Human Resource Management Gaining a Competitive Advantage Chapter 2 Strategic Human Resource Management McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, All Rights Reserved.

Learning Objectives After reading this chapter, you should be able to: Describe the differences between strategy formulation and strategy implementation. List the components of the strategic management process. Discuss the role of the HRM function in strategy formulation. Describe the linkages between HRM and strategy formulation. Discuss the more popular typologies of generic strategies and the various HRM practices associated with each. Describe the different HR issues and practices associated with various directional strategies.

Introduction Goal of strategic management – To deploy and allocate resources in a way that gives organization a competitive advantage. HRM function must be integrally involved in the company’s strategic management process. The goal of strategic management in an organization is to deploy and allocate resources in a way that gives it a competitive advantage. Human resource managers should: have input into the strategic plan, have specific knowledge of the organization’s strategic goals, know what types of employee skills, behaviors, and attitudes are needed to support the strategic plan, and develop programs to ensure that employees have those skills, behaviors, and attitudes.

What is Strategic Management? Strategic Management is a process, an approach to addressing the competitive challenges an organization faces. Strategic human resource management is the pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals. Strategic Management is a process for analyzing a company's competitive situation, developing the company's strategic goals, and devising a plan of action and allocation of resources that will help a company achieve its goals. HR Managers should be trained to identify the competitive issues faced by the organization. Strategic human resource management is the pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals.

Components of the Strategic Management Process Strategy Formulation Strategy Implementation Strategic Management has two distinct yet independent components: Strategy Formulation: Strategic planning groups decide on a strategic direction by defining the company’s mission and goals, its external opportunities and threats, and its internal strengths and weaknesses. Strategy Implementation: The organization follows through on the strategy that has been chosen. This includes structuring the organization, allocating resources, ensuring that the firm has skilled employees in place, and developing reward systems that align employee behavior with the strategic goals.

Model of the Strategic Management Process Forecasts of Labor Demand Strategy Formulation Strategy Implementation External Analysis Opportunities Threats HR Practices Recruiting, Training, Performance management, Labor relations, Employee relations, Job analysis Job design, Selection, Development, Pay structure, Incentives, Benefits Firm Performance Productivity, Quality, Profitability Mission Goals Strategic Choice Human Resource Needs Skills Behavior Culture This figure presents the strategic management process. Human Resource Capability Skills, Abilities, Knowledge Human Resource Actions Behaviors, Results Internal Analysis Strengths Weaknesses

The Role of HRM in Strategy Formulation Four levels of integration seems to exist between the HRM function and the strategic management function. Administrative Linkage — Lowest level of integration; HRM function’s attention is focused on day-to-day activities. No input from the HRM function to the company’s strategic plan is given. One-Way Linkage — The strategic business planning function develops the plan and then informs the HRM function of the plan. HRM then helps in the implementation. Two-Way Linkage — Allows for consideration of human resource issues during the strategy formulation process. The HRM function is expected to provide input to potential strategic choices and then help implement the chosen option. Integrative Linkage — Is based on continuing, rather than sequential, interaction. The HR executive is an integral member of the strategic planning team.

Strategy Formulation External analysis Opportunities Threats Mission Goals Strategic Choice Internal analysis Strengths Weaknesses This figure presents the five major components of the strategic management process are relevant to strategy formulation.

Strategy Formulation Five components of the strategic management process: A mission is a statement of the organization's reasons for being. Goals are what the organization hopes to achieve in the medium-to long-term future External analysis consists of examining the organization's operating environment to identify strategic opportunities and threats. Internal analysis attempts to identify the organization's strengths and weaknesses. Strategic choice is the organization's strategy, which describes the ways the organization will attempt to fulfill its mission and achieve its long term goals. Five components of the strategic management process relevant to strategy formulation: A mission is a statement of the organization's reasons for being. Goals are what the organization hopes to achieve in the medium-to long-term future External analysis consists of examining the organization's operating environment to identify strategic opportunities and threats. Internal analysis attempts to identify the organization's strengths and weaknesses. Strategic choice is the organization's strategy, which describes the ways the organization will attempt to fulfill its mission and achieve its long term goals.

Strategy Implementation Organizational structure Types of Information Task Design Product market strategy Performance This figure presents the variables to be considered in strategy implementation. Reward systems Selection, training, and development of people

HRM Practices Job Analysis - the process of getting detailed information about jobs. Recruitment - the process through which the organization seeks applicants. Training - a planned effort to facilitate learning of job-related knowledge, skills, and behavior. Job design - making decisions about what tasks should be grouped into a particular job. Selection - identifying the applicants with the appropriate knowledge, skills, and ability. Development - the acquisition of knowledge, skills, and behavior that improves employees' ability to meet the challenges of future jobs. HRM function can be thought of as having six menus of HRM practices, from which companies can choose the ones most appropriate for implementing their strategy. Each of these menus refers to a particular functional area of HRM: job analysis/design, recruitment/selection, training and development, performance management, pay structure, incentives, and benefits, and labor-employee relations. Performance management - helps ensure that employees’ activities and outcomes are congruent with the organization’s objectives. Pay structure, incentives, and benefits. Labor and employee relations.

Porter's Generic Strategies Strategic Types Porter's Generic Strategies overall cost leadership, or differentiation. Michael Porter has hypothesized that competitive advantage comes from creating value by: -reducing costs (overall cost leadership), or -charging a premium price for a differentiated product or service (differentiation).

HRM Needs in Strategic Types Different strategies require different types of employees. Role Behaviors: Cost strategy firms seek efficiency and therefore carefully define the skills they need in employees and use worker participation to seek cost-saving ideas. Differentiation firms need creative risk takers. Different strategies require different types of employees. Role Behaviors are the behaviors required of an individual in his or her role as a jobholder in a social work environment. Cost strategy firms seek efficiency and therefore carefully define the skills they need in employees and use worker participation to seek cost-saving ideas. Differentiation firms need creative risk takers.

Directional Strategies External Growth Strategy Concentration Strategy Downsizing Internal Growth Strategy Companies have used five possible categories of directional strategies to meet objectives: external growth, concentration, internal growth, mergers and acquisitions, and downsizing. Mergers and Acquisitions

The Role of HR in Providing a Competitive Advantage Emergent Strategies - Those that evolve from the grass roots of the organization. Enhancing Firm Competitiveness HR can provide a strategic competitive advantage in two additional ways: Emergent Strategies - Those that evolve from the grass roots of the organization. What actually is done versus what is planned. HR plays an important role in facilitating the communication of emergent strategies between levels in the hierarchy. Enhancing Firm Competitiveness By developing a rich pool of talent, HR can assure the company's ability to adapt to a dynamic environment.