Chapter 3

Human Resource Management

Strategy and Analysis
 Learning Objectives
1. Define strategy, strategic management,
strategic planning
2. Steps in strategic management process
3. Define strategic human resource management
(SHRM)
4. strategic human resource management
(SHRM) Tools
5. Give at least five examples of HR metrics.
6. Give five examples of what employers can do
to have high-performance systems (HPWS).
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strategy, strategic management,
• Strategy Set of related actions that managers take to
increase their company’s performance.
• A strategy is an integrated and coordinated set of commitments and
actions designed to exploit core competencies and gain a competitive
advantage.
• The strategic management process is the full set of commitments,
decisions, and actions required for a firm to achieve strategic
competitiveness and earn above-average returns.
• Above-average returns are returns in excess of what an investor expects
to earn from other investments with a similar amount of risk
strategic planning

• A strategic plan is the company’s overall plan for how it will

match its internal strengths and weaknesses with its external
opportunities and threats in order to maintain a competitive
position
• Strategic planning is the process of setting goals and designing
a path toward a competitive position. The strategic plan helps
create alignment of efforts and provide a layer of control
Steps in a formal strategic Management process

Step 1 Select the corporate mission and goals.

Step 2 Analyze the organization’s external competitive
environment
Step 3 Analyze the organization’s internal operating environment.
Step 4 Select strategies that:
– build on the organization’s strengths and correct it’s weaknesses.
– are consistent with the organization’s mission and goals.
– are congruent and constitute a viable business model.
Step 5 Implement the strategies
Step 1 Select the corporate mission and goals.

Mission

• Purpose of the company, or a statement of what the company strives to

do.

Vision

• Articulation of a company’s desired achievements or future state.

Values

• Statement of how employees should conduct themselves and their

business to help achieve the company mission.

Establishing major goals

• Goal - Precise and measurable desired future state that a company

attempts to realize.
 Step 1: Select the corporate mission and goals.

• The mission of Google is to organize the world’s information and make it

universally accessible and useful. Google’s search engine is the method
that is employed to “organize the world’s information and make it
accessible and useful.”
• This approach stresses the need for a customer-oriented rather than a
product-oriented business definition. A product-oriented business
definition focuses on the characteristics of the products sold and the
markets served, not on which kinds of customer needs the products are
satisfying.
• Google’s mission statement is customer oriented
• In its early days, Microsoft operated with a very powerful vision of a
computer on every desk and in every home.
Step 1: Select the corporate mission and goals.

• Nucor Steel is one of the most productive and profitable steel firms
in the world. Its competitive advantage is based, in part, on the
extremely high productivity of its workforce, which the company
maintains is a direct result of its cultural values, which in turn
determine how it treats its employees
• At Nucor, values emphasizing pay for performance, job security,
and fair treatment for employees help to create an atmosphere
within the company that leads to high employee productivity.
• Well-constructed goals have four main characteristics. They are
precise and measurable, They address crucial issues, They are
challenging but realistic, They specify a time period in which the
goals should be achieved, when that is appropriate.
Step 2 Analyze the organization’s external competitive environment
Step 3 Analyze the organization’s internal operating environment

• External Analysis The second component of the strategic

management process is an analysis of the organization’s external
operating environment. The essential purpose of the external
analysis is to identify strategic opportunities and threats within the
organization’s operating environment that will affect how it
pursues its mission.
• Internal Analysis Internal analysis, the third component of the
strategic planning process, focuses on reviewing the resources,
capabilities, and competencies of a company. The goal is to
identify the strengths and weaknesses of the company
 Step 4 Select/ Formulate strategies

• Functional-level strategies - directed at improving the

effectiveness of operations within a company, such as
manufacturing, marketing, materials management, product
development, and customer service
• Business-level strategies - which encompass the business’s
overall competitive theme, the way it positions itself in the
marketplace to gain a competitive advantage, and the different
positioning strategies that can be used in different industry
settings—for example, cost leadership, differentiation,
Step 4 Select/ Formulate strategies

• Global strategies - which address

• how to expand operations outside the home country
• to grow and prosper in a world where competitive
advantage is determined at a global level.
• Corporate-level strategies determine:
– the businesses a company should be in to maximize profitability
and profit growth.
– how to gain a competitive edge.
Step 5: Strategy implementation

• Strategy implementation
– Taking action at the functional, business, and corporate levels
to execute a strategic plan.
– Designing the best organization structure, culture, and control
systems to put a chosen strategy into action.
Strategic Human Resource Management

• The company’s top managers choose overall corporate strategies,

and then choose competitive strategies for each of the company’s
businesses. Then departmental managers within each of these
businesses formulate functional strategies for their departments.
Their aim should be to have functional strategies that will support
the competitive strategy and the company-wide strategic aims. The
marketing department would have marketing strategies. The
production department would have production strategies. The
human resource management (“HR”) department would have
human resource management strategies.
 STRATEGIC HUMAN RESOURCE MANAGEMENT

Every company’s human resource management policies and

activities should make sense in terms of the firm’s strategic
aims. For example, a high-end retailer like Neiman-Marcus
will have different employee selection, training, and pay
policies than will Walmart

Strategic human resource management means formulating and

executing human resource policies and practices that produce the
employee competencies and behaviors the company needs to
achieve its strategic aims.
. 3-14
 Strategic Human Resource Management
• First, the manager formulates strategic plans and goals. Next, he
or she asks, “What employee skills and behaviors will we need to
achieve these plans and goals?” And finally, he or she asks,
“Specifically what recruitment, selection, training, and other HR
policies and practices should we put in place so as to produce the
required employee skills and behaviors?” Managers often refer to
their specific HR policies and practices as human resource
strategies. The accompanying HR as a Profit Center feature
presents another strategic human resource management example.
 Strategic HRM Tools
Managers use several tools to help them translate the company’s
broad strategic goals into specific human resource management
policies and activities. Three important tools include the strategy
map, the HR Scorecard, and the digital dashboard.

Strategic HRM Tools

Strategy map HR scorecard Digital dashboard

 Strategic Human Resource Management Tools
Strategy map: A strategic planning tool that shows the “big picture” of how each
department’s performance contributes to achieving the company’s overall strategic
goals.
A strategy-map example for Southwest Airlines. The top level target is to
achieve its profitability, costs, and revenue goals. Then the strategy map
shows the chain of activities that help Southwest Airlines achieve these
goals. Like Walmart, Southwest has a low-cost-leader strategy. So, for
example, to boost revenues and profitability Southwest must fly fewer planes
(to keep costs down), maintain low prices, and maintain on-time flights. In
turn (further down the strategy map), on-time flights and low prices require
fast turnaround. This, in turn, requires motivated ground and flight crews. The
resulting strategy map helps each department under stand what it needs to
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do to support Southwest’s low-cost strategy.
Strategic Human Resource Management Tools

• The HR scorecard: A process for assigning financial and non financial goals or
metrics to the human resource management- related chain of activities required for
achieving the company’s strategic aims and for monitoring results
• Managers use special scorecard software to facilitate this. The computerized
scorecard process 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).
 Strategic Human Resource Management Tools

• Digital dashboards: Presents the manager with

desktop graphs and charts, so a computerized picture
of where the company stands on all those metrics from
the HR scorecard process.
• A top Southwest Airlines manager’s dashboard might
display real-time trends for various strategy-map
activities, such as fast turnarounds and on-time flights .
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 HR Metrics

• HR metrics: The quantitative device of human

resource management activity, such as
employee turnover, hours of training per
employee, or qualified applicants per position.

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 High-Performance Work Systems
• High-Performance Work System (HPWS): A set of human resource management
policies and practices that promote organizational effectiveness. High-Performance
Work System An organization in which technology, organizational structure, people,
and processes work together seamlessly to give an organization an advantage in
the competitive environment.
• High-Performance Human Resource Policies and Practices
- Emphasize the use of relevant HR metrics.
- Set out the things that HR systems must do to become an HPWS.
- Foster practices that encourage employee self-management.
- Practice benchmarking to set goals and measure the notable performance
differences required of an HPWS. 3-21
 High-Performance Work Systems

Another study looked at 17 manufacturing plants, some of which adopted high-

performance work system practices. The high-performance plants paid more
(median wages of $16 per hour compared with $13 per hour for all plants),
trained more, used more sophisticated recruitment and hiring practices (tests
and validated interviews, for instance), and used more self-managing work
teams. Those with the high performance HR practices performed significantly
better than did those without such practices. Service companies (such as hotels)
particularly gain from such high-performance work systems and practices. For
example, high-performing companies recruit more job candidates, use more
selection tests, and spend many more hours training employees.
First, it shows examples of human resource metrics such as hours of training per
employee, or qualified applicants per position. (In Table 3-1, the metric for “Number of
qualified applicants per position” is 37 in the high performing companies.) Managers
use these to assess their companies’ performance and to compare one firm
with another.

Second, it illustrates what employers must do to have high-performance systems. For

example, high-performing companies have more than four times the number of
qualified applicants per job than do low performers. They also hire based on validated
selection tests, and extensively train employees.

Third, Table 3-1 shows that high-performance work practices usually aspire to
encourage employee involvement and self-management. In other words, an aim of the
high-performance recruiting, screening, training, and other human resources practices is
to nurture an engaged, involved, informed, empowered, and self-motivated workforce.