1. CHAPTER 3: STRATEGIC PLANNING Copyright © 2005 South-Western. All rights reserved.

2. 1–21–2 Strategic Management Strategic Human Resource ManagementStrategic Human Resource Management –Involves aligning initiatives involving how people are managed with organizational mission & objectives Strategic Management ProcessStrategic Management Process –Determining what needs to be done to achieve corporate objectives over 3 - 5 years –Examining organization & competitive environment –Establishing optimal fit between organization & its environment –Reviewing & revising strategic plan Strategic Human Resource ManagementStrategic Human Resource Management –Involves aligning initiatives involving how people are managed with organizational mission & objectives Strategic Management ProcessStrategic Management Process –Determining what needs to be done to achieve corporate objectives over 3 - 5 years –Examining organization & competitive environment –Establishing optimal fit between organization & its environment –Reviewing & revising strategic plan

3. Copyright © 2005 South-Western. All rights reserved.1–31–3 Models of Strategy Industrial Organization (O/I) ModelIndustrial Organization (O/I) Model –External environment is primary determinant of organizational strategy rather than internal decisions of managers –Environment presents threats & opportunities –All competing organizations control or have equal access to resources –Resources are highly mobile between firms –Organizational success is achieved by Offering goods & services at lower costs than competitorsOffering goods & services at lower costs than competitors Differentiating products to bring premium pricesDifferentiating products to bring premium prices Industrial Organization (O/I) ModelIndustrial Organization (O/I) Model –External environment is primary determinant of organizational strategy rather than internal decisions of managers –Environment presents threats & opportunities –All competing organizations control or have equal access to resources –Resources are highly mobile between firms –Organizational success is achieved by Offering goods & services at lower costs than competitorsOffering goods & services at lower costs than competitors Differentiating products to bring premium pricesDifferentiating products to bring premium prices

4. Copyright © 2005 South-Western. All rights reserved.1–41–4 Models of Strategy Resource-Based View (RBV)Resource-Based View (RBV) –An organization’s resources & capabilities, not external environmental conditions, should be basis for strategic decisions –Competitive advantage is gained through acquisition & value of organizational resources –Organizations can identify, locate & acquire key valuable resources –Resources are not highly mobile across organizations & once acquired are retained –Valuable resources are costly to imitate & non-substitutable Resource-Based View (RBV)Resource-Based View (RBV) –An organization’s resources & capabilities, not external environmental conditions, should be basis for strategic decisions –Competitive advantage is gained through acquisition & value of organizational resources –Organizations can identify, locate & acquire key valuable resources –Resources are not highly mobile across organizations & once acquired are retained –Valuable resources are costly to imitate & non-substitutable

5. Copyright © 2005 South-Western. All rights reserved.1–51–5 Contrasting the Two Approaches Research provides support for both positionsResearch provides support for both positions What drives strategy?What drives strategy? –I/O: External considerations –RBV: Internal considerations I/O: Strategy drives resource acquisitionI/O: Strategy drives resource acquisition RBV: Strategy determined by resourcesRBV: Strategy determined by resources Research provides support for both positionsResearch provides support for both positions What drives strategy?What drives strategy? –I/O: External considerations –RBV: Internal considerations I/O: Strategy drives resource acquisitionI/O: Strategy drives resource acquisition RBV: Strategy determined by resourcesRBV: Strategy determined by resources

6. Copyright © 2005 South-Western. All rights reserved.1–61–6 The Process of Strategic Management Mission statementMission statement Environmental analysisEnvironmental analysis Organizational self-assessmentOrganizational self-assessment Establishing goals & objectivesEstablishing goals & objectives Mission statementMission statement Environmental analysisEnvironmental analysis Organizational self-assessmentOrganizational self-assessment Establishing goals & objectivesEstablishing goals & objectives

7. Copyright © 2005 South-Western. All rights reserved.1–71–7 Exhibit 3-1 Process of Strategic Management

8. Copyright © 2005 South-Western. All rights reserved.1–81–8 Mission Statement Explains purpose & reason for existenceExplains purpose & reason for existence Usually very broadUsually very broad No more than a couple of sentencesNo more than a couple of sentences Serves as foundation for everything organization doesServes as foundation for everything organization does Explains purpose & reason for existenceExplains purpose & reason for existence Usually very broadUsually very broad No more than a couple of sentencesNo more than a couple of sentences Serves as foundation for everything organization doesServes as foundation for everything organization does

9. Copyright © 2005 South-Western. All rights reserved.1–91–9 Solectron Mission Statement “Our mission is to provide worldwide responsiveness to our customers by offering the highest quality, lowest total cost, customized, integrated, design, supply-chain and manufacturing solutions through long-term partnerships based on integrity and ethical business practices.”

10. Copyright © 2005 South-Western. All rights reserved.1–10 Analysis of Environment Critical components of external environmentCritical components of external environment –Competition –Industry structure –Government regulations –Technology –Market trends –Economic tends Critical components of external environmentCritical components of external environment –Competition –Industry structure –Government regulations –Technology –Market trends –Economic tends

11. Copyright © 2005 South-Western. All rights reserved.1–11 Organization Self-Assessment Identify primary strengths & weaknessesIdentify primary strengths & weaknesses Find ways to capitalize on strengthsFind ways to capitalize on strengths Find ways to improve or minimize weaknessesFind ways to improve or minimize weaknesses Examine resourcesExamine resources –Physical –Human –Technological –Capital Identify primary strengths & weaknessesIdentify primary strengths & weaknesses Find ways to capitalize on strengthsFind ways to capitalize on strengths Find ways to improve or minimize weaknessesFind ways to improve or minimize weaknesses Examine resourcesExamine resources –Physical –Human –Technological –Capital

12. Copyright © 2005 South-Western. All rights reserved.1–12 Organization Self-Assessment Examine internal management systemsExamine internal management systems –Culture –Organization structure –Power dynamics & policy –Decision-making processes –Past strategy & performance –Work systems Examine internal management systemsExamine internal management systems –Culture –Organization structure –Power dynamics & policy –Decision-making processes –Past strategy & performance –Work systems

13. Copyright © 2005 South-Western. All rights reserved.1–13 Establishing Goals & Objectives Goals should be:Goals should be: –Specific –Measurable –Flexible Goals should be:Goals should be: –Specific –Measurable –Flexible

14. Copyright © 2005 South-Western. All rights reserved.1–14 Corporate Strategies: Growth BenefitsBenefits –Gaining economies of scale in operations & functions –Enhancing competitive position vis-à-vis industry competitors –Providing opportunities for employee professional development & advancement HR IssuesHR Issues –Planning for new hiring –Alerting current employees –Ensuring quality & performance standards are maintained BenefitsBenefits –Gaining economies of scale in operations & functions –Enhancing competitive position vis-à-vis industry competitors –Providing opportunities for employee professional development & advancement HR IssuesHR Issues –Planning for new hiring –Alerting current employees –Ensuring quality & performance standards are maintained Internal MethodsInternal Methods –Penetration of existing markets –Developing new markets –Developing new products or services for existing or new markets External MethodsExternal Methods –Acquiring other organizations –Vertical integration HR IssuesHR Issues –Merging organizations –Dismissing redundant employees

15. Copyright © 2005 South-Western. All rights reserved.1–15 Corporate Strategies: Stability Maintaining status quo due to limited environmental opportunities for gaining competitive advantageMaintaining status quo due to limited environmental opportunities for gaining competitive advantage Few employees will have opportunities for advancementFew employees will have opportunities for advancement Critical that management identify key employees & develop specific HR retention strategies to keep themCritical that management identify key employees & develop specific HR retention strategies to keep them Maintaining status quo due to limited environmental opportunities for gaining competitive advantageMaintaining status quo due to limited environmental opportunities for gaining competitive advantage Few employees will have opportunities for advancementFew employees will have opportunities for advancement Critical that management identify key employees & develop specific HR retention strategies to keep themCritical that management identify key employees & develop specific HR retention strategies to keep them

16. Copyright © 2005 South-Western. All rights reserved.1–16 Corporate Strategies: Turnaround or Retrenchment Downsizing or streamlining organization in cost-cutting attempt to adjust to competitive environmentDownsizing or streamlining organization in cost-cutting attempt to adjust to competitive environment Few opportunities & many environmental threatsFew opportunities & many environmental threats Important to develop HR practices to manage “survivors”Important to develop HR practices to manage “survivors” Downsizing or streamlining organization in cost-cutting attempt to adjust to competitive environmentDownsizing or streamlining organization in cost-cutting attempt to adjust to competitive environment Few opportunities & many environmental threatsFew opportunities & many environmental threats Important to develop HR practices to manage “survivors”Important to develop HR practices to manage “survivors”

17. Copyright © 2005 South-Western. All rights reserved.1–17 Business Unit Strategies: Cost Leadership Increases in efficiency & cutting of costs, then passing savings to consumerIncreases in efficiency & cutting of costs, then passing savings to consumer Assumes price elasticity in demand for products or services is highAssumes price elasticity in demand for products or services is high Assumes that customers are more price sensitive than brand loyalAssumes that customers are more price sensitive than brand loyal HR strategy focuses on short-term performance measures of results & promoting efficiency through job specialization & cross-trainingHR strategy focuses on short-term performance measures of results & promoting efficiency through job specialization & cross-training Increases in efficiency & cutting of costs, then passing savings to consumerIncreases in efficiency & cutting of costs, then passing savings to consumer Assumes price elasticity in demand for products or services is highAssumes price elasticity in demand for products or services is high Assumes that customers are more price sensitive than brand loyalAssumes that customers are more price sensitive than brand loyal HR strategy focuses on short-term performance measures of results & promoting efficiency through job specialization & cross-trainingHR strategy focuses on short-term performance measures of results & promoting efficiency through job specialization & cross-training

18. Copyright © 2005 South-Western. All rights reserved.1–18 Business Unit Strategies: Differentiation In order to demand a premium price from consumersIn order to demand a premium price from consumers –Attempting to distinguish organizational products or services from other competitors or –Creating perception of difference Organization offers employees incentives & compensation for creativityOrganization offers employees incentives & compensation for creativity HR strategy focuses on external hiring of unique individuals & on retaining creative employeesHR strategy focuses on external hiring of unique individuals & on retaining creative employees In order to demand a premium price from consumersIn order to demand a premium price from consumers –Attempting to distinguish organizational products or services from other competitors or –Creating perception of difference Organization offers employees incentives & compensation for creativityOrganization offers employees incentives & compensation for creativity HR strategy focuses on external hiring of unique individuals & on retaining creative employeesHR strategy focuses on external hiring of unique individuals & on retaining creative employees

19. Copyright © 2005 South-Western. All rights reserved.1–19 Business Unit Strategies: Focus Business attempts to satisfy needs of only a particular group or narrow market segmentBusiness attempts to satisfy needs of only a particular group or narrow market segment Strategic intent is to gain consumer loyalty of neglected groups of consumersStrategic intent is to gain consumer loyalty of neglected groups of consumers Strategic HR issue is ensuring employee awareness of uniqueness of market segmentStrategic HR issue is ensuring employee awareness of uniqueness of market segment –Thorough employee training & focus on customer satisfaction are critical factors –Hiring members of target segment who are empathetic to customer in target segment Business attempts to satisfy needs of only a particular group or narrow market segmentBusiness attempts to satisfy needs of only a particular group or narrow market segment Strategic intent is to gain consumer loyalty of neglected groups of consumersStrategic intent is to gain consumer loyalty of neglected groups of consumers Strategic HR issue is ensuring employee awareness of uniqueness of market segmentStrategic HR issue is ensuring employee awareness of uniqueness of market segment –Thorough employee training & focus on customer satisfaction are critical factors –Hiring members of target segment who are empathetic to customer in target segment

20. Copyright © 2005 South-Western. All rights reserved.1–20 Exhibit 3-3 (page 1) Dyer & Holder’s Typology of Strategies

21. Copyright © 2005 South-Western. All rights reserved.1–21 Exhibit 3-3 (page 2) Dyer & Holder’s Typology of Strategies

22. Copyright © 2005 South-Western. All rights reserved.1–22 Benefits of a Strategic Approach to HR Facilitates development of high-quality workforce through focus on types of people & skills neededFacilitates development of high-quality workforce through focus on types of people & skills needed Facilitates cost-effective utilization of labor, particularly in service industries where labor is generally greatest costFacilitates cost-effective utilization of labor, particularly in service industries where labor is generally greatest cost Facilitates planning & assessment of environmental uncertainty & adaptation of organization to external forcesFacilitates planning & assessment of environmental uncertainty & adaptation of organization to external forces Facilitates development of high-quality workforce through focus on types of people & skills neededFacilitates development of high-quality workforce through focus on types of people & skills needed Facilitates cost-effective utilization of labor, particularly in service industries where labor is generally greatest costFacilitates cost-effective utilization of labor, particularly in service industries where labor is generally greatest cost Facilitates planning & assessment of environmental uncertainty & adaptation of organization to external forcesFacilitates planning & assessment of environmental uncertainty & adaptation of organization to external forces

23. Copyright © 2005 South-Western. All rights reserved.1–23 Reading 3.1 Human Resources & Resource Based View People management systems constructPeople management systems construct –Not all competitive advantage begins with people management systems –These systems create value to extent that they impact stock, flow, & change of intellectual capital/knowledge –Basis of core competencies People management systems constructPeople management systems construct –Not all competitive advantage begins with people management systems –These systems create value to extent that they impact stock, flow, & change of intellectual capital/knowledge –Basis of core competencies

24. Copyright © 2005 South-Western. All rights reserved.1–24 Reading 3.1 Human Resources & Resource Based View “Skill” concept expanded to consider stock of intellectual capital in firm“Skill” concept expanded to consider stock of intellectual capital in firm “Behavior” concept reconceptualized as flow of knowledge within firm through its creation, transfer, & integration“Behavior” concept reconceptualized as flow of knowledge within firm through its creation, transfer, & integration Core competence arises from combination of firm’s stock of knowledge & flow of knowledge through creation, transfer, & integration in a way that is valuable, rare, inimitable, & organizedCore competence arises from combination of firm’s stock of knowledge & flow of knowledge through creation, transfer, & integration in a way that is valuable, rare, inimitable, & organized “Skill” concept expanded to consider stock of intellectual capital in firm“Skill” concept expanded to consider stock of intellectual capital in firm “Behavior” concept reconceptualized as flow of knowledge within firm through its creation, transfer, & integration“Behavior” concept reconceptualized as flow of knowledge within firm through its creation, transfer, & integration Core competence arises from combination of firm’s stock of knowledge & flow of knowledge through creation, transfer, & integration in a way that is valuable, rare, inimitable, & organizedCore competence arises from combination of firm’s stock of knowledge & flow of knowledge through creation, transfer, & integration in a way that is valuable, rare, inimitable, & organized

25. Copyright © 2005 South-Western. All rights reserved.1–25 Reading 3.1 Human Resources & Resource Based View Dynamic capability construct illustrates interdependent interplay between workforce & core competence as it changes over timeDynamic capability construct illustrates interdependent interplay between workforce & core competence as it changes over time

26. Copyright © 2005 South-Western. All rights reserved.1–26 Reading 3.2 Distinctive Human Resources “Flexibility” dimension associated with “prospectors”“Flexibility” dimension associated with “prospectors” “Established markets” category linked to classifications like “defenders”“Established markets” category linked to classifications like “defenders” Employment practices are difficult to change & transferEmployment practices are difficult to change & transfer Core competencies should drive business strategy & not vice versaCore competencies should drive business strategy & not vice versa “Flexibility” dimension associated with “prospectors”“Flexibility” dimension associated with “prospectors” “Established markets” category linked to classifications like “defenders”“Established markets” category linked to classifications like “defenders” Employment practices are difficult to change & transferEmployment practices are difficult to change & transfer Core competencies should drive business strategy & not vice versaCore competencies should drive business strategy & not vice versa

27. Copyright © 2005 South-Western. All rights reserved.1–27 Reading 3.2 Distinctive Human Resources If competencies are available to everyone on open market, how can they generate a unique competency & competitive advantage for any one firm?If competencies are available to everyone on open market, how can they generate a unique competency & competitive advantage for any one firm?

28. Copyright © 2005 South-Western. All rights reserved.1–28 Reading 3.3 The Five P’s Model of SHRM PhilosophyPhilosophy –Statements of how organization values & treats employees; essentially culture of the organization PoliciesPolicies –Expressions of shared values & guidelines for action on employee-related business issues ProgramsPrograms –Coordinated & strategized approaches to initiate, disseminate, & sustain strategic organizational change efforts necessitated by strategic business needs PhilosophyPhilosophy –Statements of how organization values & treats employees; essentially culture of the organization PoliciesPolicies –Expressions of shared values & guidelines for action on employee-related business issues ProgramsPrograms –Coordinated & strategized approaches to initiate, disseminate, & sustain strategic organizational change efforts necessitated by strategic business needs

29. Copyright © 2005 South-Western. All rights reserved.1–29 Reading 3.3 The Five P’s Model of SHRM PracticesPractices –HR practices motivate behaviors that allow individuals to assume roles consistent with organization’s strategic objectives –Three categories of roles: LeadershipLeadership ManagerialManagerial OperationalOperational PracticesPractices –HR practices motivate behaviors that allow individuals to assume roles consistent with organization’s strategic objectives –Three categories of roles: LeadershipLeadership ManagerialManagerial OperationalOperational

30. Copyright © 2005 South-Western. All rights reserved.1–30 Reading 3.3 The Five P’s Model of SHRM ProcessesProcesses –Continuum of participation by all employees in specific activities to facilitate formulation & implementation of other activities ProcessesProcesses –Continuum of participation by all employees in specific activities to facilitate formulation & implementation of other activities

31. Copyright © 2005 South-Western. All rights reserved.1–31 Reading 3.3 The Five P’s Model of SHRM Successful SHRM efforts begin with identification of strategic needsSuccessful SHRM efforts begin with identification of strategic needs Employee participation is critical to linking strategy & HR practicesEmployee participation is critical to linking strategy & HR practices Strategic HR depends on systematic & analytical mindsetStrategic HR depends on systematic & analytical mindset Corporate HR departments can have impact on organization’s efforts to launch strategic initiativesCorporate HR departments can have impact on organization’s efforts to launch strategic initiatives Successful SHRM efforts begin with identification of strategic needsSuccessful SHRM efforts begin with identification of strategic needs Employee participation is critical to linking strategy & HR practicesEmployee participation is critical to linking strategy & HR practices Strategic HR depends on systematic & analytical mindsetStrategic HR depends on systematic & analytical mindset Corporate HR departments can have impact on organization’s efforts to launch strategic initiativesCorporate HR departments can have impact on organization’s efforts to launch strategic initiatives