of developing mission, vision, and values statements is reiterated at
business unit and functional levels. Each unit considers its own work in light of the
organization's strategic statements and expresses its own mission, vision, and values.
At L'Oreal, for example, the HR team's mission is to "attract, identify, select,
develop, and reward the finest talents in all the group's business units and divisions."
A government unit in the U.S. (County of San Mateo, California, hr.smcgov.org/hr-
mission-statement-goals-and-values) echoes L'Oreal's commitment to effective
management of the employee life cycle and adds a desire to create a diverse
)
workforce and to "foster a healthy, safe, and productive work environment for
)
employees, their families, departments, and the public." They promote the values of:
)
• Honesty, integrity, and tmst.
)
• Teamwork.
I
• Communication.
• Focus on customers.
• Embracing change and innovation.
• Quality service.
You can find examples and templates to assist HR functions in developing their
I
strategic statements on the SHRM website, at www.shrm.org/templatestools/
samples/policies/pages/missionstatementhr.aspx.
)
Setting Goals
) The mission statement may include general goals that suggest how the organization
will focus its resources. These goals are influenced by the deeper understanding of
the organization and its surroundings and start moving the organization and its
people in the intended direction. Goals may simply be high-level targets that are
capable of being translated into specific objectives that can be evaluated. For
) example, in 20!2, during a period of economic troubles in the airline industry, the
) Qantas Group set four core goals:
• Build on domestic businesses by maintaining customer focus.
• Turn around the international business by focusing on targeting global
) gateways, growing with Asia, improving the customer experience, and ensuring
1 disciplined financial management.
• Strengthen a subsidiary's presence in the low-cost leisure travel sector.
• Expand and improve the fi·cqueni flyer program.
© 2015 SHRM 41
Strategic goals can also be transformational in nature. In Built to Last, James

Collins and Jerry Porras introduced the terms "big, hairy, audacious goals" or
BHAGs. BHAGs require a very long commitment-more than 10 years and
perhaps as long as 30. Some objectives are so bold that they require a change in the
organization's genetic makeup. Sony's commitment to making the label "Made in
Japan" synonymous with quality was a BHAG. So was President John Kennedy's
commitment to put a man on the moon (and bring him safely back) by 1970.
Strategic goals, even audacious ones, are usually turned into objectives for each of
the enterprise's value-adding activities, as shown in Figure 12.
· · ·Value-Added
Enterprise Goal · - Unit/Function Goal
Activity
Human resources Increased productivity Improve quality and efficiency of
talent supply chain.
Production Reduced cost of production Optimize global process for each
production line.
Marketing New market penetration Implement market entry in
Country X.
Sales Decreased cost of sales Increase amount of individual
sales.
Finance and Improved foreign exchange Implement currency hedging
administration management strategy.
Research and Improved return on Reduce time-to-patent.
development investment
Information Information integration across Make critical performance data
technology functions and global locations visible to management in real
time.
Figure 12: From Enterprise to Unit/Functional Goals
Since the effectiveness of the strategy will be evaluated later in the process, the
outcome of the objectives must be measurable. For example, Qantas goals
related to disciplined financial management were translated into short-term
objectives related to lowering facility and leasing costs at terminals, increasing
I the et1iciency of its fleet through new technology, and modernizing work
processes. These could be measured and reported in later communications with
stakeholders.
42 © 2015 SHRM
I
I
)
)
Aligning HR Goals and Objectives
I' )
Like the development of strategic statements, goal setting and translation into
measurable objectives must be repeated on a unit or functional level, including
) the HR functional level. The function's goals must be aligned with the
enterprise's goals. ln other words, their outcome should enable the enterprise to
fulfill its mission and accomplish its goals.
') Figure 13 shows the way in which a value driver tree can be used to ensure "line
of sight" from an organization's strategic goals through functional goals and
objectives. Value drivers are actions, processes, or results that are needed to
deliver a desired value. In this case, a software firm has decided that its strongest
) opportunity to create value lies in increasing sales of mobile applications, but it
) can do this only if it can develop the right products quickly. HR's challenge is to
find a way to support this organizational goal.
Training and Development

Objective
Facilitate development of teams

and team skills.
Recruiting Objective
Include screening and evalu-

lncrease·.effeiitllfaness ation related to experience
) of· teams throughout working in teams in all recruiting
the organization. and selection tools.
cccEnterprlse Gpal
." .-.- -- . -- '
-
HRIS Objective
Develop talent management

database.
) HRM Objective
)
Develop policies to support
l global talent management.
Figure 13: Strategic Goals and Objectives
© 2015 SHAM 43
Based on a SWOT analysis and discussions with senior management, HR's

leaders recognize that a key value driver here is effective and creative product
teams. There are numerous institutional barriers to creating the kind of teams
that can quickly translate market intelligence and technological innovations into
viable products. These barriers include weak competencies in project and team
management and technology and policies that make it difficult to identify and
bring together the best people in this global organization. To some degree, the
culture itself is a barrier. The functions and divisions have become silos, making
it difficult to leverage individual strengths. Layers of hierarchy have also made
the organization a bit slow and employees more passive in generating and
applying new ideas.
So HR sets as a functional strategic goal to increase the effectiveness of teams

throughout the organization. To achieve this goal, HR leaders aim to identify and
develop the competencies that will be needed in this new culture, recruit and hire
employees who can fit into this culture, and develop tools and policies to manage
talent across divisions.
As we will see in Section 5, these objectives can be assigned specific metrics.

This will support assessment of strategic efforts later. For example, HR's ability
to increase teamwork on product development teams can be defined in terms of
decreasing the length of time needed for certain project phases.
I
!
44 © 2015 SHRM
li STRATEGY Business and HR Strategy
!
[
I
I )
I, ) Progress Check
)
) Directions: Choose the best answer to each question.
1. An HR manager meets regularly with a local education director to discuss what the educator
is seeing in the system and its students. What does this activity illustrate?
( ) a. Business intelligence
( ) b. Building organizational allies
( ) c. Providing consultative services
( ) d. Conducting information gathering
)
2. What does environmental scanning add to strategic management?
( ) a. Improved stakeholder understanding
I
( ) b. Early warning of changes that could affect strategy
( ) c. Improved transparency and accountability
( ) d. More accurate identification of needed areas of improvement within the organization
3. What HR strategic activity might be triggered by social changes identified in an

environmental scan?
)
( ) a. Project focusing on learning more about local legislation and rule-making process
)
( ) b. Survey of employees' commuting experiences
( ) c. Establishment of employee self-service centers
)
( ) d. Evaluating ethical liabilities posed by supply chain partners
4. A labor bureau survey noted that disposable income levels were falling in certain categories
of income. Which PES TEL category includes information like this?
( ) a. Legal
( ) b. Political
( ) c. Ethical
( ) d. Economic
) 5. An organization hires only experienced, top-performing people who tend to stay with the
company for len years or more. What is this considered in a SWOT analysis?
( ) a. Strength
( ) b. Weakness
( ) c. Opportunity
d. Threat
© 2015 SHRM 45
6. A company increases recruitment and selection efforts to staff new positions. What phase of
the organizational life cycle is the company in?
( ) a. Introduction
( ) b. Growth
( ) c. Maturity
( ) d. Decline
7. A company that emphasizes training to maintain workforce flexibility and improve

productivity is in which phase of organizational development?
( ) a. Introduction
( ) b. Growth
( ) c. Maturity
( ) d. Decline
8. A firm manufactures glass used in commercial building projects. Their advantage lies in the
variety of their offerings and the technologies they use. However, other firms can take
business from them by offering similar products with different technologies. Which of
Porter's "Five Forces" does this illustrate?
( ) a. Threat of substitution
( ) b. Threat of entry
( ) c. Bargaining power of suppliers
( ) d. Bargaining power of buyers
9. How are tools like the Growth Share Matrix and the Nine-Box Matrix used in formulating
strategy?
( ) a. To gather information
( ) b. To identify external risks
( ) c. To prioritize opportunities
( ) d. To identify competitors' weaknesses
10. What is the most important information contained in an organization's mission statement?
( ) a. What the company docs
( ) b. The time frame for reaching its goals
( ) c. The specific strengths it brings to its strategy
( ) d. Its major competitors
i
'
!'
r 46 © 2015 SHRM
.t
) II. What is the best definition of a value driver?

( ) a. Value that an organization adds for competitive advantage
( ) b. Performance targets the organization has pledged to meet
( ) c. What must be done to deliver a desired value
( d. Constraints that limit strategic options
12. One of the goals for a nonprofit is to be able to direct its limited resources more quickly to
needy areas as international crises develop. Which HR objective would be well aligned with
) this goal?
( ) a. Improve the quality ofHR services to employees.
( ) b. Develop talent through rotations in geographical areas.
( ) c. Increase staff resilience.
( ) d. Identify high-potentialleaders among employees with three to five years of
experience.
I
)
I
© 2015 SHRM 47

1. d (p. 26)
2. b (p. 27)
. 3. b (p. 29)
4. d (p. 29)
5. a (p. 30)
6. b (p. 34)
7. c (p. 34)
8. a (p. 35)
9. c (p. 36)
10. a (p. 38)
,I 11. c (p. 43)
1 12. b (p. 44)
© 2015 SHRM
48
[
I
I
'!
Section 3:
Developing Strategy

• In conjunction with other leaders, developing a business strategy aligned to the
organization's goals and objectives.
• Aligning HR strategy, goals, and objectives with overall business strategy and objectives,
)
to drive business results.
• Developing strategies for employment branding and marketing communications that will
reach internal and external audiences.
\
) This section is designed to increase your knowledge of:
• Approaches for linking organizational and HR strategies.
• Competitive analysis techniques.
• Due diligence techniques.
• Organizational growth strategies, evolution stages, and success factors.
) • Quality assurance techniques.
)
Developing Strategies That Fit

During the second phase of the strategic planning process, the organization
considers where it wants to go and what it knows about itself and its
environment, and then it develops options for how to get there. The options
themselves must be analyzed to determine their potential for delivering the
desired performance, the associated risks, and their requirements. The outcome
of this phase is a strategy or set of strategies that have "fit."
Robert Grant in Contemporary Strategy Analysis defines strategic fit as the

· consistency of an organization's strategy with its external and internal
.·environments, especially with regard to the goals and values it chooses and the
resources and capabilities that can be deployed toward strategic goals. Michael
Porter would add that when strategic fit exists, an organization's activities are
consistent with the strategy, they interact with and reinforce each other, and
they are· "optimized" to reach the strategic goal. "Optimized" means that the
organization will do whatever it needs to get there.
Strategies vary greatly but are similar in one aspect. Each organization's strategy
must describe:
• How an organization can create what Michael Porter calls a strategic position,
a position in which it enjoys a competitive edge over its rivals. Robert Grant
calls this an organization's business strategy.
• Where an organization will compete in terms of markets and industries. This is
called the corporate strategy. It defines the scope of the organization.
Based on these strategic choices, functional leaders, including HR, will plan their
own strategies, generating ideas for activities that would support the organization's
strategic intent and selecting those with the right cost-benefit and risk profiles.
Business Strategy: How We Will CompetE;

Business strategy addresses the way in which the enterprise will relate to its
industry and marketplace--how it will define its particular value to its
customers.
50 © 2015 SHRM
I
I Creating Competitive Advantage
) There are two ways that an organization can create competitive advantage, and
) both involve change. The first involves change in the external environment: in
) customer demand, prices, or technology. The second involves change inside the
organization itself. If there is only stasis-in the industry or market or in the
organization-there is no opportunity. Generally, these industries become
commodity markets.
Extemal changes can create competitive advantage for organizations that can react
)
swiftly to the changes. For example, cannanufacturers who responded quickly to
)
the rising costs of gasoline and government fuel-economy requirements with
models that were more efficient or used alternative somces of energy had the
advantage of controlling that part of the car market, at least until others had time to
create their own responses to changing customer demands. Some companies did
)
not have the resources and faced declining market share or were acquired by larger
)
companies with more resources. Some were not positioned in this particular
market and knew little about appealing to less affluent, more environmentally
minded consumers.ln other industries, speed might mean the ability to alter a
product's design or manufacturing process quickly, to detect emerging consumer
interests and tastes, or to see the potential for a new technology.
Internal changes refer to an organization's ability to create change, to innovate.

The innovation may be technological, but it may also be the discovery of an unmet
customer need, an entirely new way to appeal to customers, or the creation of new
processes or business models-for example, a model that relies heavily on
integration of the supply chain parts. Changes of these sorts are often capable of
resurrecting an industry or enterprise in the decline phase of industry or
organizational evolution (as discussed in the previous chapter).
Blue ocean strategies are an extreme example of creating competitive advantage

through innovation. In these strategies, enterprises create a completely new arena,
oflen within an existing industry. The originators of the term, W. Chan Kim and
Renee Mauborgne, describe blue oceans as "the unknown market space, untainted
by competition." They have competitive advantage because there are no other
competitors- -at least, for a while. Kim and Mauborgne offer as examples the
introduction of the minivan by Chrysler, the uscr-tl'icnd!y Apple computer that
helped create the home computing market, and Cirque du Solei!, the human circus
© 2015 SHRM 51
entertainment that appealed to audiences interested in dance and theater as well as

audiences opposed to the use of animals for entertainment.
Sustaining Competitive Advantage

Success in competition breeds imitation. So how do companies sustain a
competitive advantage? Grant lists possible ways:
• Hide your success. Some companies will remain private so that they do not
have to report their performance. Others may keep their profits low enough
to deter new entrants into the market niche.
• Make it as difficult as possible for others to compete. This may be through

reacting swiftly and strongly to competitive actions, such as engaging in a
price war or litigation related to patents that will cause poorly capitalized
competitors to fail. Companies may also "eat" all the available capital by
offering terms that are difficult to match or contracting for all major
suppliers. Getting into a market first can also guarantee access to a larger
share of market, which will take some time to erode.
• Make it hard to replicate what you do. In these cases there are many
strands to the strategy, and it is difficult to discern which are most critical to
success. Is it lower prices or the merchandising approach--or logistics and
supply chain management or simply better perfom1ance?
Porter's Competitive Strategies

One of the early models of strategies built on competitive advantage was
proposed by Michael Porter in 1985. As shown in Figure 14, there are two basic
''I types of competitive advantage strategies, cost leadership and differentiation,
I
along with a third, called focus, which applies cost leadership or differentiation
principles to an industry or market segment.
>I
Figure 14: Potter's Competitive Advantage Strategies
52 © 2015 SHRM
)
Cost Leadership
Firms who pursue a strategy of cost leadership aim at capturing market share
within their industry by virtue of lowest price. There are many paths to cost
leadership. Charles Schwab built a "no frills" investment firm by using
order processing. IKEA accomplishes it through
careful product design, transferring some activities to customers, and working
closely with its suppliers.
)
) Firms commit to:

• Creating economies of scale, by which cost decreases with every increase in
J output.
) • Sharing knowledge and information so that workers acquire necessary skills
)
and critical tasks are completed more quickly.
)
• Redesigning processes to root out actions that do not produce value, create
delays and expense, or are duplicative.
• Designing products and services that can be replicated easily.
• Lowering operating costs (e.g., investing in energy efficiencies, using
cheaper labor, locating near markets to lower transportation costs).
• Adjusting capacity to demand quickly (e.g., being able to shift work to
different centers of production or idle lines of production without financial
consequences).
• Creating a supportive managers and motivated
)
workers.
)
As Wal-Mart has shown, it is possible to create and sustain competitive
advantage by committing to low cost. The company's strategic principle and
)
mission statement is "We save people money so they can live better."
Differentiation
Firms who pursue a strategy of differentiation from competition aim for being
able to charge a higher price and therefore create more valnc by offering
something different or by offering the same thing in a different way from other
competitors in their industry or market. For example, parts designed as
)
) components for several manufacturers' products do not have as much potential
) for differentiation as designer eyeglass frames, which create value tlu·ough
)
association with well-known designers. A grocery store may follow a strategy of
higherprices but offer better quality and more exotic produce, an-atTay of
© 2015 SHRM 53
prepared foods, and a pleasant shopping environment with opportunities for

tasting. Some businesses may focus on speed of delivery, ability to fabricate to
customers' specifications, "one-stop shopping" or the ability to meet all of a
customer's needs, convenient locations, or reliability.
Porter noted that to fulfill differentiation strategies, firms need to be good at

product design and performance, product and customer support, marketing,
merchandising, integration, and quality.
Focus
Focus strategies apply cost leadership or differentiation within narrow industry
segments or niches. For example, a financial services company may choose to
focus on only high-net-worth individuals. Ryanair applies an aggressive low-cost
strategy to the leisure travel segment of the airline industry. Some larger
corporations may use focus strategies for their separate business units. HSBC
(the Hongkong and Shanghai Banking Corporation) has a unit that specializes in
cross-border banking for expatriates and transnationals.
impact of Business Strategies on HR Strategy

Since functional strategies must be aligned with the organization's strategy, an
enterprise's decision to pursue cost leadership or differentiation will have a clear
effect on HR strategy. The goal ofHR's functional strategy is to execute the
business strategy. HR can influence one of the organization's primary levers for
successful implementation of strategy-employees.
Consider the effects of the following three choices.
Case 1: A multinational mining company finds that it is increasingly limited in

its ability to control its revenue production. A global recession has had
lingering effects on markets for its products. It decides that it will use its
global business structure to make sure that its products are always the first
or second choice in terms of price in all its markets. After a strategy
workshop, HR management identifies various ways in which it can help
support this cost leadership strategy:
• Develop a global talent management program to create the level of
global mindset and business integration that this plan requires.
• Use improved data analytics ability at all sites to match trending
economic data with workforce size.
• Implement a reward system to motivate the workforce while avoiding
negative effects on safety and budget guidelines.
54 © 2015 SHAM
Case 2: A chain of sporting goods stores finds that it is in decline,

unable to compete with low-cost Internet rivals and rapid shifts in
consumer interests. Leadership decides to reverse its decline by
reinventing itself, by providing experiences that competitors cannot.
Participating in these management discussions, the vice president of
HR mentions some actions HR can take to support this strategy:
• Analyze and revise management recruitment profiles to attract
candidates with more experience in innovative marketing.
• Support skills needed for cross-functional tactical teams to increase
l collaboration and innovation.
• Shift the organizational culture to encourage more employee
l
involvement in innovation.
• Support ways to make employees more adept at accepting and
making rapid change.
)
) Case 3: A municipal transportation authority is struggling with the
perception of the experience it provides users, which in turn affects its
) ridership levels and funding. Leaders decide to implement a quality
) strategy, differentiating itself from its former image but also from the
)
experience of commuting by car. Managers are directed to automate
services and improve the appearance of facilities. HR notes that the
primary interface with the authority will always be the employees, and
leaders must focus on creating a culture that will support quality. HR
will:
• Communicate to employees the rationale for this strategy and the
)
changes it will require.
) • Establish and communicate performance metrics related to quality
service and align these metrics with the current performance system
and workforce contracts.
)
• Develop a way to audit quality performance and provide corrective
) coaching.
• Review the entire employee life cycle to find ways to refocus
employees on the primary goal of providing service.
l Corporate Strategy: Where We Will Compete

) According to Robert Grant, corporate strategy "defines the scope ofthe finn in
) tenns ofthe industries and markets in which it competes." The decisions here
) often center on growth and integration, although sometimes the strategy will
) involve shrinking and shedding pmts to refocus on a core business .
.. ) There are different ways to answer the question of where an organization will
l compete. One enterprise may find that the best way to compete is to expand
. .l horizontally in its own industry. This may be done by acquiring competitors or
J similar businesses in new regions. It may involve global expansion and
© 2015 SHRM 55
)
becoming a global enterprise, as discussed in the "HR in the Global Context"

Functional Area in the Workplace module. Another company may redefine its
scope through vertical integration-by acquiring enterprises related to its
present core activities. Some corporations will diversify into entirely different
industries.
Growth Strategy Options

The choice of a growth strategy will be made after thorough analysis of the
comparative returns on investment, the risks involved, and the ability to satisfy
strategic goals.
Figure 15 describes some of the ways in which organizations may grow.
Growth Strategy Description

Strategic alliances Companies agree to share assets, such as technology or
sales capabilities, to accomplish a goal. The relationship
may have varying degrees of tightness and formality.
Some alliances involve customers, partners, and
competitors.
Joint venture Two or more companies invest together in forming a new
company that is jointly owned.
Equity partnership One firm acquires partial ownership through purchase of
shares. The relationship may be general (sharing
proportionally in control, profits, and liabilities) or limited
(no managerial authority, liability limited to investment).
Partnership agreements define such issues as leadership
and division of profits and losses.
Mergers and acquisition A firm purchases the assets of a local firm outright,
resulting in expanding the global company's employee
base and facilities. Integration of acquired companies
often involves significant cultural, systems, and
management challenges. Data privacy can be a big issue.
Franchising A trademark, product, or service is licensed for an initial
fee and ongoing royalties. Often used in the fast-food
industry. Similar to licensing as a low-risk global entry
strategy, although control over franchisee behavior is
greater.
Licensing A local firm is granted the rights to produce or sell a
product. A low-risk entry strategy; avoids tariffs and quotas
imposed on exports. However, there is little control of the
licensee's activities and results.
Figure 15: Growth Strategies (continued on next page)
56 © 2015 SHRM
I ) Growth Strategy Description

Contract manufacturing A global firm arranges for a local manufacturer to produce
components or products as a means of lowering labor
costs.
Management contract Another company is brought in to manage and run the
daily operations of the local business. Decisions about
)
financing and ownership reside with the host-country
owners.
Turnkey operation An existing facility and its operations are acquired and run
by the purchaser without major changes.
\ Greenfield operation A company builds a new location from the ground up. This
'
represents a major task and a commitment to completely
staff and equip the new location.
J
Brownfield operation A company repurposes, through expansion or
) redevelopment, an abandoned, closed, or underutilized
) industrial or commercial property.
)
Figure 15: Growth Strategies (concluded)
)
) HR will be involved to varying degrees in developing and implementing the

) chosen strategy. The implications of some of these growth strategies are
discussed in the "Talent Acquisition and Retention" Functional Area in the
People module.
Each strategy requires different levels of investment and offers different levels of
control and return. Building an operation from the ground up (a greenfield
) operation) or acquiring a firm outright will require more intensive investment
) than contract manufacturing or a strategic alliance, for example, but the potential
) losses and profits belong to the organization alone.
)
) The level ofHR's involvement in these strategies will vary. The involvement in
mergers and acquisition is very extensive and is discussed separately later in this
) section. A greenfield operation will involve risk analysis, staffing, working with
) local authorities, and implementing HR policies and procedures in the new
operations. If the new operation is in a different country, the policies and
procedures may have to be adjusted to meet local laws, business practices, and
local culture. Even in strategies that require little integration with the
) organization, such as franchising or contract manufacturing, HR may be
involved in the organization's ethical obligations to audit workplace practices.
© 2015 SHAM 57
.. In The Global Challenge, Paul Evans, Vladimir Pucik, and Ingmar Bjorkman
note that HR plays an important role in strategic alliances and joint ventures:
• Evaluating partners' HRM capabilities and cultural fit. HR can assess

whether a partner's HR function can contribute to the alliance's or
venture's strategic goals. For example, does the partner have the capability
to. recruit and trainnecessary staff? Can the partners agree on key HR .
issues, suchas performance evaluation and rewards? Will differences in

· organizational culture interfere with communication and performance
· management? In some instances, those in which one partner hopes to learn
__ , ____ _
fro!llt)l(lother, a lack of cultural fit may notbe a problem.
• Negotiating the relationship. HR may help select and train the

-negotiation.teairt and contribute its own facilitation skills. It must also
address HR-relajed issues, such as transfer of competencies, and ensure
. jhafthe partner is developing the appropriate staff and workforce.
Negotiating the relationship may be particularly challenging in a joint
. wheriissues Ofoperational control, board membership, and senior
-· .cc;L;; c - -- -- - - - - --- - --- --·------
must be decided. ·
- - -
---·--oo·:_,,,_-c--:;:;,.-.. ,o.;_ ___ ,;,
I
I
• Implementing alliances/joint ventures.This may involve contributing to
compensation/reward plans and development programs and developing
rtlutllallyagreed staffing plans. Staff may come from each of the partners,
and, to.avoiU conflict, they must bring similar levels of competence to the
·.alliance/joint venture. Will transferred staff be dedicated or on temporary
- assignment? Partners must agree how to manage each other's employees.
II · Trustmust be developed. HR may also help integrate cultures and enable
.communication and collaboration between the partners.
. .
• froiiiotiug Since transfer of knowledge maybe a key goal in the

· •alliance, HR can help ensure that opportunities for learning ani built into
. ;the arrangement and implement programs designed to l>tirnulate learning.
GiVen the potential benefits, HR may Jlropose to senior management that it be

involved at an early stage in planning these strategies and be included in
·- · management teams.
58 © 2015 SHRM
1: ;
.I l
Managing Growth Options
I l
. ) Since growth requires a higher level of investment and risk, organizations may
develop a portfolio of strategies that are staged over time. This allows
) organizations to do the preliminary developmental work that may be needed for
) more uncertain, high-value strategies (e.g., extensive due diligence, prototyping)
) and to respond to changes in risks and opportunities. In The Alchemy ofGrowth,
Mehrdad Baghai, Stephen Coley, and David White describe this approach, the
) three horizons of growth, which allows firms to manage both present
) opportunities and future value. Their approach is illustrated in Figure 16.
)
) _,.....-
)
)
Value
--·
)
)
<'"
) /
)
Time
)
Figure 16: Horizons of Growth
With multiple horizons, the organization can overlap its strategic initiatives,
)
which each have their own arc of increasing and then flattening return. The
)
success of the previous initiative provides resources for the next. The maximum
)
value is achieved, however, only if all the strategies are continually managed.
)
The first and second horizons offer lower levels of uncertainty. The first strategic
)
horizon may focus on using existing core competencies to increase revenue and
)
competitive advantage. The second strategic horizon focuses on finding ways to
)
apply the organization's existing strengths and advantages to emerging
)
opportunities that may become core businesses in the future. The organization
)
may expand to new but related markets. It may choose to build its market
)
presence or vertically integrate.
)
© 2015 SHRM 59
Opportunities in the third horizon take time to develop. These strategies could
include development of new technology or diversification into a new industry.
Performance during this horizon is carefully assessed. If milestones arc not met,
strategies may be cancelled or substantially redesigned.
Mergers and. Acquisitions

In International Human Resource Management: Policy and Practice for
Multinational Enterprises, Dennis Briscoe, Randall Schuler, and Ibraiz Tarique
describe five common rationales for merger and acquisition (M&A) strategies:
• Remove excess capacity from an industry (usually a mature or declining
industty) that can hurt profit potential.
• Make an initial move into global markets by expanding into another region.
• Quickly create a new market for one's own products and immediate revenue
growth.
• Acquire skills or technology in less time and/or with less money than it
would take to develop them in-house.
• Form a more competitive enterprise through synergy, achieving economies
of scale or market advantages.
Despite the promise in M&As, there is also a significant risk offailure. About a
third of all M&As fail within three years. Evans, Pucik, and Bjorkman cite
various reasons in The Global Challenge why mergers and acquisitions fail:
• A difference in vision among leaders that makes integration difficult.
• Attrition of talent and capabilities. This includes loss of relationships with
stakeholders, such as customers, suppliers, regulatory agencies, and
communities.
• Lack of clarity around systems and processes.
• High transition and coordination costs that sap the profit anticipated from the
merger or acquisition.
• Lack of cultural fit-not so much the differences between cultures as the
inability to integrate them.
A survey of senior managers conducted by Ernst & Young over the past decade
has uncovered additional concerns, including corporate compliance with legal
and regulatory requirements, managing external economic risks associated with
global political instability, and making sure that the strategy achieves its prot1t
60 © 2015 SHRM
II STRATEGY Business and HR Strategy
)
ll ) objectives through effective integration of merged processes and resources. By
far, the most effective tool for managing risk in executing a merger or
) acquisition is integration planning.
)
Figure 17 lists some of the potential benefits and risks of the M&A strategy for
global expansion.
Potential Benefits Potential Risks

) Acquire local company's familiarity Meet administrative (political, legal, and
) with local market forces and regulatory) resistance to M&A.
competitors. Incur liabilities of other company (examples
)
Acquire known brands and market include acquired rights of workforce, lawsuits).
) share. Incur loss of shareholder value.
) Gain access to new market of Lose talent and productivity during prolonged
consumers or customers. integration period (integration of strategies,
) Gain additional resources, management, workforce, processes, and
institutional knowledge, and skills. technology).
Figure 17: Potential Benefits and Risks of M&As

)
)
Enterprises that expand successfully through M&A follow a similar process:
)
• Preparation. Beyond securing financing and readying one's own financial

records, a company should have a clear sense ofthe strategic purpose of a
)
merger or acquisition, the desired characteristics in the acquired company
)
(examples include strategic fit, quality of personnel and technology, and
)
performance parameters), and a preliminary operating model for the merged
J
businesses.
)
)
• Identifying appropriate candidates for merger/acquisition. Physical,
cultural, and sociopolitical distances may be significant factors in choosing
candidates, since these differences will affect the length of time and the
)
resources required to achieve integration after the merger. In some cases, the
cultural distance might be so great that it might be more advisable to operate
the new company as an independent entity.
• Preliminary meetings. Initial expectations are defined and a letter of intent

is created.
© 2015 SHRM 61
)
• Due diligence. Due diligence can be defined as a necessary level of care and
attention that is taken to investigate an action before it is taken. In an M&A,
this could include financial audits to verify value, confirmation of claims,
and identification of possible liabilities and challenges. This stage is time-
consuming but critical. Usually, an M&A team representing different
functions, including HR, is created. The information assembled (through
close review of the company's records, public information, and industry
lmowledge) forms the basis for the final agreement. HR will perform due
diligence from its own perspective, as described below.
• Communicating with and preparing both groups. The speed of integration

will depend on how well the management and employees of both groups are
informed and prepared. (Examples of communication and preparation could
include global and department meetings, merger-specific websites or web
pages, creation of new organizational identities and processes, and training.)
• Implementing the integration. Briscoe, Schuler, and Tariquc describe the

choices for integration after an M&A as:
• Portfolio, or maintaining the entities' cultures as separate.
Assimilation, or assigning dominance to one entity's culture and assuming
the assimilation of the other entity's "non-legitimate" culture.
• Blending, selecting the best elements of each culture and using it to create a
better hybrid.
• An entirely new culture for a new organization.
• Evaluating the process. The M&A should be considered a strategic business

activity that must be evaluated so the organization can learn from the process.
Evans, Pucik, and Bjorkman note that the enterprises that are most effective at
M&A strategies learn from their experiences and develop M&A processes that
allow integration to proceed quickly and surely.
l
I j HR's Role in the M&A Strategy
.;
HR's performance of due diligence is critical to strategy development because it
'I may uncover significant obstacles that wi II affect agreements or implementation
l
;l' plans. The investigation should usc multiple sources and local contacts and
'j experts.
I
i'-
:t
..
•
62 © 2015 SHRM
.t
'!
I'
H Figure 18 lists typical factors HR should include in its due diligence
investigation. Many of these topics are the same as HR might use in an annual
) survey of its workforce status.
) HR Due Diligence Topics for M&A Strategies
Management Work environment

) • Talent of current managers at top and • Employee attitudes
) middle levels • Employee engagement
) • Anticipated level of post-M&A motivation • Type of worker representation and
of managers participation
• Likelihood of retaining top management • Rates of absenteeism and disability
J • Management pay structure • Safety records
) • Ability to recruit top managers • Complaints filed with regulatory agencies
)
Management style Community labor environment
• Centralized vs. decentralized? • Union climate
) • Paternalistic? Authoritarian? • Availability of necessary skills
Collaborative?
)
• Distance of management style from that Current HR function
)
of own company • In-house or outsourced?
) • Probability that managers will be able to • Future plan
) adapt to new style
HR policies and procedures
) Culture • Written or unwritten policies and procedures
) • Alignment of stated values with leaders' • Compatibility with own policies and
actions procedures
)
• How things happen everyday • Other required policies (such as diversity in
'
J
• Decision making (e.g., amount of hiring)
l autonomy, levels of approval required)
) • "Silo" internal structure Effect of future business strategy
) • Perception of internal and external • HR activities needed to support business
customers strategy (examples include hiring and closing
• Learning and development philosophy of operations)
(e.g., who receives training, how
learning is perceived and delivered, how Hidden costs of acquisition
)
much money is spent on it) • Special contract terms with management
• Age and diversity of workers • Benefit plans and transferability to new
employees
) General employee information • Pension plan status (adequacy of funding,
distribution, retention of unvested percentage)
) • Types of employees (full-time, part-time)
• Separation and incentive pay plans
• Local customs of employment
) • Compensation packages
• Retention plans, if applicable
• Pending lawsuits and judgments
Figure 18: HR Due Diligence Topics for M&A Strategies
)
) © 2015 SHAM 63
Throughout the M&A process, the job ofHR is to maintain focus on the
"people" dimension while it conducts HR due diligence, plans the M&A HR
integration strategy, implements, and monitors and evaluates.
Planning the HR integration strategy. Since one of the characteristics of a

successful integration is the speed with which it is accomplished, HR should
l
develop a post-M&A strategy for integrating HR staff and processes as soon
as the strategic goals for the M&A and the information from the due diligence
are available. In digesting the results of the due diligence, HR can begin to
l map and compare the two organizations' structures and processes and decide
how to manage differences. Key talent can be identified and plans laid for
retaining it.
The HR integration plan should include:

• Designating integration leaders.
• Securing management support and resources.
• Developing integration and communication plans, setting measurable
objectives for integration, and establishing a realistic time line.
Implementing. Since post-M&A integration generally means streamlining the

workforce and reconciling multiple compensation systems, HR focuses on:
• Communicating honestly and quickly, before incorrect rumors spread and
take hold.
• Making required changes quickly-where this is possible. Part of the due
diligence process is identifying restrictions on implementation, such as laws
affecting acquired rights (existing obligations of merged or acquired entities),
workforce terminations, and job reassignments.
• Suppmiing efforts to blend or revise work processes-perhaps by using cross-
cultural task forces.
• Providing training in new jobs and processes.
HR also ensures that stakeholders-such as vendors or supply chain patiners and

affected communities-arc included in both planning and implementation.
64 © 2015 SHRM
li STRATEGY Business and HR Strategy
I!
II ) Monitoring and evaluating. In the period after the merger, HR monitors for
) signs of problems and responds appropriately. It implements various initiatives,
') such as communicating mission and values, to build cohesion. It begins the
process of analyzing its strategy and evaluating its success, with an eye toward
identifying best practices for future M&As.
A bank has embarked on a growth strategy that focuses on acquiring existing

,)
banks in emerging economies. Once a country has been identified, a special
team arrives to conduct due diligence into targets for acquisition. The arrival
) of the team and the subsequent acquisition talks make the bank highly visible.
) Communi- The director of global HR recognizes this situation as an opportunity to
cation communicate the bank's mission and culture to current employees in the
) Competency
country-and through them to prospective employees and to their
) in Action
communities. She focuses on using communication about the bank's early
) retirement program as a way to convey the bank's "people, process, profits"
identity. Rather than simply using the existing corporate description of the
)
program, she works with local experts to present the program in a culturally
sensitive and engaging manner. This action shows awareness of the cultural
)
issues that can affect M&A strategies, courage in crafting a new solution,
) understanding of the needs of a message's audience, and appreciation of
) communication's ability to shape perception of an organization's identity.
)
Divestiture Strategies
)
Growth strategies are often fueled by the selective "ptuning" of parts of the
)
organization that are underperforming or that are no longer in line with the
)
organization's strategy.
)
) The divestiture strategy offers a number of benefits to the parent company:
• Increase the perceived value of a subsidiary or increase its opportunities.
Sometimes the parent company may not have the necessary talent to take the
) "child company" to its next level of growth.
) • Recoup investment through the sale of a high-value subsidiary and use cash to
increase the parent's value in other ways.
• Refocus the enterprise's activities on new priorities, perhaps as the result of
competitive threats and/or opportunities.
) • Manage risk that might derive from financial positions (such as poor cash
) flows or high debt load) or strategic outlooks (such as declining market
) growth or the possibility of a hostile takeover).
© 2015SHRM 65
One of the major challenges in divestiture is making sure that the organization
retains key talent during and after the process. HR supports employee retention
by developing and implementing communication plans for different groups of
employees, both those retained and those going to the buyer. The best time to
communicate with employees identified for separation is usually as soon as those
employees are identified. The objective then is to retain and engage these
employees to preserve the value of the deal. Respondents in an Ernst & Young
survey indicated that the most effective retention tactics were:
• Providing enhanced severance protection if employees are laid off soon after
the deal close.
• Making managers accountable for employee retention.
• Benchmarking compensation and benefits.
The general steps for divestiture include:
• Identify the candidate for divestiture. The candidate might be a valuable

but strategically unaligned business, or il might be a subsidiary competing in
a market with low growth potential or competing ineffectively in the market.
HR plays a role in this stage by performing due diligence as a seller:
identifying potential risks connected with divesting particular candidates-for
example, loss of talent, impact on employee career development opportunities
or on labor contracts. HR can also participate in a SWOT analysis of the
candidate.
• Identify a target buyer. The strongest candidate will be an enterprise that

needs the strengths and oppmiunities the divested subsidiary can provide and
that can address potential weaknesses in the workforce. Some parent
companies want to be sure that employees will thrive in the new company.
HR can provide accurate information about the value of the workforce and
can work on behalf of the employees to obtain favorable compensation and
development opportunities.
• Restructure. Even before an actual sale or spin-off; the parent company

should prepare the subsidiary for its new identity by deiining new leadership,
II I
board composition, and organizational structure. This will increase the value
and potential of the carved-out or spun-off subsidiary. Again, HR plays an
i.i
I .. __ jmportant_role here. It may help identify and prepare strong leaders tor the
l
66 © 2015 SHRM
,.. . )
III I STRATEGY Business and HR Strategy
ll )
!l subsidiary (without hanning the talent of the parent company). Leaders may
jl be drawn from other parts of a global organization. HR will also be involved
I I in designing incentive offers for the subsidiary's new leaders.
1 )
) • Execute the deal. Transition service agreements are often established to

support the new entity. Agreements might cover financial (treasury and tax),
legal, IT, business processes, and HR-including such capabilities as HRIS,
payroll, and benefits. HR can assemble a balanced transition team, composed
of parent and subsidiary employees, to empower departing employees without
ceding control over sensitive decisions.
I )
Throughout this process HR can help capture what the organization has learned
from its decisions and actions, analyze the experiences, and communicate useful
) lessons for future divestiture activities.
.) Communicating Strategy
Once a strategic direction has been established, the organization's leadership
must communicate the strategy to the rest of the organization. Functional leaders
must develop their own strategies in support of the organization's goals, and
employees' engagement will benefit from understanding how the organization
intends to control and shape its future (and theirs) and what their role will be. As
we stated earlier, the strategic planning process is often criticized for not
following through in this area of communication to the rest of the organization.
)
)
There are different ways to communicate strategy. One is a very rational and
rhetorical approach: The audience is presented with a problem, a possible
)
solution, and the reasons why this is a good solution and worthy of support.
Another approach is to use organizational storytelling, a narrative technique used
by leaders to help listeners understand and interpret organizational life in a way
'
.I
that touches them emotionally, motivates them, and changes their behavior.
I
Why does storytelling work? It works in part.because stories invoke the senses
)
and associations. They describe people and places that the listener may know;
they describe actions that listeners can visualize and hear and supply with
familiar sensory backgrounds. They employ well-understood forms, the forms
that humans have used tor millennia to describe n protagonist's struggle lu meet
some challenge. They can make a poorly understood and-possibly f1ightening
I
)
© 2015 SHAM 67
)
)
future a bit more recognizable by connecting it to the past. In an article in People

and Strategy, David Rock also notes that stories can create empathy and help
overcome resistance to the speaker, a particularly useful feature when an
unfamiliar leader is trying to sell commitment to an idea that may require
sacrifice from the listeners. Despite the differences between leaders and their
audiences, good stories speak to common experiences or feelings. The result is
that stories can reach the mind, the imagination, and the heart at the same time.
When it comes time to communicate the strategy, leaders should look into their
organizations for stories-stories about the organization's heroes or critical
i moments in the organization's history-that relate to the vision, mission, values,
! and narrative that the strategy embodies.
I
I
I
I
I
1
:I
68 © 2015 SHAM
r· '
)
ll .
'
I )
h
!I subsidiary (without harming the talent of the parent company). Leaders may
I u )1 be drawn from other parts of a global organization. HR will also be involved
! )
•
in designing incentive offers for the subsidiary's new leaders.
Execute the deal. Transition service agreements are often established to

j support the new entity. Agreements might cover financial (treasury and tax),
legal, IT, business processes, and HR-including such capabilities as HRIS,
payroll, and benefits. HR can assemble a balanced transition team, composed
) of parent and subsidiary employees, to empower departing employees without
) ceding control over sensitive decisions.
)
Throughout this process HR can help capture what the organization has learned
from its decisions and actions, analyze the experiences, and communicate useful
lessons for future divestiture activities.
j
Communicating Strategy
)
Once a strategic direction has been established, the organization's leadership
must communicate the strategy to the rest of the organization. Functional leaders
must develop their own strategies in support of the organization's goals, and
employees' engagement will benefit from understanding how the organization
intends to control and shape its future (and theirs) and what their role will be. As
)
we stated earlier, the strategic planning process is often criticized for not
)
following through in this area of communication to the rest of the organization.
)
There are different ways to communicate strategy. One is a very rational and
rhetorical approach: The audience is presented with a problem, a possible
solution, and the reasons why this is a good solution and worthy of support.
Another approach is to use organizational storytelling, a narrative technique used
by leaders to help listeners understand and interpret organizational 1ife in a way
that touches them emotionally, motivates them, and changes their behavior.
Why does storytelling work? It works in pati .because stories invoke the senses
and associations. They describe people and places that the listener may know;
they describe actions that listeners can visualize and hear and supply with
familiar sensory backgrounds. They employ well-understood forms, the forms
that humans have used for mi!iennia to describe a protagonist's struggle to meet
some challenge. They can make a poorly understood and possibly frightening
© 2015 SHAM 67
)
)
)
future a bit more recognizable by connecting it to the past. In an article in People
and Strategy, David Rock also notes that stories can create empathy and help )
overcome resistance to the speaker, a particularly useful feature when an )
unfamiliar leader is trying to sell commitment to an idea that may require )
sacrifice from the listeners. Despite the differences between leaders and their J
audiences, good stories speak to common experiences or feelings. The result is )
that stories can reach the mind, the imagination, and the heart at the same time. )
When it comes time to communicate the strategy, leaders should look into their
organizations for stories-stories about the organization's heroes or critical
moments in the organization's history-that relate to the vision, mission, values,
and narrative that the strategy embodies. )
)
)
·I
l
!
t
1
:l
68 © 2015SHRM
')
I
II
I)
Progress Check
Directions: Choose the best answer to each question.
I. How is "strategic fit" best defined?

( ) a. Alignment of an organization's strategy with the competitive forces in its
industry
( ) b. Consistency of an organization's strategy with its intemal and external
environments
I ) ( ) c. Alignment of the organization's strategy with the goals of all of its
J stakeholders
( ) d. Motivation of all employees to work with optimal effort toward the
) organization's strategic goals
2. How can competitive advantage be created?

( ) a. Primarily from exploiting external changes
J ( ) b. Through agility and innovation
( ) c. By finding an industry in which there is little change
( ) d. Competitive advantage cannot be created; it simply happens.
) 3. What is the distinctive characteristic of a blue ocean strategy?

! ( ) a. Absence of competitors
( ) b. Industries in which it may apply
( ) c. Length of competitive advantage conveyed
( ) d. Degree of dominance over competitors
4. What characterizes the competitive strategy of an organization committed to differentiation?

( ) a. Controlling costs, retaining key people, determining compensation strategy, and
cross-training employees
( ) b. Exploiting all economies of scale and focusing on low-cost production to the
exclusion of everything else
) ( ) c. Positioning unique product characteristics that customers will value and pay a
premium price for
( ) d. Formalizing policies, procedures, and rules and communicating them to all
employees
© 2015 SHAM 69
)
5. What HR strategic actions does a tlrm commit to when it pursues a cost leadership strategy?
( ) a. Flexible workforce management
( ) b. Creation of an innovative talent pool
( ) c. Acquisition of change management skills
( ) d. Creation of a quality-oriented organizational culture
6. What is the major distinction between a strategic alliance and a merger or acquisition?
( ) a. Ownership of assets is not formally transferred in a strategic alliance.
( ) b. The level of investment by each partner differs.
( ) c. Mergers usually involve competitors; alliances do not.
( ) d. An acquisition involves greater investment than an alliance.
7. What role does HR play in a strategic alliance?

( ) a. Making necessary changes in the organization's culture in response to the other
organization
( ) b. Identifying differences in HRM that affect staffing and development
( ) c. Performing financial risk assessment of project
( ) d. No role, because there is no integration of HRM
8. What is the goal of due diligence during a merger or acquisition?

( ) a. To verify the known and uncover the unknown
( ) b. To establish financial value
( ) c. To agree on an approach to integration of resources and obligations
( ) d. To redefine legal obligations, such as labor contracts
9. What due diligence task does HR perform during a merger or acquisition?

( ) a. Crafting a new strategy for the merged HR functions
( ) b. Selection of the negotiation team
( ) c. Development of new policies for the merged entity
( ) d. Assessing the work environment in the other organization
10. Why is maintaining internal communication critical during a divestiture?

( ) a. To protect intellectual property
( ) b. To retain high-potential talent on both sides ofthe deal
( ) c. To prevent damage to the organization's image with external stakeholders
( ) d. To avoid litigation with employees sent to the new owner
70 © 2015 SHRM

I. b (p. 50)
2. b (p. 51)
3. a(p.SI)
4. c (p. 53)
5. a (p. 53)
6. a (p. 57)
7. b (p. 58)
I '- )
8. a (p. 62)
) 9. d (p. 63)
\ ) 10. b (p. 66)
' )
)
)
' )
\ )
)
© 2015 SHRM
71
Section 4:
Implementing Strategy

• Creating an action plan for managing talent within the confines of the labor market.
• Developing and evaluating business cases proposed for HR and other functional projects
and initiatives.
• Developing and implementing an action plan for capturing, developing, and managing the
talent needed to execute the business strategy, including the effective management of a
global workforce.

• Change management techniques
• Project management methods
impiementation of
\
During the implementation phase of strategy, strategic intent is translated into
specific plans of action, usually at the functional and cross-functional levels. These
)
actions may require significant change-for example, changes in the organization's
)
structure, the way it makes decisions and communicates information, the criteria it
uses to choose action and the priorities within those criteria, and the values and
behaviors it rewards. These action plans take the form of strategic initiatives, which
may be funded separately from normal operations. The success of the strategy rests
on investing in the right initiatives, in managing them effectively, and in persuading
the organization to accept and participate in change.
)
'I
' What Organizations Need for Effective Implementation
) In a 2008 Harvard Business Review article, Gary Neilson, Karla Martin, and
) Elizabeth Powers noted that "execution is the result of thousands of decisions
) made every day by employees acting according to the information they have and
) their self-interest." Based on a global survey of over a thousand organizations of
different types, the authors list five elements needed for effective implementation
) of strategy:
) • A clear sense of actions individuals must take and the decisions they are
empowered to make. A strategy may require reorganization to support this.
• Rapid sharing of competitive information from the field with leadership.
j Changes in the external environment may require adjustments to strategy.
J • Leadership support of decisions made by subordinates, rather than second
I guessing.
) • Free flow of information across organizational boundaries, which can support
collaboration.
• Sufficient information about the strategy and its implications so that field
)
managers and employees can connect str11tegic goals with daily decisions.
)
I As strategy is translated to the functional level, it is the responsibility of functional
)
strategic teams to choose strategically relevant objectives. The authors of The Four
)
Disciplines of Execution recommend selecting these objectives carefully, focusing
)
on only one or two "wildly important goals," or WIGs, that relate directly to the
)
organization's own WIGs. The teams must then focus intensely on these WIGs,
)
carefully measuring the effects of functional activities on these goals, coordinating
) activities, and collaborating on solving problems. The authors encourage
© 2015 SHAM 73
employees and managers to identify both leading and lagging measures for their
WIGs in order to execute the strategic plan more successfully. Leading and
lagging indicators of performance are discussed in the next section.
Allocating Resources
Strategy is embedded in organizations' budgets. The most effective budgeting
process moves top-down and bottom-up, meeting somewhere in the middle. This
approach works because it allows leaders to define what they need to meet their
goals and functions to define what performance they can reasonably produce and
at what costs. The result is usually negotiated and provides pragmatic but
ambitious objectives and strategically aligned allocation of resources.
Since resources are finite, functions may be tempted to compete with each other,
although the more productive approach is collaborative. In a collaborative
approach, functions recognize and plan for the interdependence of their activities.
It will do a sales function little good to add a new sales force if HR does not have
the resources to recruit, hire, train, and maintain these new employees.
During implementation, HR leaders will be asked to provide rationales for the

strategic initiatives they have decided to include in their budgets. These rationales
are called business cases.
Making a Business Case

A business case is a presentation to management that establishes that a specific
problem exists and argues that the proposed solution is the best way to solve the
problem in terms of time, cost efficiency, and probability of success. The form
and level of formality ofthe business case will vary by organization. Some are
written proposals with supporting financial analyses, while others may be slide-
supported oral presentations.
Whether they are written or oral, business cases generally have the same
components. These components are described below and illnstrated with a
I
description of a possible HR business case.
• Statement of need. This is the condition or change impelling the function's

;!
action.
74 © 2015 SHRM
)
I ) STRATEGY Business and HR Strategy
I
rl Example: HR is aware that the organization's strategy includes growing its
!I \ South American businesses. Until now, these businesses have operated
independently from headquarters and from each other. The lack of common
policies and processes for compensation and rewards and talent
management and the lack of a shared organizational culture would inhibit
this plan.
)
iJ
• Recommended solution. The objectives for an ideal solution arc defined (the
desirable outcomes of such an initiative), and the proposed action is described
in sufficient detail to show how it meets these objectives. In some cases,
)
alternatives may be described as well, and the reasons why they are not being
recommended may be discussed.
! Example: HR proposes conducting a customized salary and benefits

survey for the targeted growth areas and the current countries in the
portfolio and building a policy and practice "culture" for the existing
individually run countries that would make acquiring a partner or growing
organically more feasible.
)
) • Risks and opportunities. Risks should include outcomes that could decrease
the project's chance for success, outcomes that could present new opportunities
) that would require action, and the risks of doing nothing at all.
)
Example: HR foresees the difficulty of obtaining this information in some
businesses with poor data records but has included extra time and
resources in its reserves for this. There is a currently unresolved legal issue
) about obtaining access to data in one country. The opportunity is that this
information can come at an opportune time for the company's acquisition
)
strategy and make integration much smoother.
)
i
I • Estimated costs and time frame. The project budget should include all
I )
foreseeable elements (labor, equipment, fees, travel, and so on) plus a reserve
i '
for the unforeseeable based on the project's risk. The time frame should keep in
mind the project requirements but also the organization's needs. Longer or more
complex projects may be structured in phases. with gates or review milestones
at which management can decide whether to proceed or not.
Example: HR provides a cost estimate but also estimates this amount in

) terms of the benefits this information could provide in the event of an
acquisition or merger.
)
)
Once approved and implemented, projects should be revisited periodically to make
) sure that the business case is still sound-that no risks have emerged to change the
)
© 2015 SHRM 75
cost-benefit or risk profile, that no changes in the external environment have

eliminated the need for the action or changed the characteristics of an effective
solution.
Managing Initiatives
Specific HR initiatives may be managed as finite projects distinct from normal
operations. These projects should have defined outputs or results, so that at the end
of the project the organization's leaders can be satisfied that they have received what
they were promised and that the organization's resources were efficiently spent.
The discipline of project management has been well developed and documented.
The Project Management Institute (PMI) and the International Project Management
Association (IPMA) offer certification for professionals, and training in project
management skills is available from many sources. Covering those extensive skills
in this Functional Area is impossible, but we can discuss enough of the principles
and tools of project management so that you can go off and learn more on your own.
A simple browser search of the web will reveal many blogs dedicated to project
management. The sites for the PMI (www.pmi.org) and the IPMA (ipma.chi
resources/) can provide references and descriptions of their bodies of knowledge.
Project Management Principles and Practices

Project requirements will differ, even in the same industries, but the discipline of
project management is consistent. Its major principles emphasize:
• Coordination and integration. A project must have a designated leader

with clearly defined authority to make decisions, allocate resources, and lead
''
I
team members. Team roles and responsibilities must be clearly defined. The
project manager and the team must recognize and plan for the
interdependence of their activities. When changes are proposed, their effect
on other parts of the project and the project's ultimate goal must be analyzed
before they arc accepted.
• Importance of stakeholders. Stakeholders are individuals inside or outside

the organization who may be affected by the project's results. They can
provide information that can improve the outcome and the acceptance of the
project's results by the organization. For example, an HR team designing a
76 © 2015 SHRM
I recruiting process using social media should consult with the functions that
HR is serving. Their input can guide development of the system and increase
their later acceptance of its use.
) • Planning. Early planning can reduce the cost and time required for projects by
increasing the team's understanding of what must be accomplished (the
project's result or deliverables) and by applying the entire team's experience
and perspectives to problem solving and idea generation. Planning also
includes preparing for risk management, which includes identifying all likely
) risks (both threats and opportunities), analyzing them, and deciding how they
) will be monitored and managed throughout the project. (Principles of risk
J management are discussed in more detail in the "Risk Management"
Functional Area in the Workplace module.) The outcomes of planning include
) agreement about the project's deliverable, development approaches, the time
frame in which it will be developed, and the cost of development. The team
) also plans for how the deliverable will be implemented in the organization
) upon completion of the project. This may involve additional effort in
I communicating with project stakeholders and preparing those affected for any
) changes caused by the project. The processes for managing progress toward
) the project goals are also defined. For example, the project team can decide
how they will communicate and resolve disagreements.
)
)
• Control and quality assurance. Project management processes include
) gathering data at defined intervals to determine if the organization's quality
j
requirements are being satisfied, the project's processes are being performed as
defined, and the project is on track to deliver whal has been promised.
Organizations are increasingly committing to quality as one of their key
values. Disciplines such as Six Sigma have been developed to help
organizations implement quality practices in all their functions. These practices
emphasize measurement and reporting, and they may be required for all
projects.
• Communication. Project managers encourage thorough communication,

making sure that team members have the direction they need from above and
the freedom to communicate with each other to identify and resolve issues
quickly. Project managers also repmt regularly to their stakeholders, especially
the organization's leadership .
.I
© 2015 SHAM 77
)
Project
- Management Tools
-
There are a multitude of project management tools that have been developed over
time. Some of them should be very familiar to HR professionals: brainstorming,
surveys and questionnaires, audits. Here are just a few of the more well-known
tools associated with specific project activities:
• Project tasks. The tool of decomposition is used to break down the final
deliverable into its most basic tasks. In project management terminology, this
is the work breakdown structure. Knowing what has to be done is critical to
I
developing a work schedule. Responsibility matrixes may be used to describe
the different roles team members may play in different tasks: decision maker,
I person responsible for completing, people who should be kept informed,
l'
people who should be consulted for advice, and so on.
• Project timeline. The most efficient development schedule is often discovered

by using a technique called the critical path method. The critical path
describes the shortest amount of time required to complete a project, taking
into account all project task relationships-for example, whether task C must
be completed before Task E and whether Tasks A and B can be completed at
the same time. The critical path method may be combined with PERT
(program evaluation and review technique) processes to create a project
schedule. Project schedules can be displayed in different ways. For
management, a milestone chart may be sufficient. The team itself may use a
Gantt chart, which shows all the start and end dates of all the project tasks
against a fixed calendar.
• Project control and quality. Variance analysis is used to study the differences
between what has been planned and what is being achieved-for example, the
difference between current expendih1res and expenditures planned at this point
in the project. Many of the tools associated with quality assurance and control
are too complex to discuss here, but one common tool can be described-root
cause analysis, a technique used to discover the source of problems. Again,
many of the techniques for root cause analysis arc technical, but the principle
is evident in the relatively simple but eminently useful method of the 5 Whys.
The method requires asking why a problem may be occurring and then
rl
questioning that answer repeatedly. tracking causes backward until one reaches
a fundamental cause that must he corrected.
78 © 2015 SHAM
I Managing Change
\
Strategies may require changes of various breadth and depth--changes in the
)
.' 'I organization's members' understanding of their mission, reorganization,
redefinition of values, reshaping of culture, and redesign of policies and processes.
It is imperative that organizational and functional leaders understand how a strategy
may cause change on a grand level-in tem1s of the organization's identity and
competitive focus-and on the level of employees' normal, daily activities.
I I
Effective leaders recognize that change involves both emotions and policies and
procedures.
)
Response to Change
It is important for agents of change within organizations to recognize that
)
individuals go through a process when responding to significant changes in their
environment. A typical cycle of response to change, together with some
)
characteristics of each stage, is illustrated in Figure 19.
l
) Doubt
)
)
• Loss of past relation- • Confidence

) ships, feelings of value, • Satisfaction
purpose • Higher skill level
• Lack of clarity and • Increased capacity
communication • New stability level
• Uncertainty
)
)
Figure 19: Emotional Responses to Change
) These phases apply across all national cultures, although the depth of
) engagement in each phase may vary depending on the individual's
competencies and personal situation.
© 2015 SHRM 79
)
Differences in national cultures, however, may make managing change in a

diverse or global organization more challenging. Leaders have to be able to gather
reliable feedback about bow employees feel about the change. In some cultures
employees will be reluctant to share personal feelings or to display any doubts or
discontent to someone higher in stature. Managers from outside cultures should
turn to a trusted insider, someone from that culture or someone who understands
both the management and the local cultures, for advice on how to "read" and
communicate with these employee groups.
Organizational culture may affect successful implementation of change as well. In

"Resistance to Organisational Change: A Case Study of Oti Yeboah Complex
Limited," Rosemond Boohene and Asamoah Appiah Williams relate the
experience of a Ghanaian wood product firm that, because of depletion of raw
materials, decided to change from a sawmilling operation to a plywood producer.
The authors reported that:
This kind of change affected the strategy, the structure, the culture, the
technology, and the work processes of the organization, which eventually
brought about employees resisting the change because of certain new roles,
redundancy, and responsibilities. This led to a series of strikes, boycott and
lockouts because of fear of the unknown and possible loss of job. The
consequence was production stoppages and paying labour tor no job done.
Boohene and Williams tracked a large share of employee resistance to the

organization's culture. The predominantly young workforce was very
disaffected: uninvolved in decision making, receiving little communication
about changes or the reasons for them, distrustful of management. Management
was inflexible and autocratic, responding to resistance to change by threatening
loss of jobs. Implementing this type of strategic change would require far-
reaching changes in business processes, required competencies, and roles. The
· failure of the proposed change could be predicted once the limitations ofthe
organization's culture were understood.
Conditions That Make Change Possible

In their article "The Psychology of Change Management," Emily Lawson and
Colin Price identify several conditions that make it easier for people to get to the
point where they will consider or try a new way of doing things:
• Shared purpose, If people believe in the overall purpose and reason for tlw
change, they willmakelllegitimate_effort to change themselves.
80 © 2015 SHRM
• Reinforcement systems. Structures, management processes and

encouragement, measurement, communication, and other critical support
factors must be present and congruent with the desired change initiative.
)
• Skills required for change. While this need may seem obvious, it is often
.I overlooked. Training is a much more efficient and effective method than trial
) and error for equipping people with the knowledge and skills to be successful.
• Consistent role models. The presence of a role model within an individual

)
employee's sphere of influence makes change real and demonstrates, in real
)
time, that change is possible. Many role models (in addition to managers and
executives) need to be present throughout the organization to keep the message
of change alive until it becomes part of the way the organization operates.
Jeffrey Hiatt (ADKAR: A Mode/for Change in Business, Government, and Our

Community) uses the ADKAR acronym to emphasize the requirements for
)
change:
I
• Awareness of the need for change
• Desire to make the change
• Knowledge of how to make the change
• Ability to make the change in the workplace on a daily basis
• Reinforcement of effotts made to change
Models for Managing Change

}
Four primruy steps are associated with effective management of organizational
)
change:
• Step I: Identify change parameters and assess readiness.
• Step 2: Plan and prepare for the change.
• Step 3: Manage the change.
• Step 4: Measure success.
Steps 3 and 4 are the focus for a model of change introduced by Kmt Lewin.
The model has three phases:
.I
• Unfreeze the current state. The purpose of this step is to get people to
accept that the change will occur. Reducing factors that work against change
is critical at this stage.
)
I
© 2015 SHRM 81
I
)
• Move toward the new state. During the second step, the focus is on getting
people to accept the new, desired state.
• Refreeze the new state. Once the change has been implemented and
generally accepted, the focus should be on making the new idea a regular
patt of the organization.
A model developed by John Kotter (Leading Change) can be overlaid on

Lewin's to provide insight into how organizations can unfreeze, move, and
refreeze. Kotter's model provides eight critical steps in preparing to implement
change, managing short-term reactions to change, and making the change a
permanent part of the organization.
These combined models are shown in Figure 20.
Step 1 Step 2 Step 3 Step 4

Identify change Plan and prepare Manage the Measure success
parameters and for the change. change (at the (at the refreezing
assess readiness. movement stage). stage).
THE WHAT-Follow Lewin's Steps
Current State Transition New State

(Unfreeze) Stale (Move) (Refreeze)
II Time
I
THE HOW-Implement Kotter's Techniques
1. Create a sense 4. Over- 7. Consolidate
of urgency. communicate. progress.
I 2. Assemble a 5. Empower action. 8. Institutionalize.
! strong guiding 6. Ensure short-
team. term successes.
,l 3. Provide a clear
,;
' vision.
it
·ll Source: "Managing Across Borders in Latin America," Cesar Aguirre
Figure 20: An Integrated Model of Change Management

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82 © 2015 SHRM
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)
Facilitating the Change

-when planning and implementing a change, organizations often use one of
) the following approaches.
) • Cascade. This approach relies on a top-down sequence with complete

change at each level. Change at one level or unit high up in the
organization eventually transforms the units and levels beneath it.
) • Progressive. When following this model, the change originates at the

) top and is broadcast to the entire organization. Individuals slowly change
with added information, and the change becomes uniform across
business units.
- • - Orga11iC.This method relies on independent centers and multiple origins

I of the change within the organization. Points of origin can be at any level.
) Organic change radiates out unevenly but accelerates when top leadership
.1 supports local change and local leaders.
\
'
)
HR's Role in Change Management
)
HR helps lead the process of managing change by:
)
• Identifying the impact of the change on people and departments, which may
1
include gaps in skills, attitudes, lines of communication to be opened, and new
!
policies that may be required.
• Assessing changes across the organization-the ripple effect of change.
) • Consulting with the organization's leaders on ways to support the change

) initiative, including changes in organizational culture (e.g., different
) approaches to decision making), new processes (e.g., reward systems aligned
with the new behaviors), and investment in learning and development to
) support employees as they develop new competencies to perform their
changed roles.
• Using stakeholder knowledge to negotiate solutions and develop initiatives.
• Using its communication skills and channels to contact all affected employees
quickly and unifonnly and communicate details of the change initiative.
• Measuring the effectiveness of the change initiative.
}
I
)
© 2015 SHRM 83
J
Managing change may require making leaders more aware of how they
themselves need to change. For example, if they want more agile decision making
that arises from self-directed teams, then they must relinquish some degree of
control (manifested, for example, in increased limits for expenditures without
management approval). lfthey want greater workforce stability, then they must be
willing to engage in frank discussions with unions and respectful contract
negotiations. It often falls to HR to show how what leaders want and employees
need can be aligned.
To fulfill its role in change management, HR management must ensure that the
HR group possesses the appropriate change management and leadership skills.
Being a leader amidst change requires clarity of vision, creative problem
solving, tactful communication, and courage.
A firm has implemented a change in its strategic direction, but one divisional
head of sales has been resisting the shift in focus and is persisting in
following the old sales and marketing strategy. The CEO has tolerated this
small rebellion. The CHRO comes to the CEO and points out that this focus
Consultation of resistance is problematic. The divisional head is hurting the change
Competency initiative and damaging the perception that the rest of the firm has of the
in Action CEO. As long as he tolerates this behavior, the CEO appears weak and not
fully committed to the change. The new strategy will create some emotional
turmoil as it changes many people's jobs and relationships, and the
employees need to see their leader's commitment to this direction. The CEO
accepts this perspective of the situation and meets with the divisional head
to restate expectations and possible consequences for not meeting them,
The CHRO has demonstrated competency in consultation by making the
CEO awa;e of what the firm's employees need and the consequences of not
'I taking action. (' i
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I: 84 © 2015 SHRM
f
0
Progress Check
l Directions: Choose the best answer to each question.
} I. Senior management of an organization communicates a new strategy in detail to its leaders

and at a high level to employees. Unit and functional leaders are empowered to reorganize
themselves and provide more specific directions to employees. How could this
implementation of strategy been improved?
( ) a. Senior management should have provided employees the same level of detail as
leaders received.
( ) b. Reorganization should not have been an option for leaders.
( ) c. Senior leaders should not be giving so much power to unit and functional leaders.
') ( ) d. Il is an effective process and should work well.
)
) 2. What is a business case?

) ( ) a. Cost-benefit analysis of business concept
( ) b. Market research into acceptability of a new service or product
( ) c. Scenario-based test of a business plan
\•)
( ) d. Analysis of a problem and of possible solutions
3. An HR manager prepares a business case describing the details and costs of implementing a
new global performance management system. Staffing, objectives, and time frame arc
defined. What critical component of a business case has the manager omitted?
:; ( ) a. Statement of need
) ( ) b. Necessary resources
( ) c. Means for evaluating success
( ) d. Budget analysis
4. What is the most important reason to conduct stakeholder analysis in project management?
( ) a. It can prevent disagreements about project focus between management and
stakeholders.
( ) b. Stakeholders are key funders of projects.
) ( ) c. It can provide information about expectations and project critical success factors.
( ) d. Stakeholder analysis is used in developing strategy, not in implementing strategic
initiatives or projects.
)
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© 2015 SHRM 85
)
5. An organization's leadership has embraced Six Sigma policies. How will this affect HR
strategic projects?
( ) a. There should be no etTect unless the HR project focuses on operational issues.
( ) b. HR must find the lowest-cost approach to achieving the project objectives.
( ) c. Six Sigma is a business philosophy that affects strategy but not implementation.
( ) d. HR must plan to capture and report certain data about the project.
6. How is the critical path concept used in project management?

( ) a. Satisfying stakeholder expectations
( ) b. IdentifYing the least risky approach to achieving the project's results
( ) c. Developing the most efficient time frame for completing a project
( ) d. Identifying places in a process where quality may be affected
7. How is the 5 Whys method used in project management?

( ) a. SatisfYing stakeholder expectations
( ) b. Identifying root causes of problems
( ) c. Developing the most cost-effective budgets
( ) d. Defining roles and responsibilities of team members
8. What should leaders understand about managing change?

( ) a. Acceptance of change cannot be expected until long after the change has been made.
( ) b. Managing change involves employees' cognition, emotions, and behavior.
( ) c. Most employees will embrace the promise of change.
( ) d. Global organizations must standardize their processes for introducing
organizational change.
9. What important action takes place at the end of Lewin's change management model?
( ) a. Employee input on change is sought.
( ) b. A vision of the future is communicated.
( ) c. The change is made a lasting part ofthe organization's policies or processes.
( ) d. Employees are motivated to accept the change.
10. What skill could most improve an HR function's ability to manage change?
( ) a. Mastery of complex communication means
( ) b. Knowledge of current job descriptions
( ) c. Understanding of strategic implications
{
\ ) d. Evaluation
86 © 2015 SHRM
I. d (p. 73)
2. d (p. 74)
3. a (p. 74)
) 4. c(p. 76)
.) 5. d (p. 77)
1 6. c (p. 78)
7. b (p. 78)
I 8. b (p. 79)
) 9. c (p. 82)
) 10. a (p. 83)
)
}
)
. )
)
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)
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)
)
' )
)
.)
)
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)
)
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© 2015 SHAM
) 87
)
)
Measuring the success of those activities requires assigning metrics to

those objectives. Without strategic alignment of goals, objectives, and
metrics, the organization can be wasting its time collecting data that is
irrelevant to its real success.
In Figure l3 in Section 2, we showed the way HR strategic goals and

objectives grow out of the requirements of the organization's strategic
goals. In this example, a software firm had set a goal of increasing sales of
its mobile applications. Its strategy was to identify emerging tastes and
needs and get attractive products onto the market before the competitiot1.
The key value driver in this scenario was the organization's access to
highly talented, effective, and creative teams. HR set four objectives that
would help the organization overcome barriers to this goal. To motivate
and focus its HR team on these objectives, HR leaders must identify key
performance indicators (KPis) and define metrics that can serve as
)
performance targets for the teams and as the basis for measurement of
success for management.
)
The concepts of key performance indicators and metrics and measurements,

as well as basic statistical concepts, are discussed in the "Technology and
Data" Functional Area in the Organization module.
Effective Performance Measurement

In Keeping Score, Mark Graham Brown discusses the critical role of
l
performance measurement in strategic management. He lists some guidelines
)
(shown here in Figure 21 on the next page) io help managers decide what they
should and should not measure. We will examine next the ways in which
}
balanced scorecard tools help align measurement with strategy and stretch the
organization's vision by focusing on leading as well as lagging indicators.
Using a Balanced Scorecard to Align Objectives with Strategy

Some organizations use a balanced scorecard approach to make sure that their J
objectives are strategically aligned to the various sources of value to the )
organization and that the organization's objectives are balanced. KPis are listed
on a performance scorecard and are used to generate appropriate performance
objectives.
90 © 2015 SHAM
I' )
I) STRATEGY Business and HR Strategy
i
I
Recommendations for Measuring Performance
I }
Don't measure everything. Focus instead on Be mindful of all stakeholders.
performance that supports strategic goals. It is understandable to focus on activities
) There are better ways to spend your resources that affect the organization's financial
than measuring activities that have little direct performance and thereby satisfy the
relevance to the organization's and the function's organization's economic stakeholders, such
strategic goals. Strategically focused objectives as investors, banks, or senior management.
help create a "clear line of sight" from unit and However, the organization has other
individual efforts to the organization's success. stakeholders with different concerns, such
\
as employees, unions, communities, local
)
Blend awareness of past, present, and future
institutions, and governments. Some
performance in creating objectives.
objectives should reflect the interests of
Effective measurement systems look at what the these stakeholders.
organization has accomplished in the period being
assessed but must also look at how the Reexamine what you're measuring
organization is currently doing and what it is doing regularly.
to affect future performance. Objectives that allow Performance objectives should change as
more timely review (perhaps through dashboards) strategy is revised and as internal and
offer the opportunity for correction and recovery, external conditions require.
and more objectives related to building future
performance help grow the organization.
Figure 21: Effective Performance Objectives
)
l
) The purpose of a balanced scorecard is to achieve balance in three key areas:
• Between financial and nonfinancial indicators of success
• . Between internal and constituents in the organization
• Between lagging and leading indicators of performance
) .The most effective evaluation of strategy focuses on leading indicators of

). performance rather than lagging indicators. A leading indicator is predictive
in that action in this area can change future performance and help achieve
) · success. For example, employee satisfaction indicates future retention rates
I and associated costs of hiring. A lagging indicator describes effects that have
already occurred and cannot be changed. For example. turnover rate indicates
the success or lack of success in employee engagement.
An organization in the midst of a strategic initiative to improve perfom1ance

may find a disconcerting disconnect between strong leading and poor lagging
indicators. If they continue to improve their leading indicators, however, they
will eventually tum around their lagging indicators.
© 2015 SHAM 91
KPls in the original balanced scorecard (developed by Robert Kaplan and David
Norton) are identified under four key areas:
• Finance. Financial KPis may vary but for HR could include productivity rates
and management of short-term funds. Achieving these goals is of interest to
management, employees, and shareholders.
• Customers. This perspective captures the ability of the organization to

provide quality goods and services and satisfy its customers. It might be
I'
,I measured by factors like the number of managers using a self-service system
to set up new employees, processing rates for changes in compensation or
corrections in benefits, or employee satisfaction with dispute resolution
services.
• Internal business processes. This perspective focuses on the internal

business results that lead to financial success and satisfied customers. For HR,
key internal processes may be managing talent acquisition and retention,
employee development, and providing consultation to other functions.
• Learning and growth. This perspective looks at actions that will prepare the
future organization for success-for example, by strengthening the employer
brand to attract talent, making sure employees have the most current skills, or
implementing knowledge management systems.
Not all scorecards use these four perspectives only. For example, some
organizations may want to emphasize sustainable aspects of their performance
and may develop separate KPls for such activities as environmental practices
and social programs. Other possible categories could include employee
i engagement and innovation.
I
II
I l
The principle of balance holds, however. The definition of a successful strategy
should not be based only on financial metrics.
·i
I
II Using Benchmarking to Set Performance Objectives
·i Benchmarking compares performance levels and/or processes of one entity with
those of another to identify performance gaps and set goals aimed at improving
I
92 © 2015 SHRM
)
)
)
The benchmarking process includes the following steps:
), • Defining KPis
• Measuring current performance
e Identifying appropriate benchmarks and securing their perfmmance data
• Identifying performance gaps between oneself and the benchmark organization
• Setting objectives and implementing any necessary support activities
Benchmarks may be internal or external. Internal benchmarks might be based on

the organization's own historical performance or on the performance of specific
divisions that are seen as star performers. External benchmarks might be drawn
from professional or trade associations or government agencies and are considered
standards or best practice. Other organizations may also provide performance
benchmarks because they are recognized sources of best practices. For example, an
HR organization may be known for its ability to recruit and employ top candidates
or for a cradle-to-grave employee development system.
The process of comparing one's own organization with another helps management
identify challenging goals and obstacles that must be overcome to achieve those
goals. Benchmarking helps ensure that organizations are not simply measuring
l performance but improving it. It also encourages growth by focusing the
)
organization's attention outside itself and its current practices.
Benchmarking is a practical evaluation tool, but only if it employs realistic

.\ benchmarks that are not culturally biased. For example, in countries where
health care is subsidized by the government, health-care cost per employee may
)
be a meaningless benchmark. In sonlt::: contexts, longer empioyee tenure is
I positive; in others, it can mean the opposite. The global use of benchmarks, then,
)
must be carefully weighed and analyzed and not accepted at face value.
J
)
The Society for Human Resource Management publishes benchmarking reports
for different aspects of performance in HRM and in different industries.
)
SMART Objectives
)
)
Management expert Peter Drucker coined the acronym SMART to describe the
five qualities thol are refened to as SMART qualities. (SMART qualities arc
also discussed in the "'Learning and Development" Functional Area in lhe
People module, as they apply to learning objectives.)
J
)
© 2015 SHRM 93
The letters have been assigned to different words over the years, but in its
original version, SMART meant:
• Specific. Focused on a narrowly defined activity rather than a
generalization.
• Measurable. Capable of objective measurement. (Note that even
intangibles can be measured objectively once a measurement system is
established.)
• Attainable. Requiring effort but within reach given effort and the right tools
and support.
• Relevant. Producing an outcome that is in line of sight with the goal.
• Timebound. Subject to evaluation within a reasonable and defined time
frame.
For example, an HR function may set multiple strategic performance objectives

related to the organization's goal of increasing global mindset among managers.
I
Each objective is assigned to an individual to create accountability and
transparency. One objective might be to develop a teaming and development
project aimed at increasing employees' awareness of cultures in all the
countries in which the organization does business. The SMART objective might
be to:
Develop a pilot module on Country X to be developed for online delivery

and to focus on cultural factors such as social and religious customs,
history and politics, social and environmental issues, and legal systems.
The module will be accessible to all employees and can be completed in
four hours. The pilot will be delivered in the third quarter of this year.
How Many and How Often?

Leaders must decide how many KPis an organization will have and how often
and when to measure results. Chris McChesney, Sean Covey, and Jim Huling
recommend having no more than one or two "wildly important goals" per team,
so that the team can focus intently on those objectives. lt is better to have fewer
significant objectives that the organization can deliver on than to have many
objectives that may not be strategically aligned.
i Traditionally objectives are reviewed according to an organizational calendar or

lH at the completion of a project schedule. Increasingly, organizations are turning to
continuous monitming and reporting of key metrics that can provide a rapid
!
Il 94 © 2015 SHRM
)
) overview of the health of the organization. Automated tools such as dashboards

make this more feasible. The metrics selected for continuous monitoring usually
relate very directly to critical goals. Continuous and immediate feedback allows
\ leaders to identify and correct problems more quickly. It also provides more
immediate data to support decision making. For historically volatile activities,
continuous monitoring can provide a more accurate sense of trends.
Common Organizational Metric£

A variety of metrics-both financial and nonfinancial-are used to evaluate
the effecli veness of organizational strategies. The choice may be driven by the
nature of the strategy and the organization's priority. However, the metrics are
an important internal and external signal. For management, they can provide
immediate feedback on the effectiveness of operations and signals of changes
in the external environment. For those investing in an enterprise (which can
include stockholders, banks, taxpayers, and donors), this data provides
evidence of how well the enterprise is being managed and how worthy of
)
further investment it is.
)
).
HR should understand how revenue flows into and out of its organization.
l What core activities contribute to revenue production? What activities
represent major investment of capital? What talent areas are crucial to
production of value? HR should know what questions to ask financial
managers and be able to deduce the implications of their answers to HR's
strategy. Understanding this financial perspective can support HR 's role in
)
providing consultation to senior management and leaders of units and other
)
functions and slralegicaliy aligning HR activities.
A good way to gain this perspective is to consult with colleagues in finance.

Meeting regularly with a financial officer will increase an HR professional's
understanding of the financial values driving strategy and operations. It is also
an opportunity to learn about the challenges facing the financial managers and
consider ways HR activities might help. These discussions may create an
influential ally and advisor when crafting HR initiatives.
)
I Financial Statements and Metrics
I
Most dfltn used in measuring an organization's financial performance derives frotn
three documents or statements.
' )
© 2015 SHRM 95
)
)
I )
These reports and metrics project a sense of an organization's health and viability.
• The income statement reports revenues, expenses, and net income (profit) for
a specified period-for example, quarterly or annually.
• The balance sheet reports the financial position of the organization at a

specific point in time, often comparing data with historical points in time, such
as one year earlier. The balance sheet shows assets (cash, receivables,
inventory, facilities, equipment, and land), liabilities (debts and other financial
obligations, such as accounts payable, taxes, and accruals for wages and
vacations), and shareholder equity (the portion ofthe total value of the
company held by shareholders).
• The cash flows statement shows incoming and outgoing cash in the areas of
operations, investments, and financing and remaining cash reserves. It reflects
an organization's ability to meet its current and short-term obligations.
From these reports, a variety of metrics can be extracted. These are often in the
form ofratios. Ratios can reflect:
• Liquidity, or an organization's ability to fi.md short-term debt and current
operations.
• Leverage, both financial and operating. Financial leverage reflects the degree
to which an organization is employing debt rather than equity to finance
operations. Operating leverage indicates how capital-intensive an
organization's activity is.
• Activity, or how an organization converts its resources into revenue.
• Profitability, or the relation between expenses and earnings.
• Market value, or how the organization is valued in the marketplace.
Ratios must be considered in light of the norms for an industry, and the trend of the
measurement over time must also be considered. For example, an occasional low
accounts receivable turnover ratio could reflect general economic problems, but a
persistently low ratio indicates a process problem that must be corrected.
Some common financial ratios are listed in Figure 22. In addition to these ratios,
one could add compensation levels. A company's average wages might be
benchmarked against industry averages to identify potential vulnerabilities. A
histm)• of stagnant wages might signal problems with retaining valuable employees.
ij
96 © 2015 SHAM
- -- -- - - -- - - - -
- -
''-- - -- '- ---- - ·---· -- - .__....- ·- .....-- ._
Ratio Description Formula
Cu ·-rent Liquidity ratio that indicates level of

Current assets
working capital. Creditors prefer a higher
current ratio. Current liabilities
De jt to asset Leverage ratio reflecting the amount of

exposure to risk from debt that an
Total liabilities
organization has assumed. A number
greater than 1 indicates that an Total assets
organization has more debt than assets.
De bt to equity Leverage ratio reflecting how an Total debt
organization is funding its growth. This
Shareholders' equity
varies by industry and strategy type.
Ac :ounts receivable turnover Activity ratio that measures the efficiency
of debt collection. A higher ratio is Net credit sales
preferable, but a ratio that is too high
Average accounts receivable
could indicate excessively tight credit
policies that could hurt sales.
Gr· lss margin Profitablility ratio showing the percent of
total sal•es revenue after incurring the
direct costs of producing goods and Total sales- Cost of goods sold (COGS)
services sold. The higher the percentage,
the more the company retains on each Total sales
dollar of sales to service its other costs
and obli9ations.
Ea ·nings before interest, Profitability ratio often used as measure
tax es, depreciation, and of mana9ement performance. Earnings before interest, tax, and depreciation
am ortization (EBITDA) Total sales
ma rgin
Figure 22: Sample Financial Metrics (continued on next page)
© 2015 SHRM 97
,;,-, .. ..
I
STRATIEGY Business and HR Strategy
Ratio Description Formula
Profit margin Profitability after all expenses have been Total sales-Total costs
deducted, expressed as a percentage of
revenue (sales) . Total sales
•
Return on investment (ROI) Profitability ratio for a specific investment,

such as a capital expense project. It is usually Gain from investment- Cost of investment
used to compare options. Threshold for Cost of investment
investment is usually above 1.
Earnings per share (EPS) Profitability ratio used by equity holders as a Net income
standard expression of earnings. Number of outstanding shares
Price to earnings (PIE) Market value ratio that indicates market Stock price per share
confidence in the organization's ability to
Earnings per share
maintain or increase earnings.
Pigure 22: Sample Financial Metrics (concluded)
98 © 2015SHRM
_,
·-
--_,_ '--" -..../ ..._,__
One argument against excessive use of financial measures is that they can
overemphasize the importance of short-term results. Viewing financial results as
trends can help lessen this effect. In addition, financial measures must always be
used within the context of a specific industry. Profit margins, for example, are
very different in financial services than they are in manufactnring consumer
goods.
Financial performance metrics may vary widely among industries. Part of the
discussion with colleagues from finance should include understanding industry
metrics and how the organization compares with similar enterprises.
Nonfinancial Organizational Performance Metrics

Nonfinancial metrics examine changes in areas that are not measured in terms of
currency but whose effects can be monetized to show their financial effect. Such
measures might include:
• Share of market, which may signify competitive strength.
• Reputation among investors, consumers, governments, and political groups.
• Level of brand awareness among consumers.
• Recognizable employee brand (useful in recruiting and hiring).
• Achievements in social responsibility.
• Reputation for quality, customer relations, and innovation.
• Efficiency (or use of most current, efficient technology and processes).
• Activity ratios, which measure the efficiency with which resources are used
to generate profit (examples include number of inventory tnms in a period,
average age of inventory, average collection and payment period, and asset
tnmover).
• Employee retention and job satisfaction ratings.
• Employee engagement.
HR metrics are also discussed in the "Structnre of the HR Function" Functional

Area in the Organization module.
Using Business lntelii!:Jence

Business intelligence refers to the ability to gather and analyze data trom
inside and outside the organization so that infomution is available for decision
makers.
© 2015SHRM 99
STRATEGY Business and HR Strategy )
For HR professionals, the ability to gather internal data is enhanced with the
use of HR information systems and with enterprise management systems that
can capture data from across the entire organization. ' )
j
It is important to remember, however, that the purpose of gathering

performance data is to use that information to support action. To do this, HR
professionals must be able to understand the story that lies behind the numbers }
and relate this story and its significance to the organization's leaders. This
requires analyzing data to see patterns and anomalies and conducting fmther
analysis to detect causal relationships and project impacts on business plans. )
Presenting partially digested raw data will not guide action, and it may even )
deter action or point in the wrong direction.
Consider the following example, based on a story reported in The New York
Times. A professor plotted the grades for his introductory science class and
noted that the results yielded a peculiar bell curve. While most students were )
clustered at the high end of the grade scale (this was a school with challenging
entry requirements), there was a second cluster, representing 20% of the )
students, that formed around the bottom of the grade scale. The professor )
decided to find out more about these students, before simply sending them off
to a remedial course or letting them drop out. Poring over every student profile,
he defined three adversity factors: low standardized entry scores, low family
income, less-educated family. He analyzed the failing students and found that
almost all had at least two of the three factors. Armed with this data and the
school's mission, he secured support for a special program that included extra
instruction, peer mcntoring, and close monitoring and rapid intervention by )
advisors. With this different approach, this group of students performed at the
same level as the entire group on the same tests.
HR professionals are faced everyday with troubling mysteries that data can
help solve: low levels of retention, failure to rectuit diversified candidates,
disparate levels of effectiveness of performance management systems across
the organization or of employee disputes or accidents. HR in a large parcel
delivery firm began by noticing a level of on-the-job injuries that seemed
inappropriate to the industry. Analysis of claims revealed a larger proportion of
injuries among truck drivers. Analysis of those claims revealed that they were
due to accidents, and fmther study showed that the accidents primarily
100 © 2015 SHRM

)
occurred when a driver was making a tum into oncoming traffic. Routes were
changes to eliminate those turns, the data was reexamined, and the anomaly
) had disappeared.
) So while HR professionals tend to think of themselves as working with people

)
and not data, the reality is that what we know about people is data. HR
) professionals can benefit from developing their sense of curiosity and their
abilities to read and interpret data.
An HR manager is reviewing the transfer of existing employee data from the

previous HRlS into a new enterprise resource management system with an
HR module. Her goal is primarily to validate the transfer, but she wants to
learn the analytic tools in the new software as well. So she starts looking at
Critical employee data in different ways, analyzing employees by pay level, tenure,
Evaluation function, and so one. When she analyzes the workforce by age, a disturbing
Competency
in Action fact leaps from the analysis. Half of the workforce is over the age of 50. This
analysis has clear implications for the organization and HR. Further analysis
must be done to clarify the age of key employees and assess succession
plans. Plans must be made to capture institutional knowledge held by older
employees before they retire. Impending employee shortages must be
identified by function and job type. Backup plans to retain key talent beyond
retirement-perhaps through part-time work-must be developed. This HR
professional has demonstrated the critical evaluation competency by
appreciating the potential of data analysis for the organization, translating
data results into organizational impacts, and using that data as a platform for
problem solving.
)
)
) Data Analysis Methods
I Variance analysis identifies the degree of ditierence between planned and
actual performance. The term is usually applied to analysis against objective
baselines, such as schedules and budgets. Once identified, root cause analysis
(such as the 5 Whys technique described in Section 4) can be applied to
identify the cause for the unexpected outcome. Trend analysis, described
below, can be used to predict how the variance may grow over time.
Regression analysis refers to a statistical method used to determine whether

I a relationship between variables and the strength of the relationship.
I Data points can be plotted on a diagram called a scattergram. The shape of
)
the line fom1ed by the data suggests a strong or weak positive or negative
' )
© 2015 SHAM 101
correlation or the absence of a correlation. A regression analysis might help

determine the most significant indicators of success in a given job.
Trend analysis studies the way in which a variable may change over time.
While a variance report provides a picture of one point in time, a trend
analysis examines data from different points in time to determine if a
variance is an isolated event or if it is part of a longer trend that may affect
the project's performance. By establishing the direction and degree of change
over time in a trend, the analysis can also be used to forecast future
conditions, such as the ability of an initiative to meet its objectives. Both
trend analysis and forecasting can be performed within software applications.
Trend analyses are important tools in discovering recurring peaks or troughs
in an activity. For example, HR can use trend analysis to identify most
appropriate times to conduct campus job fairs by tracking the results from
events held at different times over multiple years.
For the purpose of evaluation, a scenario analysis or what-if analysis can be

used to test the possible effects of altering the details of a strategy to see if
the likely outcome can be improved. The outcome of a particular situation is
projected, using different inputs to see what changes have the most profound
effects. This analysis is greatly aided with software applications and models.
Graphic Presentation of Data Analysis

The result of analysis is not just spreadsheets. Results can be depicted
graphically to identify key points and trends, and these graphic representations
are good tools for communicating data to management. Figure 23 on the
following pages shows some common data sorting and analysis tools that can be
of use to HR professionals. Many of these can be created with data analysis tools
and even within an application such as Excel.
Communicating Data Analysis

The normal rules of communicating apply to the presentation of data. Accuracy
and clarity of message are imp01tant, so reviewing reports or presentations with
colleagues is extremely helpful. Their reactions can indicate when more
iI explanation is needed and when details can simply be summarized and the
,,
., audience referred to an appendix or takeaway handouts .
I
102 © 2015 SHRM

)
I
) Pie Chart
) Description: Workforce Age
Graphically depicts as portions or slices of a circle the
constituents that comprise 100% of a data group. Textual data
information can be included in callouts or in an attached table for c=J <25
more precise communication.
CJ 25·35
Application: liiliiJ 36·50
To present a high-level impression of the data distribution as a ->50
percentage of a whole-e.g., the workforce. This information may
be helpful context for a deeper discussion.
Example:
HR uses a pie chart to present to management the distribution of
resources to its strategic goals.
Histogram
Description:
) Graphically depicts the sorting of data into groups arranged in the Employee Performance scores by Hiring Source
shape of a statistical distribution, showing a central tendency and
I dispersion around that tendency. This appears as columns of
100
varying heights or lengths. Histograms can include a comparative

) referent, such as a target or range of values. They can also be
designed to show comparisons over time (usually through
) multiple columns for each category).
Application:
To sort data and to support rapid comparison of categories of
data.
Rehmals Agency Agency Job Social Ads
Example: A B Fairs Media
HR uses a histogram to analyze recruiting methods in terms of

employee performance ratings.
Pareto Chart
Description:
Applies the Pareto principle (that 80% of effects comes from 20% Causes of Voluntary Separation
of causes) in the form of a histogram. Categories of data are 100.0%
ranked, usually from left to right along the x axis, according to

size. They axis shows reference ranges (e.g., number or
percentage of occurrences). A cumulative percentage line plots
the category contributions to the whole, making it easier to
)
identify the 80/20 cut-the 20% of factors that are creating 80%
of the problems.
)
Application:
\ Distinguishes between the "vital few" categories that contribute
most of the issues and the "trivial many" categories of infrequent
Super· wilh
occurrence to support more-focused quality improvement VIIDI Compen·
) activities. sabon
) Example:
An HR professional uses a Pareto chart to analyze and illustrate
·causes of voluntary and involuntary employee separation from
the organization.
Figure 23c Graphic Presentation ofData Analysis (continued on next page)
© 2015 SHRM 103

Scatter Diagram
Description:
Plots data points against two variables that form the chart's x and Safety in Numbers
y axes. Each axis is scaled. The pattern formed by the plotted 100
data describes the correlation between the two variables: A Walking
0 Bicycling
• The tightness of clustering indicates the probable strength of so
the correlation.
60
• A line rising from the lower left to the upper right quadrants Number of
indicates a positive correlation. {As x increases, y increases.) Accidents
• A line falling from the upper left to the lower right quadrant
indicates a negative correlation. {As x increases, y
decreases.)
Application:
Hours of Safety Training
Can be used to test possible causal relationships and narrow
focus on subsequent tests.
Example:
An HR professional maps the correlation of workplace accidents
with a series of factors, such as access to safety training.
Trend Diagram
Description:
Underemployment Rate,
Plots data points on two axes. The horizontal axis usually Monthly Averages
represents time, while the vertical axis represents volume.
"
Application:
Can be used to test for presence of cycles or developing trends. Woll<force 30
'"
thousands)
Example: "
The HR group analyzes workforce demand to identify overall "
trends in demand as well as high and low points in the calendar
year. 2013 2013 2013 ZH3 3)!3 2013 2014 2l')J4 :!114 2:114
Figure 23: Graphic Presentation of Data Anaiysis (concluded)
The key challenge, as with any communication, is to use information efficiently

and effectively to make a point. Data analysis is too often presented as a series of
bulleted slides or through pages of spreadsheets. This is a challenge since the
sheer quantity of data may overwhelm most audiences, especially senior
managers. A better strategy is to approach the task of communicating the results
of analyzing data as a narrative that will be supported by data. The data does not
drive the report.
Let's say an HR manager wants to deliver an interim progress report on one of

--HR's strategic objectives, to increase diversity-among managers in_the
104 © 2015 SHRM

)
I
organization's 12 branch locations. HR has amassed considerable historical data

for the organization and individual branches, conducted surveys, examined the
effects of different tools, implemented a program, and performed a preliminary
\ evaluation. Figure 24 outlines how the manager might use this data to create a
clear narrative for decision makers.
) Logical Step Use of Data

State of diversity among our branch A summary bar chart shows the size of
management one year ago combined targeted diversity groups relative
to the management population in each
branch. Separate histograms or bar charts
showing the representation of a particular
group within the branch population are
included in takeaway materials lor the
audience.
Goals set one year ago A combination bar chart shows actual and
planned levels within three years lor each
branch.
Results of analyzing previous recruitment A Pareto chart shows where most of the
efforts budget lor previous efforts was focused. A
scattergram shows the overall effect of
specific recruitment techniques in terms of
) employees with retention rates of more than
two years.
)
The HR manager notes at this point that it was clear that finding a better recruitment
strategy was imperative.
Results of survey with employees in these Employee suggestions lor new recruitment
) groups strategies are shown according to
J magnitude of support.
Other possible causes lor low performance Scattergrams comparing success in hiring
in this area were considered but did not with various branch characteristics, including
prove compelling. ethnic identity of branch managers, are
shown.
The HR manager then describes the new recruitment strategy and how it was
implemented.
Preliminary results are promising, with the The original bar chart is repeated, adding
exception of two branches. new employment data. Two of the columns,
showing little improvement, are circled.
)
Possible causes are presented. A tree diagram is used. The relative size of
) the "causes" reflects their probability.
) The HR manager describes next steps in these branches and asks for questions.
)
) Figure 24: Communicating Data
© 2015 SHAM 105
)
I
I
Progress Check
I Directions: Choose the best answer to each question.
I. How should an HR manager respond when an employee complains about the amount of time
required to track time spent on a particular activity?
( ) a. This kind of data will make future decisions sounder.
( ) b. This time was included in original plans.
( ) c. Do you feel the data is irrelevant in any way?
( ) d. If you want a quality organization, you collect data.
2. What is the importance of the ''R" in the SMART acronym?

( ) a. Relates the objective to the employee's performance plan
( ) b. Makes sure an objective aligns with strategic goals
( ) c. Examines whether the objective is attainable
( ) d. Makes sure the result of the evaluation conforms to objective rating systems
3. Which is a lagging indicator of an organization's performance?

( ) a. Sales volume for last quarter
( ) b. Revision of incentive programs
( ) c. Percentage of sales candidates meeting profile characteristics
( ) d. Average size of sale
4. Which is a leading indicator of an organization's performance?

( ') a. Average time to market
( ) b. Number of engineers with advanced degrees on staff
( ) c. Market share
( ) d. Number of product designs in the pipeline
5. Why should a balanced scorecard be used to measure strategic progress?

( ) a. It provides a more rounded assessment of the results of strategic activity.
( ) b. It can be accomplished quickly.
li ( ) c. It extends protection against legal risks to organizations.
( ) d. It can be repeated periodically.
1 j
'I
106 © 2015 SHRM

)
6. When would a return on investment (ROI) analysis be an effective metric?

' ) ( ) a. An organization wants to compare its productivity with that of similar
competitors.
( ) b. A function is seeking budget to hire new staff.
( ) c. An investor is seeking information about a company's financial perfom1ance.
( ) d. An HR function wants to confirm that it is complying with legal and regulatory
requirements.
7. An HR manager wants to detect a correlation between possession of a certain type of degree

and job performance ratings. What type of analysis would help?
( ) a. Variance analysis
( ) b. Regression analysis
( ) c. Trend analysis
( ) d. Root cause analysis
) 8. What would be the best advice for an HR manager presenting a complex analysis of
workforce needs and recommendations to a leadership group?
( ) a. Make sure all data is included in slides.
( ) b. Practice.
( ) c. Describe your methodology thoroughly.
( ) d. Let the audience draw their own conclusions.
© 2015 SHRM 107


1. a (p. 89)
2. b (p. 94)
3. a(p.91)
4. d(p.91)
5. a (p. 90)
6. b (p. 98)
7. b (p. 101)
8. b (p. 102)
I
I
.I
'
108 © 2015 SHAM

:, )
Section 6:
)
\
,I
• Identifying key talent requirements to successfully execute the business strategy.
)
• Conflict management techniques.
• Effective communication techniques.
• Ethical decision-making framework.
• Leadership theories, approaches, and evaluation.
)
)
. )
)
Leadership and Strategy

Organizations need good managers to tend to day-to-day operations, to bring
order and consistency, and to apply structures and systems to get results.
Organizations need leaders to implement change and strategy. The key skills for
managers are planning, staffing, organizing, and controlling people and budgets.
The critical focus for leaders is on controlling risks rather than people, on
providing guidance and vision rather than orders, on creating an environment in
which employees can excel and contribute rather than simply follow directions.
Jonathan Gosling and Henry Mintzberg have emphasized that:
Leaders don't do most of the things that their organizations get done; they
do not even make them get done. Rather, they help to establish the
structures, conditions, and attitudes through which things get done. And
that requires a collaborative mindset.
In the leadership role, HR professionals have a dual focus. First, they have a
responsibility to serve as leaders themselves wherein they can help to bring about
the change necessary to keep lhe organization competitive and thriving. Second,
they have the responsibility to identify and develop leaders in the organization.
This section focuses on leadership characteristics, classic models of leadership, and

ways in which HR can assist the organization in developing and evaluating leaders.
A satellite communications firm is approaching renegotiation of the labor

contract with workers who perform highly technical assembly and testing
work. Senior management is primarily composed of engineers who have
risen through the managerial ranks. They tend to see the union workers as
Leadership less-skilled and less-critical participants in producing the firm's value.
and Management appears willing to implement a harsh labor strategy that the
Navigation CHRO knows may lead to work stoppages. The CHRO is attending a
Competency strategy session and listens carefully to the positions of those in the room.
in Action
Asked what HR will do to implement the strategy, the CHRO says that HR
will, of course, do what it can to support whatever strategy is decided.
However, the CHRO points out that management's perception of the value of
I,
the union workers is not accurate. Although they are not engineers, it would
,I not be easy to replace them. The union will not be as ready to concede as
management assumes. The CHRO recommends developing and analyzing
potential contracts in preparation for contract negotiations and adopting a
I more win-win approach. The CHRO has demonstrated competency in the
area of leadership and navigation by showing the courage to challenge
management when intended actions may harm the organization.
110 © 2015 SHAM

I:
Leadership Characteristics
The model ofleadership has clearly changed from one associated with hierarchy
and position and with coercion and intimidation. Leaders may arise throughout
the organization.
The key skills for leaders have been discussed over the decades by many authors.
James M. Kouzes and Barry Z. Posner discuss their research into leadership in
their book The Leadership Challenge. Kouzes and Posner discovered the
following leadership practices common to successful leaders.
• Practice 1: Challenging the process. Leaders seek challenge and take

risks. Whether the challenge is a product innovation or a reorganization, a
leader's role often involves recognizing the need for change and supporting
and directing innovation.
• Practice 2: Inspiring a shared vision. Successfi.Jlleaders have vision-a

desire to change, create, and make things happen. Leaders must gel others
to buy into their vision and engage followers to help make their vision a
reality.
• Practice 3: Enabling others to act. Exemplary leaders enlist the support

} of others and empower them to do good work. They gamer the resources,
human and otherwise, and encourage collaboration.
) • Practice 4: Modeling the Leaders must lead by example if they want

) an enthusiastic following, demonstrating in their behavior the
organizational and management values they believe are impmiant.
I • Practice 5: Encouraging the hea1·t. Leaders must encourage the heart of

\ their followers to carry on despite adversity and celebrate successes
I whether they be small accomplishments or significant milestones.
J
) Frank T. Gallo, a noted leadership consultant who has worked with Chinese
and Western executives, has noted that effective global leaders have emotional
intelligence and think strategically and ana!ytica lly-applying systems
thinking when solving problems. They are skilled at influencing others
)
© 2015 SHAM 111

(through negotiation and conflict resolution) and at articulating visions through

organizational storytelling.
The concept of emotional intelligence is discussed in the "Diversity and

Inclusion" Functional Area in the Workplace module.
Erica Ariel Fox proposes seeing the leader as having a multifaceted personality
or "inner team," as shown in Figure 25. This inner team draws on fundamental
strengths to lead: intuition, reason, emotion, and willpower. The inspirational
dreamer intuits or envisions a path forward. The analytical thinker gathers
information and considers consequences and different points of view. The
emotional lover can engage with people in an empathetic manner, developing
trust and loyalty. The practical warrior can make the hard decisions and stand
by them. Ram Charan advises leaders to be clearheaded, avoid optimism, and
plan for worst-case scenarios.
• Generate and pursue a path • Apply facts and logic.

forward. • Consider risks.
IIti • Use muttiple perspectives.
l
I
. ':-::.·..
):;j
• ·• -· .,._c,...J,···:··-
-
.·:
_-1-------...
i•EniOtlorfat
·
,-.----y,.::;:-'\'7;
• Speak hard truths. • Cultivate empathy.

• Hold your ground. • Build and maintain trust.
• Take action. • Collaborate.
Figure 25: The Leader's "Inner Team"
It is worth noting here that the characteristics that have impelled managers
toward the top of their organization's hierarchy and allowed them to attain
112 © 2015 SHRM

positions ofleadership will not make them good leaders. The business press is
full of stories about dynamic, talented, and ambitious individuals who reach the
top in their professions but cannot apply the skills that will keep them there and
benefit the organization. Marshall Goldsmith, in What Got You Here Won't Get
You There, offers 21 "bad habits" that can hold aspiring leaders back.
Overcoming these habits involves tempering competitiveness with
J collaboration, spending more time building up team members' images than
one's own, admitting mistakes, listening more, thanking others, and
committing to changing one's own negative behaviors.
)
Theories about leadership

There has been a significant amount of research into leadership-in part because
)
)
of how important it is to organizations, but also because of the perplexing
questions the topic raises and the difficulty of arriving at satisfying answers. Are
)
)
great leaders born or can they be made? Does a leader have a natural style that
cannot be easily changed, or is leadership a set of skills that can be deftly applied
to different situations? The research has spawned different theories, each of
which proposes a model of effective leaders. These models can be used for
recmitment and selection or for leadership development.
A thorough overview of these theories from the Centre for Leadership Studies at
The University of Exeter divides them into five basic schools:
• Trait theory
) • Behavioral school
• Contingency or situational school
\
·' • Leaders and followers
• Dispersed leadership
Generally, organizations create their own models ofleadership, a set of traits that
are believed to be well-aligned to the organization's mission, strategy, and
culture. For example, Federal Express has developed a leadership model that
emphasizes, among other qualities, charisma, courage, integrity, judgment, and
respect for others. Lufthansa's model emphasizes entrepreneurial spirit,
persuasiveness, attitude and drive, innovative problem solving, and international
business competencies.
© 2015 SHAM 113

)
)
STRATEGY Business and HR Strategy )
Trait Theory
The trait theory derives from the "Great Man" theory of the 19th century. In this I
)
view, history has been shaped by heroes (primarily men, generally soldiers, and
mostly hailing from the West) who led by the force of their personalities, their
wisdom, and/or their political skill. The researchers' goal was to catalog the
traits of recognized leaders so that these traits could be used to recruit
individuals with similar characteristics. Research has never proven the strength
of the correlation between possession of these traits and successful outcomes, but
some of these traits and skills appear frequently in leadership models, such as
adaptability, tolerance of stress, a desire to influence others, a willingness to
accept responsibilities, decisiveness, and energy. Common skills include
intelligence, creativity, persuasiveness, and diplomacy.
Behavioral School
The behavioral school focused on a leader's ability to influence the performance )
and satisfaction of followers. From these behavioral studies, two dimensions of
leadership behavior emerged. One focuses on the employee, and the other
focuses on the job.
• Consideration. Consideration, also known as employee-centered behavior,

refers to leadership behavior that is aimed at meeting the social and
emotional needs of individuals and group members, for example, helping
individuals and group members, explaining decisions, and looking out for
their best interests.
• Initiating structure. Initiating structure, also known as job-oriented

behavior, refers to leadership behavior that is aimed at careful supervision of
employee work methods and performance levels, for example, getting
: workers to follow rules, clarifYing roles, and setting goals.
i
.I The question of which of these types is more effective in leading an organization
I
!
has not been clearly answered. A meta-analysis of studies by Judge, Piccolo, and
llies (quoted in Applied Psycho log;' in Human Resource Management) found
l that consideration was more likely to be associated with positive outcomes than
I initiating structure. Again, however, there was enough variability in results that it
is difficult to usc these dimensions as reliable predictors of good leadership.
.l
114 © 2015 SHRM

r) STRATEGY Business and HR Strategy
I
r, I
II J Douglas McGregor's Theory X and Theory Y, which is discussed in the "Employee
ll Engagement" Functional Area in the People module as a motivational theory, can

be seen as a behavioral school leadership theory as well. Leaders' perceptions of
their followers affect their manner of leading. Because Theory X leaders perceive
'
followers as inherently disliking work, they lend to behave autocratically
(initiating). Theory Y leaders, believing followers can be self-motivated, create
participatory and trusting work environments (consideration).
Another theory in this school is the Blake-Mouton theory, which uses a grid to
) relate a leader's concern for people to a concern for production or task. This
theory gave rise to five types of managers, only one of which is considered a tme
leader, as shown in Figure 26:
) A gre•n ae•aJ
9
)
Concern for
People
J
Very little A great deal
1 ... •
Concern for Production (Task)
Figure 26: Blake-Mouton Theory
• Team leaders-high in both dimensions. These managers lead by positive

example, foster a team environment, and encourage individual and team
development.
• Authoritarian managers-high on the task scale and low on concem for

people. They expect people to do what they are told without question and tend
not to foster collaboralion.
)
) © 2015 SHAM 115

• Country club managers-low on the task scale and high on the people scale.
They create a secure atmosphere and trust individuals to accomplish goals,
avoiding punitive actions so as not to jeopardize relationships.
• Impoverished managers-low on both task and people. These managers use a

"delegate-and-disappear" management style. They detach themselves, often
creating power struggles.
• "Middle of the road" manager-with balanced scores on both dimensions.

These individuals get the work done but are not considered leaders.
Contingency or Situational School

Situational leadership theories accept the behaviorists' perceptions of different styles
ofleadership but emphasize that leadership style is most effective when it flexes to
the situation or the employees involved. Some well-known theories follow.
Hersey-Blanchard's Situational Leadership Theory

The Hersey-Blanchard theory suggests that there is no ideal leader type but that
leadership style should be matched to the maturity of the employees. Like Blake-
Mouton, the dimensions on the situational grid relate to task and people. Task
behavior refers to the extent to which leaders organize and define the roles and
activities of followers. Relationship behavior refers to the extent to which leaders
maintain personal relationships with members of the group.
Employee maturity is assessed in relation to a specific task and has two parts:
• Psychological maturity-self-confidence, ability, and readiness to accept
responsibility. This reflects the need for supportive behaviors.
• Job maturity-relevant skills and technical knowledge. This reflects the need
for guiding behaviors.
As employees' maturity increases, leadership should become more relationship-

motivated than task-motivated. A leader's style must change as individuals
I
l develop and require different types of direction and leadership.
!
'j
As shown in Figure 27, leadership consists of four tasks based on the
I employee's maturity:
.'"l • Delegating to employees (for employees who need the least guidance)
:I' • Participating with employees
!.
116 © 2015 SHRM
• Selling ideas to employees

. I • Telling employees what to do (for employees who need the most guidance)
High
I
i Participating
Share ideas and

Selling
Explain decisions and
i
facilitate in decision provide opportunity
making. for clarification.
i _
Refationshl
I High Task!
High \
)
Relationship Behavior Low Task Relationship
(Supportive Behavior) Low High Task!

Relationship! Low
Low Task 0 Relationship
Turn over Provide specific

responsibility for instructions and
i decisions and closely supervise
Delegating Telling
implementation. performance.
Task Behavior
Low +--- High
(Guidance)
Figure 27: Hersey-Blanchard Situational Theory of Leadership
This model has expanded over time to include the Situational Leadership II
model, which categorizes leadership styles into four behavior types--directing
leaders, coaching leaders, supporting leaders, and delegating leaders. Again,
leaders will have a natural style, but effective leaders should adapt themselves
to given situations to help employees become more self-reliant.
)
)
Fiedler's Contingency Theory
The contingency theory states that group performance depends upon the
appropriateness of task-oriented or relationship-oriented leadership styles for a
given situation, termed "situation favorableness." Fiedler proposed that three
factors determine the favorableness of the leadership environment:
)
• Leader-member relations refers to the degree of confidence, trust, and
)
respect that followers have in their leaders.
)
• Task structure refers to the extent to which followers' tasks are well
defined--( i.e., structured or unstructured, clear or ambiguous).
• Position power refers to the degree of power and inOuencc a leader has
over subordinates.
)
) © 2015 SHRM 117
Fie_dler ccmtends that certain leadership styles are more effective for certain
situations. However, rather than suggesting that leadersEe trahi.ed to change.
-their preferred styles, he suggests that a better alternative is to change the
favorableness of the situations by making changes to one or more ofthe three
· factors listed above.
Action-Centered Leadership
This model was created by John Adair. It proposes that an effective leader
accomplishes tasks through the efforts of the team. The leader must:
I
ij,
o
o
Structure the task and make sure that everyone knows what to do and what is
expected.
Support and develop individual team members by reviewing their work,
coaching, and motivating.
I • Coordinate the team's work, enforce rules and resolve disputes, and
encourage and motivate.
Leaders and Followers

In this school of leadership theory, the leader becomes a team leader, not a
hero. These models emphasize relationship skills and the ability to disappear
behind a successful team. The leader becomes a servant of the team, making it
possible for them to achieve the group's goals.
In The Wisdom of'Teams, Jon Katzenbach and Douglas Smith identified

critical behaviors for leaders:
o Asking questions rather than providing answers-"How would you solve
this problem?" This develops the team's initiative and taps their own
expertise.
• Providing opportunities for others to lead.
• Doing actual work to attain short-term objectives (also known as "sweat
equity" or "rolling up one's sleeves and getting dirty").
o Encouraging team members to work with and rely more on each other to
solve issues.
• Building a common understanding of a problem.
I 118 © 2015 SHRM

)
Meredith Belbin described "solo" and "team" leaders and proposed that modern
organizations need team leaders. Figure 28 contrasts these types of leaders.
Solo Leader Team Leader
Gets involved (and interferes) in Delegates team roles to others.

everything.
Expects team members to Recognizes the value of diversity
conform to his or her standards of in the team.
behavior and style.
Collects admirers and "yes men." Encourages constructive
disagreement and is not
) threatened by team members'
special abilities.
Directs team members' activities. Develops team members' growth.
Sets objectives. Creates vision on which others
act.
Figure 28: Be/bin's Model of Team Leadership
The tendency of the "follower" leader to involve and develop team members has
characterized these perspectives as transformational leadership, to be contrasted
with transactional leadership.
Transfonnationalleaders think in terms of vision and strategy rather than short-

tenn objectives. They believe in challenging and developing members of the
organization for the long-term, not just to deliver short-term results. They
espouse certain values, model them in their behavior, encourage them in team
members, and sacrifice for those values.
Dispersed Leadership
This view of leadership may be referred to as "emergent leadership." In a given
situation, a leader will emerge ti·om a group working on a task and exert
influence over the others in the group and the direction of the task. In this theory,
a leader is not institutional-someone with authority or a specific place in the
organization's hierarchy. Nor is the leader someone who has special "leader"
characteristics. The key is the relationship between the leader and the rest of the
group who have chosen to follow.
© 2015 SHRM 119

The growth of "flat" structures in organizations and the increased use of vittual
and self-managed teams have raised awareness of this more contextual form of
leadership.
Global Leadership Models

Many critics have noted rightfully that the leadership models discussed above
reflect Western perceptions of leadership. Do these traits and skills apply to the
needs of global organizations?
In 2004 and 2007, results from the Global Leadership and Organizational
Behavior Effectiveness (GLOBE) Research Program were published. Among the
data were culture clusters, groupings of 60 countries into ten clusters that share
cultural dimensions derived from Geert Hofstede and other cultural researchers.
The GLOBE researchers did identify characteristics that contributed universally
to the perception of outstanding leadership and characteristics that detracted
from this perception. These are listed in Figure 29. You will note many traits
discussed previously in the list.
Universal Characteristics
.··.···•rhat !Jetirlebadershlp
' ' -------
---·--' -
Trustworthy Decisive
Just Excellence-oriented
Honest Dependable
Foresight Intelligent
Plans ahead Effective bargainer
Encouraging Win-win problem solver
Positive Administratively skilled
Dynamic Communicative
Motive arouser Informed
Confidence builder Coordinator
Motivational Team builder
Universal Characteristics
That Detract from Leadership ·
Loner Irritable
Asocial Egocentric
lndirect/nonexplicit Ruthless
Noncooperative Dictatorial
1'
:I
J
,I ·-Figure f!9: GLOBE Results for Universal Leadership Characteristics
1
i
120 © 2015 SHRM

I' )
II 1 STRATEGY Business and HR Strategy
r
Josh Bersin reported in Forbes on more recent and extensive research into the
nature ofleadership in different countries. (The research was funded by
Deloitte and conducted in 10 countries, including Western and Eastern
economies as well as developed and recently emerged economies.) He noted
differences in leadership style and focus that could be attributed to local
culture and/or the unique economic conditions that would characterize
developed economies in need of change and recently emerged economies in
need of strategic implementation.
Bersin believes that there are clear implications for HR professionals in global
enterprises:
• Cultural training is more important than ever for global assignees. They
need to be aware of cultural traits, such as attitudes toward women,
preferred forms of reward, or differences in the way decisions are made
! that could affect perceptions of their leadership abilities or the way they
should lead.
• Because of these local ditTerences, it is important to focus on developing
) leaders from within local operations.
• Organizations should respect local differences and refrain from exporting a
single, headquarter-based leadership model to their global operations and
developing a "one size fits all" global model.
In 2012 the American Management Association (AMA), the Institute for

Corporate Productivity, and Training magazine conducted a survey of over 1,000
global practitioners. They developed the list of global leadership skills, shown in
Figure 30. The list emphasizes the need for acquiring fluency in local cuHures
and mastering skills more commonly needed in large, global enterprises.
Competencies for Global Leaders

Managerial agility Managing innovation in multicultural
Collaborating with peers from setting
multiple cultures Applying ethical standards in multiple
J Managing virtual teams cultures
) Managing in a matrixed Mastery of latest advances in virtual
organization technology
Cross-culiurai employee Mastery of social network technology
engagement Multicountry supply chain management
------------------
Figure 30: AMA Study on Competencies for Global Leaders
J
) © 2015 SHRM 121
Methods for developing and evaluating leaders are discussed in the "Learning
and Development" Functional Area in the People module.
Key Leadership Skills

Leaders require a variety of skills beyond business expertise, and these skills arc
addressed throughout the SHRM Body of Competency and Knowledge and this
Learning System. For example, skills such as managing change and critical
thinking have been discussed in this Functional Area. Emotional intelligence and
cross-cultural communication are discussed in the "Diversity and Inclusion"
Functional Area in the Workplace module.
This topic focuses on three skill areas closely aligned with leadership:
• Making difficult ethical decisions
• Using communication skills to align stakeholders
• Managing conflicts among followers
Ethical Behavior
Leaders are in a position to decide ethical issues or make decisions that have
ethical implications, and one of the key competencies of leadership is to be a role
model in this area. A key leadership skill then is the ability to make challenging
ethical decisions in a thoughtful and consistent manner.
The global auditing firm PwC has developed a framework for ethical decision
making for its employees, who face ethical situations often by the nature of their
work. The PwC framework can be adapted easily to the HR profession and HR
leaders. The framework contains the following steps.
• Recognize ethical situations as they arise. This requires having an ethical

compass, a sense of right and wrong. If the possible outcomes of an action
trigger uneasiness about ethical or legal propriety, this is a signal to pause
and consider the situation more fully.
• Establish the facts about the situation. The right decision will depend on
knowing such details as:
' What are the different paths that could be taken?
Who will be afleeted? What are their expectations and are they valid'!
122 © 2015 SHAM

What will be the nature and extent of harm done?

"" Will a decision violate written and unwritten agreements?
• Evaluate the ethical dimensions of possible actions. Developing ethica I

criteria is difficult. One cannot adopt them fully packaged in the form of
religious beliefs or cultural norms. Ethical criteria necessarily involve
/> balancing interests and sacrificing one's own interests.
Various moral codes have proposed different ways of evaluating actions

ethically. They can be used to help one understand the ethical implications of
one's actions more fully.
) e A utilitarian approach argues for the path that provides the greatest
J amount of good for the greatest number.
) " A rights approach examines whether a decision violates any basic human
) right, such as a right to truth, privacy, and physical well-being.
• A justice approach examines the degree to which an action might be
preferential or discriminatory.
J • A common-good approach considers the impact of the decision on the
) entire group (or society. in more general tem1s).
) • A virtue approach asks whether an action will promote or obstruct the
decision maker's character development and the character development
ofthose affected by the decision.
) • Apply relevant codes of ethics and behavior to the options. Organizations

and professions may have developed their own codes of ethical behavior that
can provide more specific guidance. For example, SHR_M publishes a
professional code of conduct (www.shrm.org/aboutlpages/code-of-
cthics.aspx). Global organizations often provide guidance in situations in
) which the ethical norms of a parent country may not align with the legal
requirements and cultural expectations of host countries.
• Consult with others. HR leaders should identify people, inside and outside
the organization, they consider ethical mentors, individuals who are known
for their ethical behavior and the ability to understand and advise on complex
) situations. Maintaining an obligation of privacy to all those involved, leaders
) can seek different perspectives. This is especially important in ethical
decision involving cultural differences or icgai matters. One should note
instinctive and immediate reactions; they often point to basic ethical issues.
)
© 2015 SHRM 123

• Make a decision, own it, and learn from one's mistakes. When the issue
has been satisfactorily analyzed, a decision should be made and
communicated to those affected by it. Leaders should explain their rationales
thoroughly and accept reactions. Once the decision is made, it should not be
remade unless significant shortcomings in the original decision making have
i been uncovered. However, the effectiveness of the decision itself, the

eventual impact on those affected, the soundness of the criteria and processes
I
i
used-these aspects of the experience should be reevaluated so that the next
decision can be a better one.
The CHRO for a large, global clothing manufacturer is visiting each of the
company's manufacturing operations. Some of these operations are located
in developing economies. Touring the factory floor, the CHRO notices that a
significant number of the workers are no older than 12. The CHRO mentions
Ethical
this observation to the plant manager and local HR manager. The HR
Practice
Competency manager explains that it is legal for children this young to work full-time in
in Action this country and that they are paid the same as older, similarly experienced
workers. No laws are being broken. The CHRO believes though that the use
of child labor violates the company's core values. The HR manager responds
that these workers may be children, but they are also heads of households.
Most of them are the primary source of income for their families, and without
that income the families' living standards would decrease and younger
children in the family would not be able to attend school. The CHRO
considers this ethical dilemma and presents it to management, asking
management to support a program that would deliver on-site basic and
technical education to these child workers every week. Workers would be
paid for time attending these classes. The CHRO demonstrates ethical
competency by understanding the complexity of the ethical situation and
finding a way to satisfy ihe company's ethical values and worker needs.
Communication
! '
Effective communication is fundamental to aligning the leader's vision and the
I
organization's efforts, preventing misunderstandings, satisfying stakeholders,
and motivating the organization. It involves planning, execution, and evaluation.
It requires understanding obstacles to the process, planning to meet the needs of
listeners by using different means of communication appropriately and
effectively, and assessing the effectiveness of the communication through its
impact, the organizational results.
l
'I
.,j
!
i
!
\
124 © 2015 SHRM

' )
)
Understanding Listeners' Needs and Expectations
))
The communication model shown in Figure 31 demonstrates the potential
I difficulties of communication, whether it is oral, nonverbal, or written.
I
I IMJo ...
---,
says what ... in what way ... to whom ...
IJ f. Communicator Message Medium Receiver

I
with what
effect ...
Feedback
Figure 31: Communication Model
At each link in this communication chain, something can go wrong:
• The communicator can be ineffective in articulating the message.

• The wrong person may be getting the wrong information.
• The information itself may be wrong or insufficient or not exactly what
the receiver needs.
• The nonverbal components of the message or the tone of the message
may be at odds with the intended effect. For example, a communicator's
)
attempt to appear confident may be perceived as rudeness.
)
• The message may be unclear because it relies on technical, historical, or
)
cultural know ledge the receiver does not have.
• The message may be sent at the wrong time and in the wrong manner or fonn.
• An e-mail about an event that is delivered too soon is apt to be forgotten.
• A critical e-mail to receivers overloaded with e-mails may be the wrong
channel of communication.
• A proposal may include grammatical or formatting mistakes that damage
the credibility of the message itself (and the communicator).
)
• An oral presentation in a language unfamiliar to the receivers will be only
)
partially understood. Similarly, a complex oral presentation delivered in a
virtual meeting may be difficult to follow without printed materials or
visual support.
© 2015 SHRM 125

! STRATEGY Business and HR Strategy
I
I
• The receiver may misunderstand the message.
• Interruptions or physical conditions (e.g., noise, discomfort) can interfere
with comprehension.
,, Different languages and expressions may prevent understanding.
• The receiver's expectations may differ and the message becomes
confusing or dissatisfying.
• The feedback loop does not operate well.

The communicator does not provide for feedback from the receivers. For
example, there is no question-and-answer period after a presentation, or a
contact is not included in an e-mail.
• The communicator does not understand the feedback, perhaps because of
language and cultural issues or different expectations.
• The communicator does not respond to feedback.
Planning Communication
Before communicating, leaders should perform some level of audience and
message analysis. This might be a momentary analysis of the situation and
decision about strategy, or it could be a more thoughtful analysis about the way in
which a critical topic is communicated to a varied audience with complex needs
and expectations. An extended analysis should establish:
• The receivers and their needs

• Who should receive information about this topic? How many distinct
groups are there? What aspects of the topic do they need to know to do
their jobs? What background informaiion do they need to establish
context?
• What will be the attitudes of these different groups to the communication?
.I
li Should the leader anticipate and plan to manage resistance? What
'i. I explanations or proofs would help establish need or importance? How can
the communicator increase the audience's engagement in the message?
l
!' • What rhetorical approaches will work best with each group? For example,
I
skeptical audiences may require a detailed, well-supported presentation.
I Some audiences want to be moved emotionally. It may be effective to lead
some decision makers through a proposal incrementally, so that they can
1 feel that they have determined the fin a I recommendation themselves. More
,j
·· risk-averse.decision.makers may require more:1lternatives and _proof.
J
126 © 2015 SHRM
• The intended message and desired actions

• What arc the key points to be conveyed?
Who is the best person to perform the communication? For example, a
message related to vision is best communicated by a leader, while a highly
technical message requires an expeti skilled in communications. When
communication is with the public, individuals trained in public speaking
J\ and working with media should be used.
" What are the objectives of each part of the communication? What actions
will be required/desired from different groups?
)
• What metrics can be used to assess the effectiveness of the
J communication? Note that these metrics can range from the number or rate
of actions taken to the perceptions of stakeholders in response to the
communication (e.g., their satisfaction with the way an issue has been
handled).
I
) • The media to be used with different groups
What is the best and the expected means of communication, given the topic
and the audience? Note that the form of communication is often dictated by the
message and purpose. For example, discussions about complex or sensitive
) issues may be conducted best in person or by phone rather than by e-mail.
) Proposals that will require allocation of resources should be in writing and in
the format or templates preferred by the organization.
I
l • The communication strategy
) • What information should be communicated in what order, on what dates,
) by whom, and to whom?
• What support will be needed? For example, significant communication
benefits from review by a third party, who can provide feedback about the
clarity of the message and the tone that is being conveyed. Formal
communication benefits from an editor who can correct grammar and
usage. Presentations may require technical assistance from graphics and
information systems expetis.
) ,, How will the messages be sent?
)
How will understanding of the communication be confirmed? Who
)
will keep track of receipt of communication and responses?
How will feedback be received and acknowledged? Who will be
responsible for this?
© 2015 SHAM 127

Implementing and Evaluating Communication

Communication should not be a formulaic activity, performed only because
it is expected or because it attracts attention. The point of communication is
to initiate or support action. If the outcome docs not advance the objective,
the communication has failed.
The communication strategy must be implemented with awareness of the

need to alter the message to improve its understanding and impact on the
audience. Continual monitoring of the audience's response through verbal
!
and nonverbal feedback can identify enthusiastic support that can be
deployed toward reaching a goal, or it could spotlight confusion and
I
resistance that must be addressed.
II
Following a major initiative, a leader should include a debrief and evaluation
Ji
I ofthe communication strategy that was used.
I
Managing Conflict
Conflict is not necessarily a bad thing in an organization. Conflict can derive
II
'1.
from disagreements over how to do a pa1ticular task, or it can relate to
personal differences, such as culture, cognitive and communication styles, or
a need for control or dominance. Task conflict can actually lead to
discoveries of better ways of doing things. Interpersonal conflicts, if
controlled by enforcing ground rules of behavior, may be an acceptable price
for diversity in a team or organization.
Constant conflict, however, can weaken trust and erode relationships,

obscuring a sense of common mission and making collaboration difficult.
Leaders should therefore consider approaching conflict proactively. Many

sources of conflict can be eliminated through clarity and communication-by
establishing ground rules for conduct, clarifying authority and responsibility,
setting objectives with input fi·om all stakeholders and team members, and
considering the possible effects of decisions and actions on others.
Agile project management techniques were developed in response to the

i
demands of complex software development projects, but Agile principles can
1
· -actually help leaders proactively manage common sources of conflict.
128 © 2015 SHRM

Some notable Agile principles include:
• Agreed focus on certain key values. These include a commitment to

customer satisfaction, a welcoming acceptance of change, and attention
to quality processes.
\ • A sustainable approach to resources. Many organizational conflicts

) derive from a struggle for resources and the resulting effect on
) employees-shifting of attention from one project to another, long
hours, etc. The Agile approach manages work in small packets. Ideally,
the work can be accomplished in two weeks with staff focusing full-
time on one set of objectives. Then resources are released to other
tasks.
) • Motivating employees. Agile accomplishes this in several ways. Task

)
boards allow staff to move tasks into completed columns, providing a
) sense of accomplishment. Conflict is handled in a positive way by
identifying obstacles and agreeing on prioritization in handling them.
) Employees perceive that they are respected because they are trusted to
organize their own work.
• Face-to-face conversation. Serums or daily meetings institutionalize

communication. Very short (ideally only 15 minutes long), the
meetings ask only that staff report what they have accomplished, what
they will accomplish by the next meeting, and what impediments are
obstmcling progress. Commitments to delivering certain work .
increases transparency and accountability to other team members.
Problem solving occurs in separate meetings.
Conflict Resolution Modes

When conflicts do need to be resolved, the techniques described in Figure 32
on the next page can be applied. It is often said that collaboration is the most
effective f01m of conflict resolution because the outcome is more likely to
address the source of the conflict. Practically, though, there are occasions
when any of these modes may have advantages.
)
)
© 2015 SHRM 129

Mode Description Comment

Accommodate (or The leader restores good Useful when there is little time to
Smooth) relations by emphasizing be lost and movement forward is
II agreement and downplaying

disagreement.
needed. It does not, however,
address the root conflict. If the
group continues, the conflict will
probably recur.
11
Assert (or Force) The leader imposes a solution. Useful in a crisis because it
I One side wins and the other resolves the issue quickly, when
I loses-hence the term "win/lose"
conflict resolution.
authority is being challenged, or
when the impact on future
relations with the group is
I minimal. This is a sharp departure
from the models of leadership we
have discussed in this section.
Like accommodation, it does not
permanently address the problem.
Avoid The leader withdraws from the Useful when the conflict will
situation or accepts it, leaving resolve soon without any direct
the conflict to be resolved by intervention or when the conflict or
others or to remain unresolved. relationship is not worth the time
Ii investment. Leaders should be

aware that avoiding conflict can
weaken their role in the
lr
I
organization and may damage the
group by leaving a problem
unresolved or allowing it to be
I poorly resolved.
Collaborate (or The leader and those in conflict Useful when the stakes are high,
Confront) accept the fact that they relationships are important, and
disagree and look for a "third time allows. (It does require time
a new solution to the and strong interpersonal skills.)
problem of the conflict. Since There is greater chance for an
II
I
i
both sides contribute to the
solution, this may be seen as
"win/win" conflict resolution.
enduring, equitable, mutually
satisfying resolution.
I Compromise The leader asks those in conflict Useful for complex issues, when
.l to bargain-altering positions on both sides are determined to win,
different issues until a mutually and when time doesn't allow for
acceptable solution is defined. true problem solving. Solutions
I
;j
The solution relies on may be temporary and only
.\ concessions. For this reason, it partially effective, but when strong
,!.. is often referred to as "lose/lose" personalities are involved, it does
• conflict resolution . preserve the egos of all parties.
Figure 32: Conflict Resolution Modes

j
l 130 © 2015 SHRM

)

)
There are indirect forms of conflict resolution as well. For example, a strong
Agile principle is self-organization. Leaders do not solve problems or resolve
) conflicts. They can, however, exercise "subtle control." Under subtle control, a
) leader makes changes to the group dynamic that will allow the group itself to
resolve a situation in a more productive manner. The example frequently given is
) that of a team dominated by one member, sometimes to the detriment of the
) group's goals. By adding a new member to the team, the leader can disrupt the
) dynamics and force the team to manage the dominating member.
)
) Yet again, conflict resolution in a multicultural organization will be more

challenging. Leaders must take into account employees' willingness to raise
issues and challenge those with more status. They must also realize that some
individualist cultures are more tolerant of and comfortable with conflict than
collectivist cultures. These differences are discussed in the "Diversity and
Inclusion" Functional Area in the Workplace module.
) Negotiation Meihods
It seems appropriate to discuss negotiation in connection with conflict resolution.
Conflict resolution may involve negotiation (as in collaboration and
) compromise), or negotiation may involve conflict (as in internal struggles over
resources or objectives or external relations with suppliers). Negotiation methods
are similar to some of those used in conflict resolution.
) Negotiation involves distinguishing between needs and wants. Needs are

) essential to a leader's goals-for example, a budget to conduct a needs analysis
preliminary to designing a new policy or Wants are attractive but not
really essential. For example, it might be nice to have a 20% reserve for the
needs analysis project, but a leader can meet the ultimate goal without it or with
)
a smaller reserve.
) There are different types of negotiating styles, but they are commonly considered
as soft, hard, or principled:
)
• Soft negotiators value the relationship more than the outcome and will back
)
down on issues in the interest of reaching agreement-even if they are no
longer getting what they need.
)
• Hard negotiators are committed to winning, at the cost of the
relationship.
)
)
© 2015 SHAM 131

• Principled negotiators aim for mutual gain. They can separate people from
positions and maintain focus on the issues. They identify common interests
and make them a goal of the negotiation. Principled negotiators are also
creative: They come to the negotiation prepared with different options that
may satisfy both sides. In principled negotiation, the goal is a win-win
solution, requiring some sacrifice of position from each side in order to gain
meaningful points.
Only principled negotiation is consistent with the leadership models most

organizations accept. Today's organizations recognize the value of collaboration
and relationships.
Negotiators should be aware of the influence of culture on negotiating styles. In

International Dimensions of Organizational Behavior, Nancy Adler argues that
leaders who find themselves engaged in cross-cultural negotiations should
consider a "synergistic approach" that recognizes the differences in negotiating
styles across cultures and uses those differences to craft agreements that allow
both sides to "win." To do this, individuals should begin by taking the cultural
perspective of the other side in the negotiation -ttying to understand the values
that the other side brings to negotiations and what they hope to achieve through
negotiation.
It is possible that, by understanding differences, negotiators can avoid having to

compromise their desires. Since each side may want different things, it may be
possible to reach "win-win" agreements more easily. Stacy Fitzsimmons,
ChristofMiska, and Gunter Stahl (".Multicultural Individuals: What Can They
Bring to Global Organizations?" in Readings and Cases in International Human
Resource Management and Organizational Behavior) emphasize that by
understanding the perspective of the other side, able negotiators create ease,
trust, and respect.
I 132 © 2015 SHRM

)
)
)
Progress Check
)
) Directions: Choose the best answer to each question.
)
) I. A difference between management and leadership is that
( ) a. management aligns people to the vision and strategies; leadership establishes a
structure for accomplishing plan requirements.
( ) b. management energizes people; leadership organizes people to solve problems.
( ) c. management establishes the vision; leadership establishes detailed steps and
timetables.
( ) d. management delegates responsibility and authority for carrying out the plan;
leadership co111111unicates the direction by words and deeds.
2. An HR leader makes sure that members of her team have access to leading theories and best
practices in their profession. What key element of leadership according to Kouzes and Posner
does this illustrate?
)
( ) a. Challenging the process
) ( ) b. Inspiring a shared vision
)
( ) c. Enabling other to act
( ) d. Encouraging the heart
)
)
3. Which statement about leadership is true?
) ( ) a. Effective leaders make sure their contributions are well known.
)
( ) b. Leaders would do well to listen more.
( ) c. Leaders are more intuitive and emotional than logical and analytical.
( ) d. Effective leaders are optimistic and promote positive visions of the future.
4. The two primary dimensions of behavioral theories of leadership are

( ) a. intelligence and task-relevant knowledge.
( ) h. consideration and self-confidence.
c. consideration and initiating structure.
d. initiating structure and intelligence.
© 2015 SHAM 133

5. Which statement exemplifies Hersey-Blanchard's situational leadership theory?

( ) a. A leader's style must change over time as individuals develop and require a
different type of direction and leadership.
( ) b. Leaders don't necessarily need personal relationships with mentors to learn from them.
( ) c. Leaders need to be charismatic because employees dislike rigid controls and
inherently want to accomplish something.
( ) d. A team leader is one equally concerned with people and production (task) to the
maximum degree.
6. In the contingency theory of leadership, what is the term for the degree of confidence, trust,
and respect that followers have in their leader?
( ) a. Task structure
( ) b. Position power
( ) c. Situational favorableness
( ) d. Leader-member relations
7. Which trait is not desirable in a leader in any culture?

( ) a. Affability
( ) b. Dependability
( ) c. Win-win mentality
( ) d. Loner
8. A manager is asked by a senior manager to select an employee who has been mentored by
the senior manager. This employee was not the manager's first choice for the job. What
would be the most useful question for the manager to ask in sorting out the ethical
implications ofthis action?
( ) a. Am I sure about my assessments of the candidates' abilities?
( ) b. What would my peers think of me if I changed my mind?
( ) c. Is this fair to everyone involved?
( ) d. Is this really an ethical question?
9. A manager wants to explain to an ambitious employee that she will not be receiving a
promotion and why she did not get the job. What would be the best fonn of communication
to usc in this case?
( ) a. Phone call
j ( ) b. E-mail
( ) c. Private, face-to-face conversation
( -) d. Text
134 © 2015 SHRM

I 0. What is an Agile tool that could help to prevent conflict over resource allocation?
( ) a. Acceptance of change
( ) b. Commitment to customer satisfaction
( ) c. Use of small work packets
( ) d. Brief, daily meetings
11. A manager has two staff members who disagree deep!y over the reasons why a process is not
working. The manager doubts they will ever agree about this. He intervenes and points out
that everyone can agree at least that the process is not working and focuses the discussion on
what to do now. What mode of conflict resolution is being used?
( ) a. Accommodate.
( ) b. Assert.
( ) c. Avoid.
( ) d. Collaborate.
12. Which form of negotiation is most consistent with the leadership characteristics found to be
most effective in global settings?
( ) a. Sotl
( ) b. Hard
( ) c. Principled
( ) d. Collaborative
I
)
J
)
)
J
)
© 2015 SHRM 135


1. d (p. 110)
2. c (p. 111)
3. b (p. 113)
4. c(p.114)
5. a (p. 116)
6. d (p. 117)
7. d (p. 120)
I"
8. c (p. 123)
9. c (p. 127)
I
I'
10. c (p. 129)
11. a (p. 130)
12. c (p. 132)
I
-You baV:e i61l'lpletedtheSirategyllol}lain System®-

r0r Next, Cluick.
-_ help youid!!idifyanyconceptsthatneed
lllillitiojfaistudy. -: · _ -_ - · ---- --· -
: . -
·If C'ondl1ded-youtstiidies; you may complete the post-testto

- -measure your ktiowledge and of the concepts covered in
- 'this Learning System.
136 © 2015 SHRM

)
I l
I)
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© 2015 SHRM 139

Glossary
Balance sheet-Statement that reports the Due diligence-Necessary level of care and
financial position of the organization at a attention that is taken to investigate an
specific point in time; shows assets, action before it is taken.
liabilities, and shareholder equity. Environmental scanning-Process that
Balanced scorecard-Measurement tool to involves a systematic survey and
evaluate organizational strategy; looks at interpretation of relevant data to identify
financial, customer, operations, and learning external opportunities and threats and to
and growth measures. assess how these factors affect the
organization currently and how they are
Benchmarking-Process that compares
likely to affect the organization in the future.
performance levels and/or processes of one
entity with those of another to identify Income statement-Statement that reports
performance gaps and set goals aimed at revenues, expenses, and net income (profit)
improving performance. for a specified period-for example,
quarterly or annually.
Blue ocean strategies-Strategies that
create competitive advantage by creating a Lagging indicator-A metric that describes
new marketplace arena in which there are no an activity that has already occurred
other competitors. Leading indicator- A metric that
Business case--Presentation to describes an activity that can change future
management that establishes that a specific performance and indicate higher degree of
problem exists and argues that the proposed success in achieving strategic goals.
solution is the best way to solve the problem Mission statement-Statement that
in terms oftime, cost efficiency, and specifies what activities an organization
probability of success. intends to pursue and what course
Business intelligence-Ability to gather management has charted for the future; a
and analyze data from inside and outside the concise statement of its strategy.
organization so that information is available Organizational culture-The basic beliefs
for decision makers. and customs shared by members of an
Cash flows statement-Statement that organization that contribute to an
shows incoming and outgoing cash in the organization's sense of its identity.
areas of operations, investments, and Organizational values-Beliefs that are
financing and remaining cash reserves;
important to an organization and often
reflects an organization's ability to meet its dictate employee behavior.
current and short-term obligations.
Regression analysis-Statistical method
Critical path-Describes the shortest used to determine whether a relationship
amount oftime required to complete a exists between variables and the strength of
project, taking into account all project task the relationship.
relationships-for example, whether task C
must be completed before Task E, and Scenario/what-if analysis-Statistical
whether Tasks A and B can be completed at method used to test the possible effects of
the same-time.
140 © 2015 SHRM

)
) STRATEGY
altering the details of a strategy to see if the SWOT analysis-Process for assessing an
likely outcome can be improved. organization's strategic capabilities in
Stakeholder concept-concept that comparison to threats and opportunities
identified during environmental scanning.
proposes that any organization operates
within a complex environment in which it Trend analysis-Statistical method that
affects and is affected by a variety of forces studies the way in which a variable may
or stakeholders who all share in the value of change over time.
the organization and its activities.
Value----The benefit created when an
Strategic fit-A state in which an organization meets its strategic goals.
organization's strategy is consistent with its Value chain-The process by which an
external opportunities and circumstances organization creates the product or service it
and its internal structure, resources, and
offers to the customer.
capabilities.
Value drivers-Actions, processes, or
Strategic management-The actions that
results that are needed to deliver a desired
leaders take to move their organizations value.
toward those goals and create value for all
stakeholders. . Variance analysis-Statistical method that
)
identifies the degree of difference between
Strategic planning-The process of setting planned and actual performance.
) goals and designing a path toward a
competitive position. Vision statement-Vivid, guiding image of
an organization's desired future, the future it
Strategy-A plan of action for
hopes to attain through its strategy.
accomplishing an organization's long-range
goals.
)
)
© 2015 SHAM 141

Index
A,B core competencies, 7
corporate strategy, 10, 55-56
action-centered leadership, 118 divestitures, 65-67
ADL matrix, 33 growth options, 56-65
Agile project management, 128-129 cost leadership strategy, 53
alignment critical evaluation competency, I 0 I
of HR goals/objectives, 43-44 critical path method, 78
of strategy, 7 culture and strategy, 8
balance sheets, 96
balanced scorecard, 90, 91-92
bargaining power of buyers/suppliers, 35
D
behavioral theories of leadership, 114-116 data analysis, 101-105
benchmarking, 92-93 development phase of strategic planning, 18,
Blake-Mouton leadership theory, 115-116 19,50
blue ocean strategies, 51-52 business strategy, 50-55
brownfield operation, 57 communication of strategy, 67-68
business acumen competency, 27 corporate strategy, 55-67
business cases, 74-7 6 differentiation strategy, 53-54
business intelligence, 99-105 dispersed leadership, 119 120
business unit strategy, 10, 50-55 divestitures, 65-67
drift of strategy, 7
c due diligence, 62, 65
cash flows statements, 96
change
E
conditions for, 80-81 economic factors in PES TEL analysis, 29
response to, 79-80 environmental factors in PESTEL analysis, 30
See also change management environmental scanning, 27-30
change management, 79 equity partnership
facilitating, 83 ethical behavior, 122-124
human resources role, 83-84 ethical practice competency, 124
models for, 81-82 evaluation phase of strategic planning, 18, 19, 89
See also change balanced scorecard, 90, 91-92
communication competency, 65 benchmarking, 92-93
communication, 124-126 business intelligence, 99-105
of data analysis, 102-105 metrics/ratios, 95-99
as leadership skill, 124-128 performance measurement, 90, 91
of strategy, 67-68 performance objectives, 89-94
competitive advantage, 51-54
conflict management, 128-132 F
consideration, in behavioral leadership, 114 Fiedler's contingency theory, 117-118
consultation competency, 84 financial ratios, 96-99
contingency theories ofleadership, 116-118 financial statements, 95-96
contract manufacturing, 57
142 © 2015SHRM
STRATEGY
"Five Forces" framework (Porter), 34-36 income statements, 96

focus strategy, 54 industry analysis, 32-38
formulation phase of strategic planning, 18, 19 industry life cycle, 32-34
environmental scanning, 27-30 information gathering/analysis in strategy
\
goal setting, 41-44 formulation, 25-27
) industry analysis, 32-38 environmental scanning, 27-30
information gathering/analysis, 25-27 industry analysis, 32-38
mission, vision, values definition, 38-41 SWOT (strengths, weaknesses,
SWOT analysis, 30-32 opportunities, threats) analysis, 30-32
)
franchising, 56 initiating structure, in behavioral leadership, 114
) joint ventures, 56, 58
G,H
GE-McKinsey (Nine-Box) Matrix, 37-38 l
J Global Leadership and Organizational leaders/followers leadership theory, 118-119
)
Behavior Effectiveness leadership leadership
characteristics, 120 action-centered, 118
global leadership models, 120-122 dispersed, 119-120
GLOBE (Global Leadership and characteristics, 111-113, 120
) Organizational Behavior Effectiveness) global models, 120-122
leadership characteristics, 120 and navigation competency, 110
goal setting, 41-44 skills, 122-132
)
greenfield operation, 57 and strategy, 110
gross margin, 97 theories, 113-120
) growth options, 56-60 leading/lagging indicators, 91
) human resources role, 57-58 legal factors in PESTEL analysis, 30
mergers/acquisitions, 56, 60-65 licensing, 56
Growth Share Matrix, 36-37
) Hersey-Blanchard's situational leadership M,N,O
theory, 116-117
management contracts, 57
human resources role
McGregor's Theory XN, 115
in change management, 83-84
mergers/acquisitions, 56, 60-65
in defining/creating value, 18
metrics, 95-99
in growth strategies, 57-58
mission statements, 38-40, 41
) in mergers/acquisitions, 62-65
negotiation, 131-132
in strategy, 11-12
Nine-Box Matrix, 37-38
human resources strategy, impact of
objectives, 89-94
business strategies on, 54-55
operational strategy, 10
organizational storytelling, 6 7-68
i, J, K organizational strategy. See corporate strategy
implementation phase of strategic planning, organizational values, 40-41
) 18, 19,73
change management, 79-84 P,O,R
project management, 76-78
performance
requirements for, 73-74
measurement, 90, 91
resource allocation, 74-76
objectives, 89-94
.I
© 2015 SHRM 143

STRATEGY
PERT (program evaluation and review strategy (continued)

technique), 78 communicating, 67-68
PES TEL analysis, 27-30 corporate. See corporate strategy
political factors in PESTEL analysis, 29 cost leadership, 53
Porter, Michael and culture, 8
competitive strategies, 52-54 differentiation, 53-54
"Five Forces" framework, 34-36 drift, 7
principled negotiation, 132 focus, 54
profit margin, 98 human resources role, 11-12 1:
program evaluation and review technique and leadership, 11 0
(PERT), 78 levels of, I 0
project management, 76-78, 128-129 mistakes in implementing, 9-10
regression analysis, 101-102 organizational. See corporate strategy
relationship management competency, 17 and structure, 8
resource allocation, 74-7 6 and value, 12-18
return on investment (ROI), 98 structure and strategy, 8 i
rivalry among existing competitors, 35 SWOT (strengths, weaknesses, i
i
ROI (return on investment), 98 opportunities, threats) analysis, 30-32 I'
systems thinking, 7-8
s
scenario analysis, 102 T ''
SHRM Body of Competency and technological factors in PES TEL analysis,
Knowledge behavioral competencies 29
business acumen, 27 Theory X/Y, ll5
communication, 65 threat of entry, 35
consultation, 84 threat of substitution, 35
critical evaluation, 101 trait theory of leadership, 114
ethical practice, 124 trend analysis, I 02
leadership and navigation, 110 turnkey operation, 57
relationship management, 17
situational theories ofleadership, 116-118 V, W, X, Y, Z
SMART objectives, 93-94
value chain, 13-15
stakeholder concept, 15-17
value drivers, 43
storytelling, organizational, 67-68
strategic alliances, 56, 58
value(s), 12-13 I·
.1
drivers, 43
strategic fit, 50
human resources role in
strategic investment decisions, 36-38
creating/defining, 18
strategic management, 6, 7-8
organizational, 40-41
strategic planning, 6, 7-8, 18-19. See also
stakeholder concept, 15-17
development phase, evaluation phase,
value chain, 13-15
formulation phase, implementation phase ,-;
variance analysis, 101
of strategic planning
vision statements, 38-40, 41 '
strategy, 4, 6
what-if analysis, 102
alignment of. 7
benefits of, 8-9
·· business unit strategy, Hl, 50-55
144 © 2015 SHRM

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Notes a website that may contain additional information on a

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Business & HR Strategy

ASSESS YOUR CURRENT I<NOWLEDGE

D Read a learning module in print or on an e-reader.

D Review the test-taking tips. i)

Subject matter experts

Functional Area #15: Business and HR Strategy ..............................................................2

Section 1: The Role of Strategy ............................................................................................... S

Section 2: Strategy Formulation ........................................................................................... 24

Section 3: Developing Strategy .............................................................................................49

Section 4: Implementing Strategy ........................................................................................ 72

Common Organizational Metrics ....................................................................................... 95

Section 6: PI"Oviding Leadenhip ......................................................................................... l 09

) Introduction to Strategy Domain

Functional Area Overview

Another group believes that strategy cannot be planned rationally, because no

Requirements for Strategic Planning and Management

• Alignment of effort. Strategic alignment is necessary to maintain

• Control of drift. At the same time, strategic drift should be avoided.

• Systems thinking. Wayne Cascio and Herman Aguinis define a system as a

• Structure as a strategic lever. A strategic lever magnifies the results of an

• Culture as a strategic lever. As Peter Drucker said, "Culture eats strategy

• Consistent, long-term goals. Such goals result in wasting fewer resources

• Consistent decision making by leaders. Strategy provides guideposts

• Better competitive and external vision. The process of making decisions

• Better internal vision. Strategic management provides a better internal

• Taking shortcuts. Effective strategy requires extensive research, detailed

• Overreliance on the comfortable and familiar. Strategy often requires

not committed to the process or directly involved. It is difficult then to obtain

• Insufficient involvement of the rest of the organization. If the strategy is

• Inadequate communication. The strategic intent and decisions may not be

The strategic planning and management processes described later in this

• Scanning and sensing changes in the ontside environment. This skill is

Role of Value in Strategy

Value can be defined and measured differently. In a general sense, it refers

The definition of value can be influenced by mission. For example, a for-

The definition of value will also be influenced by culture at an

HR must understand these varying perceptions of value because they will

which HR can support the organization in its entirety. When perceptions

This topic will focus on who is involved in creating value in an

Figure 1: Value Chain

The value chain shows the interconnections of various participants in

The value created by the primary activities depends, in turn, on secondary

functional area in the value chain. Examples of superior performance are

The stakeholder concept proposesthat any a

) The stakeholder concept was first offered in the mid-1980s by R. Edward

Figure 2 illustrates the stakeholder concept.

Trade associations t Governments

Figure 2: Stakeholder Concept

There is considerable debate about these alternative perceptions of the objective of

Understanding stakeholder perspectives in a global organization may be

• Customers' expectations of service may vary widely. In China, customers

• Suppliers to an organization in a culture that values long-term

• Employees in different countries look for different kinds of benefits.

• Communities, political groups, religious institutions, and governments

• Shareholders, boards of directors, and senior management have

HR's Role in Defining and Creating Value

Strategic Planning Process

Figure 3: Strategic Planning Process

) STRATEGY Business and HR Strategy

The planning process is usually shown as a cycle that is repeated periodically.

During formulation, those planning strategy-let us call them the strategists-

Directions: Choose the best answer to each question.