STRATEGIC

HUMAN RESOURCE
MANAGEMENT

Lecture 3

Dr. SABNAM BASU

WHAT IS STRATEGY
 Future-oriented plan for interacting
with the competitive environment to
achieve organizational goals.
 It is a framework for managerial
decisions
 It reflects a firm’s awareness of how,
when and where it should compete
and for what purpose it should
compete.
 The focus is on managing
competition
Strategy
WHAT IS STRATEGIC
MANAGEMENT
• Strategic management refers to the process of
crafting strategies, their implementation
and evaluation of their effectiveness
• Identifying and executing the organization’s
strategic plan by matching the company’s
capabilities (strengths and weaknesses)
with the demands of its environment (its
competitors, customers, and suppliers, for
instance)
• Strategic plans are made in order to
achieve/maintain competitive advantage
• PepsiCo and Coca-Cola same basic problem:
different strategies to deal with it
 STRATEGIC MANAGEMENT PROCESS
Vision statement: a general
statement of the firm’s intended
direction; it shows, in broad
Mission statement SWOT terms, “what we want to
summarizes what the and PEST become.
company’s main tasks Analysis
are today
 STRATEGIES IN BRIEF

Ford

• Mission Statement: “Quality

Job One”

• Strategic Goals: How to boost

quality “no more than 1
initial defect per 10,000 cars”

• Formulating a strategy
(course of action): Open new
high-tech plants, put in place
new and rigorous employee
selection, training, etc.

Source: Arit Gadiesh and James Gilbert, ―Frontline Action,‖ Harvard Business Review, May 2001, p. 74.
SWOT AND PEST
ANALYSIS
 TYPES OF STRATEGIES
• Corporate-level strategy: type of
strategy that identifies the portfolio of
businesses that, in total, comprise the
company and the ways in which these
businesses relate to each other
• Concentration corporate strategy
• Diversification corporate strategy
• Vertical integration strategy
• Consolidation strategy
• Geographic expansion strategy
• Competitive Strategy: a strategy that
identifies how to build and strengthen
the business’s long-term competitive
position in the marketplace
• Cost leadership
• Differentiation
• Focus
• Functional Strategy: identify what each
department must do to help the business
accomplish its strategic goals
 COMPETITIVE ADVANTAGE
• For having an effective strategy, the company must have one or more competitive
advantages
• Competitive advantage: Any factors that allow an organization to differentiate
its product or service from those of its competitors to increase market share
• Every successful company has one or more competitive advantages
around which it builds its competitive strategy
• E.g, Southwest Airlines achieves low-cost leader status through
employment policies that produce a highly motivated and flexible
workforce. Its workforce is its competitive advantage.
• For many companies other things can also account for their
competitive advantage, for e.g., for a pharmaceutical company, the quality of its
research team and its patents; for website like eBay, it may be a proprietary
software system, etc.
 STANDARD COMPETITIVE
STRATEGIES
• Three standard competitive strategies—
• Cost leadership: becoming the low-cost
leader in an industry. Walmart is an example.
• Differentiation: the firm seeks to be unique
in its industry along dimensions that are widely
valued by buyers. E.g., Volvo stresses the safety
of its cars.
• Focus: carve out a market niche (like BMW,
Audi). They offer a product or service that
their customers cannot get from generalist
competitors (such as Tata or Maruti)
The classic example of a company that achieved cost
leadership in an industry was the Ford Motor
Company. The founder, Henry Ford, created a mass
market for automobiles by driving the price of a car
down to the point where the average person could afford
one. To do this, Ford limited the product to one model
in one color and set up a production line to produce
large numbers of cars very efficiently.
As the US economy grew after World War I, however,
General Motors was able to pull ahead of Ford, not by
producing cars as cheaply, but by producing cars that
were nearly as cheap and that offered a variety of
features that differentiated them. Thus, GM offered
several different models in a variety of colors with a
variety of optional extras. Despite selling slightly more
expensive cars, GM gradually gained market share from
Ford because consumers were willing to pay more to get
cars in preferred colors and styles.
 PEOPLE AS COMPETITIVE
ADVANTAGE
• However, today most companies have easy access to the same technologies, so technology itself is rarely enough
to set a firm apart.
• Its usually the people and the management system that make the difference.
• Operations expert from Harvard University studying manufacturing firms that installed special computer-
integrated manufacturing systems to boost efficiency and flexibility:
“All the data in my study point to one conclusion: operational flexibility is determined primarily by a plant’s operators and
the extent to which managers cultivate, measure, and communicate with them. Equipment and computer integration are secondary”.
• Former vice president of human resources at the Toyota Motor Manufacturing facility in Georgetown,
Kentucky, described the importance of human capital as a competitive advantage:
“People are behind our success. Machines don’t have new ideas, solve problems, or grasp opportunities. Only people who are
involved in thinking can make a difference . . . Every auto plant in the United States has basically the same machinery. But how
people are utilized and involved varies widely from one company to another. The workforce gives any company its true competitive edge”.
STRATEGIC HUMAN RESOURCE
MANAGEMENT (SHRM)
• The process of developing practices, programs and policies
that help achieve organizational objectives.
• It is essential is that these programs, policies and practices
need to be aligned with organizational strategies
• The companies top managers will choose/formulate overall
corporate strategies and then choose competitive
strategies for each of the company’s businesses
• The HR manager might be a member of a core team which
formulates corporate strategies and competitive strategies
• The department managers within each of these businesses
then formulate functional strategies for their departments
• The HR department would have human resource
management strategies
 ROLES OF HR IN
STRATEGIC MANAGEMENT
Formulating and executing human resource
policies and practices that produce the
employee competencies and behaviors the Four roles of HR executives in strategic management
company needs to achieve its strategic aims (corporate or competitive level)
• HR should define an organization's architecture
• HR needs to be accountable for conducting an
organizational audit
• The role of HR as a strategic partner is to identify methods
for renovating the parts of the organizational
architecture that need it
• Finally, HR must take stock of its own work and set clear
priorities
Source: Five Strategic HR Priorities For 2021 by Jeanne Meister. Forbes.
The Future Workplace 2021 HR Sentiment Survey, identifies five strategic priorities HR leaders find critical https://www.forbes.com/sites/jeannemeister/2021/05/28/five-strategic-hr-priorities-for-2021/?sh=6367b07754cb
STRATEGIC HRM VERSUS
CONVENTIONAL HRM
SUSTAINABILITY AND STRATEGIC
HUMAN RESOURCE MANAGEMENT
• Strategic human resource management means having human resource
policies and practices that produce the employee skills and behaviors that are
necessary to achieve the company’s strategic goals, and these include
sustainability goals
• Workforce planning: PepsiCo wants to deliver “Performance with Purpose.”
Thus they have to work towards achieving financial performance while also
achieving human sustainability, environmental sustainability, and talent
sustainability
• Work with top management and try to initiate flexible work arrangements that help
sustain the environment by reducing commuting
• Modify its performance appraisal systems to measure which managers and employees
are successful in reaching their individual sustainability goals
• Can use incentive systems that motivate employees to achieve PepsiCo’s sustainability
goals
 STRATEGIC HUMAN
RESOURCE
MANAGEMENT TOOLS

Strategy Map

• Strategy map summarizes how each department’s

performance contributes to achieving the company’s
overall strategic goals.
• It helps the manager and each employee visualize
and understand the role his or her department
plays in achieving the company’s strategic plan
• Example for Southwest Airlines
 STRATEGIC HUMAN
RESOURCE
MANAGEMENT TOOLS
The HR Scorecard
• The HR scorecard helps employers quantify and
computerize the strategy map’s activities.
• A process for assigning financial and nonfinancial
goals or metrics to the human resource
management– related chain of activities required
for achieving the company’s strategic aims and for
monitoring results
• Helps the manager quantify the relationships
between
• (1) the HR activities (amount of testing, training, and so
forth),
• (2) the resulting employee behaviors (customer service,
for instance), and
• (3) the resulting firm-wide strategic outcomes and
performance (such as customer satisfaction and
profitability)
 THE HR SCORECARD

• Measures the HR function’s effectiveness and efficiency in producing

employee behaviors needed to achieve the company’s strategic goals.
• Creating an HR scorecard
• Must know what the company’s strategy is.
• Must understand the causal links between HR activities, employee behaviors,
organizational outcomes, and the organization’s performance.
• Must have metrics to measure all the activities and results involved.
 Strategic Human
Resource
Management Tools
Digital Dashboards
• Presents the manager with
desktop graphs and charts, so
he or she gets a picture of
where the company has been
and where it’s going, in terms
of each activity in the strategy
map.
• A computerized picture of
how the company is doing on
all the metrics from the HR
scorecard process.
 HUMAN RESOURCE METRICS

• Human resource managers use many “human resource metrics” to

measure results of the HR policies and practices that produce the
employee competencies and behaviors the company needs to achieve its
strategic goals
• Relevant measures might include, for instance, hours of training per
employee, productivity per employee, and (via customer surveys)
customer satisfaction.
 HR METRICS

• Absence Rate
[(Number of days absent in month) ÷ (number of workdays)] × 100
• Cost per Hire
(Advertising + Agency Fees + Employee Referrals + Travel cost of applicants and staff +
Relocation costs + Recruiter pay and benefits) ÷ Number of Hires
• Health Care Costs per Employee
Total cost of health care ÷ Total Employees
• HR Expense Factor: if the expenses on HR practices are too much in terms of the whole
company expense
HR expense ÷ Total operating expense
Sources: Robert Grossman, ―Measuring Up,‖ HR Magazine, January 2000, pp. 29–35; Peter V. Le Blanc, Paul Mulvey, and Jude T. Rich, ―Improving the Return on Human Capital: New Metrics,‖ Compensation and Benefits Review, January/February 2000, pp.
13– 20;Thomas E. Murphy and Sourushe Zandvakili, ―Data and Metrics-Driven Approach to Human Resource Practices: Using Customers, Employees, and Financial Metrics,‖ Human Resource Management 39, no. 1 (Spring 2000), pp. 93–105; [HR Planning,
Commerce Clearing House Incorporated, July 17, 1996;] SHRM/EMA 2000 Cost Per Hire and Staffing Metrics Survey; www.shrm.org.
 HR METRICS

• Human Capital ROI: financial value added by your the workforce against the money spent on them in
terms of salaries and other benefits
Revenue − (Operating Expense − [Compensation cost + Benefit cost]) ÷ (Compensation cost + Benefit
cost)
• Revenue Factor
Revenue ÷ Total Number of FTE (full time equivalent)
• FTE
n employee's scheduled hours divided by the employer's hours for a full-time workweek. E.g., when an
employer has a 40-hour workweek, employees who are scheduled to work 40 hours per week are 1.0 FTEs.
Employees scheduled to work 20 hours per week (part timers) are 0.5 FTEs
• Time to fill
Total days elapsed to fill requisitions ÷ Number hired
 HR METRICS

• Training Investment Factor

Total training cost ÷ Headcount
• Turnover Costs
Cost to terminate + Cost per hire + Vacancy Cost + Learning curve loss
• Turnover Rate
[Number of separations during month ÷ Average number of employees during
month] × 100
• Workers’ Compensation Cost per Employee
Total WC cost for Year ÷ Average number of employees
BENCHMARKING

• Just measuring how one is doing (for instance, in terms of employee productivity) is rarely
enough for deciding what (if anything) to change.
• Instead, most managers want to know “How are we doing?” in relation to something.
• E.g., the manager may want to benchmark the results—compare high-performing companies’
results to your own, to understand what makes them better
• The Society for Human Resource Management’s (SHRM’s) benchmarking service enables
employers to compare their own HR metrics with those of other companies.
• The employer can request comparable (benchmark) figures not just by industry, but by
employer size, company revenue, and geographic region
HUMAN RESOURCE INFORMATION
SYSTEMS (HRIS)
• How managers use human resource technology to improve performance
• Interrelated components working together to collect, process, store, and disseminate
information to support decision making, coordination, control, analysis, and
visualization of an organization’s human resource management activities
• Several reasons for installing an HRIS:
• Improved transaction processing
• Online self-processing
• Improved reporting capability
• HR system integration
• HRIS vendors
 THE HIGH-PERFORMANCE WORK
SYSTEM (HPWS)
• A set of human resource management policies and practices that together produce superior
employee performance
• One reason to measure, benchmark, and scientifically analyze HR practices is to promote
high-performance work practices
• Examples: Data from 359 firms before, during, and after the 2007–2009 recession found that
firms that used more effective staffing and training outperformed competitors before,
during, and after the recession.
• High-performing companies recruit more job candidates, use more selection tests, and spend
many more hours training employees
• Service companies (such as hotels) particularly gain from such high-performance work
systems and practices
 HPWS
Three things can be noted:
• First, it shows examples of human
resource metrics such as hours of
training per employee, or qualified
applicants per position
• What employers must do to have
high-performance systems
• High-performance work practices
usually aspire to encourage
employee involvement and self-
management
 Designing Strategic HR Systems
• HR policies should be integrated with the firm’s strategy overall business strategies

• Miles and Snow argued that poor • Schuler and Jackson

performance of firms was not advocated three different
because of business strategy types of strategies that an
failure but due to incompatible organization may adopt:
HR policies and practices a) innovation strategy,
• Classified firms in three broad b) quality enhancement
categories: strategy,
a) defenders,
c) cost-reduction
b) prospectors, strategy
c) analyzers
• This design had enormous implications for managers, and they could segment their
organization type and design strategic HR systems for their organizations
Strategic HR Systems

Defenders Prospectors Analyzers

Defenders:
i) Usually operate in stable and predictable environments
ii) Top management mainly works for increasing the Product Market Limited and Broad and Balance between
efficiency in the existing system Strategy stable product changing product stable and
line line changing

Prospectors: R&D Limited mostly to Extensive and Focus on

product emphasis on “first efficiency as well
i) Innovative organizations known for their diversification
improvement (for to market” as effectiveness
ii) Change agents, spend extensively on research and increasing
development to have the first-mover advantage
efficiency)
ii) Not highly efficient because of the high diversification
value Marketing Limited mostly to Focused heavily Need based
sales on market research
Analyzers: Control Process Centralized Decentralized Mostly centralized
i) Balanced because they operate differently for stable market but certain aspects
areas and innovative market areas are left
ii) In the stable areas, they mimic characteristics of a decentralized
defender, while they act as prospectors in the innovative
areas Business Plan Act  Act  Evaluate Plan
Planning Evaluate EvaluatePlan Act
iii) They develop a stable product mix and work extensively
to increase efficiency in the system Examples Starbucks Amazon Microsoft
Competitive Strategy Type and HRM Practices
 BENEFITS OF SHRM

• It elevates the status of HRM in organizations

• HR leader is now accorded equal status along with other functional heads, is a member of the core
committee to make strategic decisions, earns big compensation, and is given all privileges. This
transformation has occurred thanks to the realization on the part of managements the fact that competitive
advantage comes to their organizations from people. E.g., Maruti Suzuki and Hindustan Motors are
manufacturing cars, essentially using identical technology. The secret behind the meteoric rise of the former
is its workforce.
• HR manager plays key role in making a merger or an acquisition a success.
• Often merger or takeover fails because there is no cultural integration between employees of both the
companies. Mere financial ratios, capital structures and market capitalisations do not guarantee success of a
merger or an acquisition. Cultural fusion between the two companies is what is required
 BARRIERS TO STRATEGIC HRM

• The first barrier relates to the tendency of most organizations adopt a short-term mentality and focus on
current performance
• The second barrier relates to the inability of HR leaders to think strategically.
• The third barrier is that some functional managers see themselves as HR managers as well and are
concerned more with technical aspects of their areas of responsibility than the human aspects
• The fourth barrier to strategic HR is the problem of quantifying many of the outcomes and benefits of
HR programs. It is believed that many of the outcomes of HR function are abstract-felt, but not seen. In
an environment where firms operate under pressure, what attracts everyone’s attention is an activity that
contributes to the bottom line. Anything else is shelved
• The fifth barrier to strategic HR is the fact that human assets are not owned by organisations and,
therefore, are perceived as a higher risk investment than capital assets