© 2010 South-Western, a part of Cengage Learning All rights reserved.

Chapter Objectives After studying this chapter, you should be able to Identify the advantages of integrating human resources planning and strategic planning. Understand how an organization’s competitive environment influences its strategic planning. Understand why it is important for an organization to do an internal resource analysis. Describe the basic tools used for human resources forecasting. Explain the linkages between competitive strategies and HR. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Chapter Objectives (cont’d) After studying this chapter, you should be able to Understand what is required for a firm to successfully implement a strategy. Recognize the methods for assessing and measuring the effectiveness of a firm’s strategy. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Strategic Planning and Human Resources Procedures for making decisions about the organization’s long-term goals and strategies Human Resources Planning (HRP) Process of anticipating and making provision for the movement (flow) of people into, within, and out of an organization. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Strategic Planning and HR Planning Strategic Human Resources Management (SHRM) The pattern of human resources deployments and activities that enable an organization to achieve its strategic goals Strategy formulation—providing input as to what is possible given the types and numbers of people available. Support strategy creation Strategy implementation—making primary resource allocation decisions about structure, processes, and human resources. Create functional strategy to implement corporate strategy © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Linking Strategic Planning and HRP Strategic Analysis What human resources are needed and what are available? Strategic Formulation What is required and necessary in support of human resources? Strategic Implementation How will the human resources be allocated? Human Resources Planning Strategic Planning © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Linking Strategic Planning and Human Resources FIGURE 2.1 Linking Strategic Planning and Human Resources √ √ √ √ √ √ √ √ √ √ √ © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Step One: Mission, Vision, and Values The basic purpose of the organization as well as its scope of operations Strategic Vision A statement about where the company is going and what it can become in the future; clarifies the long-term direction of the company and its strategic intent Core Values The strong and enduring beliefs and principles that the company uses as a foundation for its decisions These elements set the culture for the organization and its employees. Sets the ethics. What is right/wrong, acceptable/unacceptable. How to treat customers, suppliers, and each other. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Step Two: Environmental Scanning The systematic monitoring of the major external forces influencing the organization. Economic factors: general, regional, and global conditions Industry and competitive trends: new processes, services, and innovations Technological changes: robotics and office automation Government and legislative issues: laws and administrative rulings Social concerns: child care and educational priorities Demographic and labor market trends: age, composition, literacy, and immigration © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X Five Forces Framework FIGURE 2.2 © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Step Three: Internal Analysis (3 Cs) Culture Composition Capabilities Internal Analysis © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Culture: Auditing Values, Beliefs, and Attitudes Cultural Audits Audits of the culture and quality of work life in an organization. How do employees spend their time? How do they interact with each other? Are employees empowered? What is the predominant leadership style of managers? How do employees advance within the organization? Before any HR planning can take place, managers have to gain a clear idea of how employees view their organization, which is what the cultural audit helps do. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Capabilities: People as a Strategic Resource Core Capabilities Integrated knowledge sets within an organization that distinguish it from its competitors and deliver value to customers. Sustained competitive advantage through people is achieved if these human resources: Are valuable. Are rare and unavailable to competitors. (Not individuals, but groups of people.) Are difficult to imitate. Are organized for teamwork and cooperation. Does your company today have these HR resources? © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Composition: The Human Capital Architecture Strategic Knowledge Workers Employees who have unique skills that are directly linked to the company’s strategy. Example: R&D scientists Core Employees Employees with skills to perform a predefined job that are quite valuable to a company, but not particularly unique or difficult to replace. Example: salespeople © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Composition: The Human Capital Architecture (cont’d) Supporting Labor Employees whose skills are of less strategic value and generally available in the labor market. Example: clerical workers Example: manual labor factory workers Alliance Partners Individuals and groups with unique skills, but those skills are not directly related to a company’s core strategy. Example: consultants © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X Mapping Skills of Your Human Capital FIGURE 2.3 © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Forecasting: A Critical Element of Planning Forecasting estimates the number and type of people needed to meet organizational objectives Forecasting involves: forecasting the demand for labor forecasting the supply of labor balancing supply and demand considerations. How do you forecast HR needs? What is the forecast based on? © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X Model of HR Forecasting FIGURE 2.4 © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Forecasting Demand for Employees Quantitative Methods Qualitative Methods Forecasting Demand © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Quantitative Approach: Trend Analysis Forecasting labor demand based on an organizational index such as sales: Select a business factor that best predicts human resources needs. Plot the business factor in relation to the number of employees to determine the labor productivity ratio. Compute the productivity ratio for the past five years. Calculate human resources demand by multiplying the business factor by the productivity ratio. Project human resources demand out to the target year(s). Be very careful with quantitative analysis. It implies more accuracy than is possible. How are the operational managers going to use it, if they use it at all? Some of this is engineering envy. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X Example of Trend Analysis of HR Demand FIGURE 2.5 © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Qualitative Approaches Management Forecasts The opinions (judgments) of supervisors, department managers, experts, or others knowledgeable about the organization’s future employment needs. Delphi Technique An attempt to decrease the subjectivity of forecasts by soliciting and summarizing the judgments of a preselected group of individuals. The final forecast represents a composite group judgment. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

1 HR Planning and Strategy Questions to Ask Business Managers (How Will You Answer?) Workforce planning requires that HR leaders periodically interview their managers to gauge future workforce needs. Here are some sample questions to ask. What are your mission, vision, and values? What are your current pressing business issues? What are our organizational strengths? Who are our competitors’ organizational strengths? How do we compare? What core capabilities do we need to win in our markets?• What are the required knowledge, skills, and abilities we need to execute the winning strategy? What are the barriers to optimally achieving the strategy? What types of skills and positions will be required or no longer required? Which skills should we have internally versus contract with outside providers? What actions need to be taken to align our resources with strategy priorities? What recognition and rewards are needed to attract, motivate, and retain the employees we need? How will we know if we are effectively executing our workforce plan and staying on track? © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Forecasting the Supply of Employees: Internal Labor Supply Staffing Tables Markov Analysis Skill Inventories Replacement Charts Succession Planning © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Forecasting Internal Labor Supply X Forecasting Internal Labor Supply Staffing Tables Graphic representations of all organizational jobs, along with the numbers of employees currently occupying those jobs and future (monthly or yearly) employment requirements. Markov Analysis A method for tracking the pattern of employee movements through various jobs. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X Hypothetical Markov Analysis for a Retail Company FIGURE 2.6 © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Internal Demand Forecasting Tools Skill Inventories Files of personnel education, experience, interests, skills, etc., that allow managers to quickly match job openings with employee backgrounds. Replacement Charts Listings of current jobholders and persons who are potential replacements if an opening occurs. Succession Planning The process of identifying, developing, and tracking key individuals for executive positions. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

An Executive Replacement Chart FIGURE 2.7 An Executive Replacement Chart Think of planned and unplanned replacement. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

RATE THE SUCCESS OF YOUR SUCCESSION PLANNING 2 X Succession-Planning Checklist RATE THE SUCCESS OF YOUR SUCCESSION PLANNING For each characteristic of a best-practice succession-planning and management program appearing in the left column below, enter a number to the right to indicate how well you believe your organization manages that characteristic. Ask other decision makers in your organization to complete this form individually, compile the scores, and compare notes. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X Assessing a Firm’s Human Capital FIGURE 2.8 © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Step Four: Formulating Strategy Strategy Formulation Moving from simple analysis to devising a coherent course of action. SWOT analysis A comparison of strengths, weaknesses, opportunities, and threats for strategy formulation purposes. Helps management understand the major facts and forecasts from internal and external analysis. Use the strengths of the organization to capitalize on opportunities, counteract threats, and alleviate internal weaknesses. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X An Example of a SWOT Analysis FIGURE 2.9 An Example of a SWOT Analysis Valero Energy Corporation (Valero) is one of the largest refiners in North America. Its core activities include refining and marketing of petroleum products. With a combined throughput capacity of approximately 3.3 million bpd, Valero is the 15th largest company on the Fortune 500 list. Valero’s large refining capacity gives it a significant competitive advantage. However, rising material and labor costs could affect the company’s margins. Strengths Weaknesses Large refining system Leader in conversion capacity and feedstock flexibility Strong revenue growth and capital expenditure Weak performance in Canada Litigations High dependence on the United States Opportunities Threats Growing diesel demand Strategic refocus Rising petrochemical capacity in the Middle East Material and labor cost Stringent regulations © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Corporate Strategy Go-it-alone Corporate Strategies Corporate Strategy Strategic Alliances and Joint Ventures Growth and Diversification Mergers and Acquisitions Corporate Strategy Go-it-alone Corporate Strategies Cooperative Corporate Strategies HR has input to corporate strategy, but as a department it is rarely a driver of the strategy like R&D or Ops is. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Business Strategy Value Creation What the firm adds to a product or service by virtue of making it; the amount of benefits provided by the product or service once the costs of making it are subtracted (value = benefits — costs). Low-cost strategy: competing on productivity and efficiency Keeping costs low to offer an attractive price to customers (relative to competitors). Differentiation strategy: compete on added value Involves providing something unique and distinctive to customers that they value. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

3 Key HR Activities Associated with Merger or Acquisition (M&A) © 2010 South-Western, a part of Cengage Learning. All rights reserved.

3 Key HR Activities Associated with Merger or Acquisition Phases (cont’d) HR is a critical and often overlooked part of an M&A strategy. Cultural compatibility is crucial and HR can identify that, but rarely can they do much about it. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Business Strategy (cont’d) Functional Strategy: Ensuring Alignment External Fit/Alignment Focuses on the connection between the business objectives and the major initiatives in HR. Internal Fit/Alignment Aligning HR practices with one another to establish a configuration that is mutually reinforcing. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Step Five: Strategy Implementation Taking Action: Reconciling Supply and Demand Balancing demand and supply considerations Forecasting business activities (trends) Locating applicants Organizational downsizing, outsourcing, offshoring Reducing “headcount” Making layoff decisions Seniority or performance? Labor agreements Often dictated by seniority. Global cultural/legal issues. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X FIGURE 2.10 The 7-S Model © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Step Six: Evaluation and Assessment Evaluation and Assessment Issues Benchmarking: The process of comparing the organization’s processes and practices with those of other companies Human capital metrics Assess aspects of the workforce HR metrics Assess the performance of the HR function itself © 2010 South-Western, a part of Cengage Learning. All rights reserved.

4 Ten Measures of Human Capital Your most important issues Human capital value added Human capital ROI Separation cost Voluntary separation rate Total labor-cost/revenue percentage Total compensation/revenue percentage Training investment factor Time to start Revenue factor © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Measuring a Firm’s Strategic Alignment Strategy Mapping and the Balanced Scorecard Balanced Scorecard (BSC) A measurement framework that helps managers translate strategic goals into operational objectives Financial Customer Processes Learning © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X Building the Metrics Model FIGURE 2.11 © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X Assessing Internal Fit FIGURE 2.12 5 = Strongly supports the priority, 0= Neutral, –5 = Strongly counterproductive © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Ensuring Strategic Flexibility for the Future Organizational Capability Capacity of the organization to act and change in pursuit of sustainable competitive advantage. Coordination flexibility The ability to rapidly reallocate resources to new or changing needs. Resource flexibility Having human resources who can do many different things in different ways. © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Balanced Scorecard (BSC) benchmarking core capabilities core values cultural audits environmental scanning human capital readiness human resources planning (HRP) management forecasts Markov analysis mission organizational capability replacement charts skill inventories staffing tables strategic human resources management (SHRM) strategic planning strategic vision succession planning SWOT analysis trend analysis value creation © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Discussion Questions (page 85) #3 What criteria must be met if firms are to achieve a competitive advantage through their employees? #5 What competitive environmental forces influence a firm’s strategy? © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Case Study in External Analysis—Bangladesh (7/17/10 NYT) Cheap labor competes with China, particularly in garments. 20% increase vs 5% decrease in China. China’s low-paying jobs being exported to Bangladesh, Cambodia, Viet Nam Bangladesh minimum wage $24/month (in China $117-$147/mo) China has much better education (92% literacy vs 55% in Bangladesh), better transportation, better electricity More efficient production Very complicated analysis China demanding higher wages, so are other countries Higher wages mean higher costs for machinery In Bangladesh, companies say if minimum wage goes to $71/ mo, they will close down. Even if $43/month many will close. What does this mean for HR management? © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Page 89 #2, Bad Hair Day Religious Custom Case Study Page 89 #2, Bad Hair Day Religious Custom © 2010 South-Western, a part of Cengage Learning. All rights reserved.

X © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Employee Turnover Rates X Employee Turnover Rates Computing Turnover Rates: The U.S. Department of Labor suggests the following formula for computing turnover rates: Thus, if there were 25 separations during a month and the total number of employees at mid month was 500, the turnover rate would be: © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Employee Turnover Rates (cont’d) X Employee Turnover Rates (cont’d) Computing Turnover Rates (cont’d): Another method of computing the turnover rate is one that reflects only the avoidable separations (S). This rate is computed by subtracting unavoidable separations (US) from all separations. The formula for this method is as follows: where M represents the total number of employees at mid month. For example, if there were 25 separations during a month, 5 of which were US, and the total number of employees at mid month (M) was 500, the turnover rate would be: © 2010 South-Western, a part of Cengage Learning. All rights reserved.

Employee Absenteeism Rates X Employee Absenteeism Rates Computing Absenteeism Rates © 2010 South-Western, a part of Cengage Learning. All rights reserved.

5 X Costs Associated with the Turnover of One Computer Programmer (Turnover costs = Separation costs + Replacement costs + Training costs) Separation costs Exit interview cost for salary and benefits of both interviewer and departing employee during the exit interview = $30+$30 = $60 Administrative and record-keeping action = $30 Total separation costs = $60 + $30 = $90 Replacement costs Advertising for job opening = $2,500 Preemployment administrative functions and record-keeping action = $100 Selection interview = $250 Employment tests = $40 Meetings to discuss candidates (salary and benefits of managers while participating in meetings)= $250 Total replacement costs = $2,500 + $100 + $250 + $40 + $250 = $3,140 Training costs Booklets, manuals, and reports = $50 Education = $240/day for new employee’s salary and benefits x 10 days of workshops, seminars, or courses = $2,400 One-to-one coaching = ($240/day/new employee + $240/day/staff coach or job expert) x 20 days of one-to-one coaching = $9,600 Salary and benefits of new employee until he or she gets “up to par” = $240/day for salary and benefits x 20 days = $4,800 Training costs = $50 + $2,400 + $9,600 + $4,800 = $16,850 Total turnover costs= $90 + $3,140 + $16,850 = $20,080 © 2010 South-Western, a part of Cengage Learning. All rights reserved.