Chapter 2

Strategic HR Management & Planning

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 Human Resources as a Core Competency
• Strategic Human Resources Management
 The use of employees to gain or keep a competitive
advantage, resulting in greater organizational
effectiveness.
• Core Competencies
 The unique capabilities of employees in an
organization that create high value and that
differentiate the organization from its competition
 The source of an organization’s sustainable
competitive advantage.

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Strategic HR Management Process

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 Global Factors
• Types of organizations
 Import/export
 Multinational Enterprises (MNEs)
 Global organizations
• Legal, Political & Economic Factors
 Unstable environments, unions, compliance issues
• Cultural Factors
 Hofstede’s five dimensions

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 Organizational Effectiveness and
Strategic HR Management
• Effectiveness
 The extent to which goals have been met.
• Efficiency
 The degree to which operations are done in an
economical manner.
• Dimensions of Organizational Effectiveness
 Organizational productivity
 Financial contributions
 Service and quality
 Organizational culture
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 Organizational Productivity and HR Efforts
• Productivity
 A measure of the quantity and quality of work done,
considering the cost of the resources used.
 A ratio of the inputs and outputs that indicates the
value added by an organization.
 Unitlabor cost: computed by dividing the average cost of
workers by their average levels of output.
• Improving Organizational Productivity
 Organizational restructuring
 Re-designing work
 Aligning HR Activities
 Outsourcing analyses and assistance
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Approaches to Improving Organizational Productivity

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 Organizational Effectiveness and Financial
Contributions of HR

• Return on Investment (ROI)

 Difficult to determine returns for
HR contributions which affect
many facets of the business
 Former view of HR as a “cost
center”

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 Customer Service and Quality Products
Linked to HR Strategies

• High quality products and services are the

results of HR-enhancements to organizational
performance.
 Staffing
 Customer service

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 Organizational Culture and
Organizational Effectiveness
• Organizational Culture
 The shared values and beliefs in an organization
 Strategy and culture must be compatible and aligned
for the organization to be effective.
 Culture affects recruitment and retention of
employees.
 Culture can enhance or constrain organizational
performance.
 Culture is the “climate” of an organization.

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HR Planning

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HR Planning Process

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 Human Resource Planning (cont’d)
• Small Business and HR Planning Issues
 Attracting and retaining qualified outsiders
 Management succession between generations of
owners
 Evolution of HR activities as business grows
 Family relationships and HR policies

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 HR Planning Process
• HR Strategies
 The means used to anticipate and manage the supply
of and demand for human resources.
 Provide overall direction for the way in which HR activities
will be developed and managed.

Overall
Strategic Plan

Human Resources
Strategic Plan

HR Activities
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 Benefits of HR Planning
• Better view of the HR dimensions of business
decisions
• Lower HR costs through better HR
management.
• More timely recruitment for anticipate HR needs
• More inclusion of protected groups through
planned increases in workforce diversity.
• Better development of managerial talent

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 Scanning the External Environment
• Environmental Scanning
 The process of studying the environment of the
organization to pinpoint opportunities and threats.
• Environmental Changes Impacting HR
 Governmental Influences
 Economic conditions
 Geographic and competitive concerns
 Workforce composition

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 Assessing the Internal Workforce
• Jobs and Skills Audit
 What jobs exist now?
 How many individuals are performing each job?
 What are the reporting relationships of jobs?
 How essential is each job?
 What jobs will be needed to implement future
organizational strategies?
 What are the characteristics of anticipated jobs?

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 Assessing the Internal Workforce (cont’d)
• Organizational Capabilities Inventory
 HRIS databases—sources of information about
employees’ knowledge, skills, and abilities (KSAs)
 Components of an organizational capabilities
inventory
 Individual employee demographics
 Individual employee career progression
 Individual job performance data

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 Forecasting HR Supply and Demand
• Forecasting
 The use of information from the past and present to
identify expected future conditions.
• Forecasting Methods
 Judgmental
 Estimates—asking managers’ opinions, top-down or
bottom-up
 Rules of thumb—using general guidelines
 Delphi technique—asking a group of experts
 Nominal groups—reaching a group consensus in open
discussion

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 Forecasting HR Supply and Demand
(cont’d)
• Forecasting Methods (cont’d)
 Mathematical
 Statisticalregression analysis
 Simulation models
 Productivity ratios—units produced per employee
 Staffing ratios—estimates of indirect labor needs

• Forecasting Periods
 Short-term—less than one year
 Intermediate—up to five years
 Long-range—more than five years

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 Forecasting HR Supply and Demand
(cont’d)

• Forecasting the Demand for Human Resources

 Organization-wide estimate for total demand
 Unit breakdown for specific skill needs by number and
type of employee
 Develop decision rules (“fill rates”) for positions to be filled
internally and externally.
 Develop additional decision rules for positions impacted by
the chain effects of internal promotions and transfers.
• Forecasting the Supply for Human Resources
 External Supply
 Internal Supply
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 Forecasting HR Supply (cont’d)
• Forecasting External HR Supply
 Factors affecting external
 Net migration for an area
 Individuals entering and leaving the workforce
 Individuals graduating from schools and colleges
 Changing workforce composition and patterns
 Economic forecasts
 Technological developments and shifts
 Actions of competing employers
 Government regulations and pressures
 Other circumstances affecting the workforce

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 Forecasting HR Supply
• Forecasting Internal HR Supply
 Effects of promotions, lateral moves, and terminations
• Succession analysis
 Replacement charts
 Succession planning
 The process of identifying
a longer-term plan for the
orderly replacement of key
employees.

Source: U.S. Office of Personnel Management, www.opm.gov.

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Estimating Internal Labor Supply for a Given Unit

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 Developing and Using a Strategic HR Plan
• Issues in Matching the Supply of Labor with the
Demand for Labor
 Succession Planning
 Managing a Human Resources Surplus
 Outplacement Services
 HR Planning in Mergers and Acquisitions

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Making Downsizing More Effective

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 HR Planning in Mergers and Acquisitions
• Cultural Compatibility
 The extent to which such factors as decision-making
styles, levels of teamwork, information-sharing
philosophies, and the formality of the two
organizations are similar.
• HR’s Role in Mergers and Acquisitions
 Communicating decisions
 Revising the organization structure
 Merging HR activities

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 Measuring HR Effectiveness
Using HR Metrics

• HR Metrics
 Specific measures tied to HR performance indicators.
 Development and use of metrics that can better demonstrate
HR’s value and track its performance.
 Characteristics of good HR metrics:
 Accurate data can be collected.
 Measures are linked to strategic and operational objectives.
 Calculations can be clearly understood.
 Measures provide information expected by executives.
 Results can be compared both externally and internally.
 Measurement data drives HR management efforts.

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Examples of Strategic and Operational
HR Metrics

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 Measures of Strategic HR Effectiveness
• Return on Investment (ROI)
 Calculation showing the value of expenditures for HR
activities.

C
ROI 
A B
A = Operating costs for a new or enhance system for the time period
B = One-time cost of acquisition and implementation
C = Value of gains from productivity improvements for the time period

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 Measures of Strategic HR Effectiveness
(cont’d)

• Economic Value Added (EVA)

 A firm’s net operating profit after the cost of capital
(required return) is deducted.
 Cost of capital is the benchmark for returns for all HR
activities.
• HR and the Balanced Scorecard
 Financial
 Internal business processes
 Customer
 Learning and growth

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 HR Measurement and Benchmarking
• Benchmarking
 Comparing specific measures of performance against
data on those measures in other “best practice”
organizations
• Common Benchmarks
 Total compensation as a percentage of net income
before taxes
 Percent of management positions filled internally
 Dollar sales per employee
 Benefits as a percentage of payroll cost

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 Assessing HR Effectiveness
• HR Audit
 A formal research effort that evaluates the current
state of HR management in an organization
 Audit areas:
 Legal compliance (e.g., EEO, OSHA, ERISA, and FMLA)
 Current job specifications and descriptions
 Valid recruiting and selection process
 Formal wage and salary system  Benefits
 Employee handbook
 Absenteeism and turnover control
 Grievance resolution process
 Orientation program  Training and development
 Performance management system

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