© 2010 South-Western, a part of Cengage Learning ... the effectiveness of a firm’s strategy. ... Demographic and labor market trends: ... opportunities,

2

PowerPoint Presentation by Charlie CookThe University of West Alabama

PowerPoint Presentation by Charlie CookThe University of West Alabama

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

Identify the advantages of integrating human resources planning and strategic planning.

Understand how an organization’s competitive environment influences its strategic planning.

Chapter ObjectivesAfter studying this chapter, you should be able to

© 2010 South-Western, a part of Cengage Learning. A ll rights reserved. 2–2

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.

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.

Chapter Objectives (cont’d)After studying this chapter, you should be able to


Strategic Planning and Human ResourcesStrategic Planning and Human Resources

••Strategic PlanningStrategic Planning

�� Procedures for making decisions about the Procedures for making decisions about the

organization’s longorganization’s long--term goals and strategiesterm goals and strategies

••Human Resources Planning (HRP)Human Resources Planning (HRP)

�� Process of anticipating and making provision for the Process of anticipating and making provision for the

movement (flow) of people into, within, and out of movement (flow) of people into, within, and out of


movement (flow) of people into, within, and out of movement (flow) of people into, within, and out of

an organization. an organization.

Strategic Planning and HR PlanningStrategic Planning and HR Planning

••Strategic Human Resources Management (SHRM)Strategic Human Resources Management (SHRM)

�� The pattern of human resources deployments and The pattern of human resources deployments and

activities that enable an organization to achieve its activities that enable an organization to achieve its

strategic goalsstrategic goals

�� Strategy formulationStrategy formulation——providing input as to what is possible providing input as to what is possible given the types and numbers of people available.given the types and numbers of people available.


given the types and numbers of people available.given the types and numbers of people available.

�� Strategy implementationStrategy implementation——making primary resource making primary resource allocation decisions about structure, processes, and human allocation decisions about structure, processes, and human resources.resources.

Linking Strategic Planning and HRPLinking Strategic Planning and HRP

••Strategic Analysis Strategic Analysis

��What human resources are needed and what are What human resources are needed and what are

available?available?

••Strategic FormulationStrategic Formulation

��What is required and necessary in support of human What is required and necessary in support of human

resources?resources?


resources?resources?

••Strategic ImplementationStrategic Implementation

�� How will the human resources be allocated?How will the human resources be allocated?

Human Resources Human Resources PlanningPlanning

StrategicStrategicPlanningPlanning

FIGURE

2.1Linking Strategic Planning and Human Resources


Step One: Mission, Vision, and ValuesStep One: Mission, Vision, and Values

••MissionMission

�� The basic purpose of the organization as well as its The basic purpose of the organization as well as its

scope of operationsscope of operations

••Strategic VisionStrategic Vision

�� A statement about where the company is going and A statement about where the company is going and

what it can become in the future; clarifies the longwhat it can become in the future; clarifies the long--


what it can become in the future; clarifies the longwhat it can become in the future; clarifies the long--

term direction of the company and its strategic term direction of the company and its strategic

intentintent

••Core ValuesCore Values

�� The strong and enduring beliefs and principles that The strong and enduring beliefs and principles that

the company uses as a foundation for its decisionsthe company uses as a foundation for its decisions

Step Two: Environmental ScanningStep Two: Environmental Scanning

••Environmental ScanningEnvironmental Scanning

�� The systematic monitoring of the major external The systematic monitoring of the major external

forces influencing the organization.forces influencing the organization.

1.1. Economic factors: general, regional, and global conditionsEconomic factors: general, regional, and global conditions

2.2. Industry and competitive trends: new processes, services, Industry and competitive trends: new processes, services, and innovationsand innovations


and innovationsand innovations

3.3. Technological changes: robotics and office automation Technological changes: robotics and office automation

4.4. Government and legislative issues: laws and administrative Government and legislative issues: laws and administrative rulings rulings

5.5. Social concerns: child care and educational priorities Social concerns: child care and educational priorities

6.6. Demographic and labor market trends: age, composition, Demographic and labor market trends: age, composition, literacy, and immigrationliteracy, and immigration

FIGURE

2.2Five Forces Framework


Step Three: Internal AnalysisStep Three: Internal Analysis

CultureCulture Capabilities

Internal AnalysisInternal Analysis


CompositionComposition

Internal AnalysisInternal Analysis

Culture: Auditing Values, Beliefs, and AttitudesCulture: Auditing Values, Beliefs, and Attitudes

••Cultural AuditsCultural Audits

�� Audits of the culture and quality of work life in an Audits of the culture and quality of work life in an

organization.organization.

�� How do employees spend their time? How do employees spend their time?

�� How do they interact with each other? How do they interact with each other?


�� Are employees empowered?Are employees empowered?

�� What is the predominant leadership style of managers?What is the predominant leadership style of managers?

�� How do employees advance within the organization?How do employees advance within the organization?

Capabilities: People as a Strategic ResourceCapabilities: People as a Strategic Resource

•• Core CapabilitiesCore Capabilities

�� Integrated knowledge sets within an organization Integrated knowledge sets within an organization

that distinguish it from its competitors and deliver that distinguish it from its competitors and deliver

value to customers.value to customers.

•• Sustained competitive advantage through Sustained competitive advantage through

people is achieved if these human resources:people is achieved if these human resources:


people is achieved if these human resources:people is achieved if these human resources:

1.1. Are valuable.Are valuable.

2.2. Are rare and unavailable to competitors.Are rare and unavailable to competitors.

3.3. Are difficult to imitate.Are difficult to imitate.

4.4. Are organized for teamwork and cooperation.Are organized for teamwork and cooperation.

Composition: The Human Capital ArchitectureComposition: The Human Capital Architecture

••Strategic Knowledge WorkersStrategic Knowledge Workers

�� Employees who have unique skills that are directly Employees who have unique skills that are directly

linked to the company’s strategy.linked to the company’s strategy.

�� Example: R&D scientistsExample: R&D scientists

••Core EmployeesCore Employees

�� Employees with skills to perform a predefined job Employees with skills to perform a predefined job


�� Employees with skills to perform a predefined job Employees with skills to perform a predefined job

that are quite valuable to a company, but not that are quite valuable to a company, but not

particularly unique or difficult to replace.particularly unique or difficult to replace.

�� Example: salespeopleExample: salespeople

Composition: The Human Capital Architecture Composition: The Human Capital Architecture (cont’d)(cont’d)

••Supporting LaborSupporting Labor

�� Employees whose skills are of less strategic value Employees whose skills are of less strategic value

and generally available in the labor market.and generally available in the labor market.

�� Example: clerical workersExample: clerical workers

••Alliance PartnersAlliance Partners


••Alliance PartnersAlliance Partners

�� Individuals and groups with unique skills, but those Individuals and groups with unique skills, but those

skills are not directly related to a company’s core skills are not directly related to a company’s core

strategy.strategy.

�� Example: consultantsExample: consultants

FIGURE

2.3Mapping Human Capital


Forecasting: A Critical Element of PlanningForecasting: A Critical Element of Planning

•• Forecasting involves:Forecasting involves:

a.a. forecasting the demand for laborforecasting the demand for labor

b.b. forecasting the supply of laborforecasting the supply of labor

c.c. balancing supply and demand considerations.balancing supply and demand considerations.


FIGURE

2.4Model of HR Forecasting


Forecasting Demand for EmployeesForecasting Demand for Employees

Quantitative MethodsQuantitative MethodsQuantitative MethodsQuantitative Methods

Forecasting DemandForecasting DemandForecasting DemandForecasting Demand


Qualitative MethodsQualitative MethodsQualitative MethodsQualitative Methods

Forecasting DemandForecasting DemandForecasting DemandForecasting Demand

Quantitative Approach: Trend AnalysisQuantitative Approach: Trend Analysis

••Forecasting labor demand based on an Forecasting labor demand based on an

organizational index such as sales:organizational index such as sales:

1.1. Select a business factor that best predicts human Select a business factor that best predicts human

resources needs.resources needs.

2.2. Plot the business factor in relation to the number of Plot the business factor in relation to the number of

employees to determine the labor productivity ratio.employees to determine the labor productivity ratio.


employees to determine the labor productivity ratio.employees to determine the labor productivity ratio.

3.3. Compute the productivity ratio for the past five years.Compute the productivity ratio for the past five years.

4.4. Calculate human resources demand by multiplying the Calculate human resources demand by multiplying the

business factor by the productivity ratio.business factor by the productivity ratio.

5.5. Project human resources demand out to the target Project human resources demand out to the target

year(s).year(s).

FIGURE

2.5Example of Trend Analysis of HR Demand


Qualitative ApproachesQualitative Approaches

••Management ForecastsManagement Forecasts

�� The opinions (judgments) of supervisors, The opinions (judgments) of supervisors,

department managers, experts, or others department managers, experts, or others

knowledgeable about the organization’s future knowledgeable about the organization’s future

employment needs.employment needs.

••Delphi TechniqueDelphi Technique


••Delphi TechniqueDelphi Technique

�� An attempt to decrease the subjectivity of forecasts An attempt to decrease the subjectivity of forecasts

by soliciting and summarizing the judgments of a by soliciting and summarizing the judgments of a

preselected group of individuals.preselected group of individuals.

�� The final forecast represents a composite group The final forecast represents a composite group

judgment.judgment.

1HR Planning and Strategy Questions to Ask Business Managers

• What are your mission, vision, and values?

• What are your current pressing business issues?

Workforce planning requires that HR leaders periodi cally interview their managers to gauge future workforce needs. Here are some sample questions to ask.


• What are our organizational strengths?

• Who are our competitors’ organizational strengths? H ow do we compare?

• What core capabilities do we need to win in our mar kets?•

• What are the required knowledge, skills, and abilit ies we need to execute the winning strategy?

• What are the barriers to optimally achieving the st rategy?

• What types of skills and positions will be required or no longer required?

• Which skills should we have internally versus contr act with outside providers?

• What actions need to be taken to align our resource s 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 ou r workforce plan and staying on track?

Forecasting the Supply of Employees: Forecasting the Supply of Employees: Internal Labor SupplyInternal Labor Supply

••Staffing TablesStaffing Tables

••Markov AnalysisMarkov Analysis

••Skill InventoriesSkill Inventories

••Replacement ChartsReplacement Charts



••Succession PlanningSuccession Planning

Forecasting Internal Labor SupplyForecasting Internal Labor Supply

••Staffing TablesStaffing Tables

�� Graphic representations of all organizational jobs, Graphic representations of all organizational jobs,

along with the numbers of employees currently along with the numbers of employees currently

occupying those jobs and future (monthly or yearly) occupying those jobs and future (monthly or yearly)

employment requirements.employment requirements.




�� A method for tracking the pattern of employee A method for tracking the pattern of employee

movements through various jobs.movements through various jobs.

FIGURE

2.6Hypothetical Markov Analysis for a Retail Company


Internal Demand Forecasting ToolsInternal Demand Forecasting Tools

••Skill InventoriesSkill Inventories

�� Files of personnel education, experience, interests, Files of personnel education, experience, interests,

skills, etc., that allow managers to quickly match skills, etc., that allow managers to quickly match

job openings with employee backgrounds.job openings with employee backgrounds.


�� Listings of current jobholders and persons who are Listings of current jobholders and persons who are


�� Listings of current jobholders and persons who are Listings of current jobholders and persons who are

potential replacements if an opening occurs.potential replacements if an opening occurs.

••Succession PlanningSuccession Planning

�� The process of identifying, developing, and tracking The process of identifying, developing, and tracking

key individuals for executive positions.key individuals for executive positions.

FIGURE

2.7An Executive Replacement Chart


2Succession-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.


manages that characteristic. Ask other decision makers in your organization to complete this form individually, compile the scores, and compare notes.

FIGURE

2.8Assessing a Firm’s Human Capital


Step Four: Formulating StrategyStep Four: Formulating Strategy

••Strategy FormulationStrategy Formulation

��Moving from simple analysis to devising a coherent Moving from simple analysis to devising a coherent

course of action.course of action.

••SWOT analysis SWOT analysis

�� A comparison of A comparison of strengthsstrengths, , weaknessesweaknesses, ,

opportunitiesopportunities, and , and threatsthreats for strategy formulation for strategy formulation


opportunitiesopportunities, and , and threatsthreats for strategy formulation for strategy formulation

purposes. purposes.

�� Use the strengths of the organization to capitalize Use the strengths of the organization to capitalize

on opportunities, counteract threats, and alleviate on opportunities, counteract threats, and alleviate

internal weaknesses.internal weaknesses.

FIGURE

2.9An 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


Strengths Weaknesses

Large refining systemLeader in conversion capacity and feedstock flexibilityStrong revenue growth and capital expenditure

Weak performance in CanadaLitigationsHigh dependence on the United States

Opportunities Threats

Growing diesel demandStrategic refocusRising petrochemical capacity in the Middle East

Material and labor costStringent regulations

Corporate StrategyCorporate Strategy

Growth and DiversificationGrowth and

DiversificationMergers and Acquisitions

Mergers and Acquisitions

Corporate Corporate


Strategic Alliances and Joint VenturesStrategic Alliances and Joint Ventures

Corporate Strategy

Corporate Strategy

Business StrategyBusiness Strategy

••Value CreationValue Creation

��What the firm adds to a product or service by virtue What the firm adds to a product or service by virtue

of making it; the amount of benefits provided by of making it; the amount of benefits provided by

the product or service once the costs of making it the product or service once the costs of making it

are subtracted (value = benefits are subtracted (value = benefits —— costs).costs).

�� LowLow--cost strategy: competing on productivity and cost strategy: competing on productivity and


�� LowLow--cost strategy: competing on productivity and cost strategy: competing on productivity and

efficiencyefficiency

�� Keeping costs low to offer an attractive price to customers Keeping costs low to offer an attractive price to customers (relative to competitors).(relative to competitors).

�� Differentiation strategy: compete on added valueDifferentiation strategy: compete on added value

�� Involves providing something unique and distinctive to Involves providing something unique and distinctive to customers that they value.customers that they value.

3Key HR Activities Associated with Merger or Acquisi tion Phases


3Key HR Activities Associated with Merger or Acquisi tion Phases (cont’d)


Business Strategy (cont’d)Business Strategy (cont’d)

••Functional Strategy: Ensuring AlignmentFunctional Strategy: Ensuring Alignment

�� External Fit/AlignmentExternal Fit/Alignment

�� Focuses on the connection between the business objectives Focuses on the connection between the business objectives and the major initiatives in HR.and the major initiatives in HR.

�� Internal Fit/AlignmentInternal Fit/Alignment

�� Aligning HR practices with one another to establish a Aligning HR practices with one another to establish a


Aligning HR practices with one another to establish a Aligning HR practices with one another to establish a configuration that is mutually reinforcing.configuration that is mutually reinforcing.

Step Five: Strategy ImplementationStep Five: Strategy Implementation

••Taking Action: Reconciling Supply and DemandTaking Action: Reconciling Supply and Demand

�� Balancing demand and supply considerationsBalancing demand and supply considerations

�� Forecasting business activities (trends)Forecasting business activities (trends)�� Locating applicantsLocating applicants

�� Organizational downsizing, outsourcing, offshoringOrganizational downsizing, outsourcing, offshoring

Reducing “headcount”Reducing “headcount”


�� Reducing “headcount”Reducing “headcount”��Making layoff decisionsMaking layoff decisions

�� Seniority or performance?Seniority or performance?�� Labor agreementsLabor agreements

FIGURE

2.10The 7-S Model


Step Six: Evaluation and AssessmentStep Six: Evaluation and Assessment

••Evaluation and Assessment IssuesEvaluation and Assessment Issues

�� Benchmarking: The process of comparing the Benchmarking: The process of comparing the

organization’s processes and practices with those of organization’s processes and practices with those of

other companiesother companies

�� Human capital metricsHuman capital metrics

�� Assess aspects of the workforceAssess aspects of the workforce


�� Assess aspects of the workforceAssess aspects of the workforce

�� HR metricsHR metrics

�� Assess the performance of the HR function itselfAssess the performance of the HR function itself

4Ten Measures of Human Capital

1. Your most important issues

2. Human capital value added

3. Human capital ROI

4. Separation cost

5. Voluntary separation rate


5. Voluntary separation rate

6. Total labor-cost/revenue percentage

7. Total compensation/revenue percentage

8. Training investment factor

9. Time to start

10. Revenue factor

Measuring a Firm’s Strategic AlignmentMeasuring a Firm’s Strategic Alignment

••Strategy Mapping and the Balanced ScorecardStrategy Mapping and the Balanced Scorecard

�� Balanced Scorecard (BSC)Balanced Scorecard (BSC)

�� A measurement framework that helps managers translate A measurement framework that helps managers translate strategic goals into operational objectivesstrategic goals into operational objectives–– financialfinancial–– customercustomer


–– processesprocesses–– learninglearning

FIGURE

2.11Building the Metrics Model


FIGURE

2.12Assessing Internal Fit


5 = Strongly supports the priority, 0= Neutral, –5 = Strongly counterproductive

Ensuring Strategic Flexibility for the FutureEnsuring Strategic Flexibility for the Future

••Organizational CapabilityOrganizational Capability

�� Capacity of the organization to act and change in Capacity of the organization to act and change in

pursuit of sustainable competitive advantage.pursuit of sustainable competitive advantage.

�� Coordination flexibilityCoordination flexibility

�� The ability to rapidly reallocate resources to new or changing The ability to rapidly reallocate resources to new or changing


The ability to rapidly reallocate resources to new or changing The ability to rapidly reallocate resources to new or changing needs.needs.

�� Resource flexibilityResource flexibility

�� Having human resources who can do many different things in Having human resources who can do many different things in different ways.different ways.

Balanced Scorecard (BSC)

benchmarking

core capabilities

core values

cultural audits

environmental scanning

replacement charts

skill inventories

staffing tables

strategic human resources management (SHRM)

strategic planning


human capital readiness

human resources planning (HRP)

management forecasts

Markov analysis

mission

organizational capability

strategic planning

strategic vision

succession planning

SWOT analysis

trend analysis

value creation


Employee Turnover RatesEmployee Turnover Rates

••Computing Turnover Rates:Computing Turnover Rates:

�� The U.S. Department of Labor suggests the The U.S. Department of Labor suggests the

following formula for computing turnover rates:following formula for computing turnover rates:


�� Thus, if there were 25 separations during a month Thus, if there were 25 separations during a month

and the total number of employees at mid month and the total number of employees at mid month

was 500, the turnover rate would be:was 500, the turnover rate would be:

Employee Turnover Rates (cont’d)Employee Turnover Rates (cont’d)

•• Computing Turnover Rates (cont’d):Computing Turnover Rates (cont’d):

�� Another method of computing the turnover rate is one that Another method of computing the turnover rate is one that

reflects only the avoidable separations (S). This rate is reflects only the avoidable separations (S). This rate is

computed by subtracting unavoidable separations (US) from computed by subtracting unavoidable separations (US) from

all separations. The formula for this method is as follows:all separations. The formula for this method is as follows:


�� where M represents the total number of employees at mid where M represents the total number of employees at mid

month. For example, if there were 25 separations during a month. For example, if there were 25 separations during a

month, 5 of which were US, and the total number of month, 5 of which were US, and the total number of

employees at mid month (M) was 500, the turnover rate employees at mid month (M) was 500, the turnover rate

would be:would be:

Employee Absenteeism RatesEmployee Absenteeism Rates

••Computing Absenteeism RatesComputing Absenteeism Rates


5Costs Associated with the Turnover of One Computer Programmer

(Turnover costs = Separation costs + Replacement co sts + Training costs)Separation costs1. Exit interview cost for salary and benefits of bo th interviewer and departing employee during the ex it

interview = $30+$30 = $602. Administrative and record-keeping action = $30

Total separation costs = $60 + $30 = $90

Replacement costs1. Advertising for job opening = $2,5002. Preemployment administrative functions and record -keeping action = $100


2. Preemployment administrative functions and record -keeping action = $1003. Selection interview = $2504. Employment tests = $405. Meetings to discuss candidates (salary and benefi ts of managers while participating in meetings)= $2 50

Total replacement costs = $2,500 + $100 + $250 + $4 0 + $250 = $3,140

Training costs1. Booklets, manuals, and reports = $502. Education = $240/day for new employee’s salary an d benefits x 10 days of workshops, seminars, or

courses = $2,4003. One-to-one coaching = ($240/day/new employee + $2 40/day/staff coach or job expert) x 20 days of one- to-

one coaching = $9,6004. Salary and benefits of new employee until he or s he gets “up to par” = $240/day for salary and benefit s x

20 days = $4,800Training costs = $50 + $2,400 + $9,600 + $4,800 = $ 16,850

Total turnover costs= $90 + $3,140 + $16,850 = $20, 080

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© 2010 South-Western, a part of Cengage Learning ... the effectiveness of a firm’s strategy. ... Demographic and labor market trends: ... opportunities,