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CHAPTER 2 Aligning HR with Strategy Chapter Learning Outcomes After reading this chapter, you should be able to: • Understand the importance of strategic HR planning. • Identify the risks associated with not planning. • Discuss approaches to linking strategy and HR, including the barriers to becoming a strategic partner. • List the characteristics of an effective HR strategy. Chapter Summary Strategic HRM is a set of distinct but interrelated philosophies, policies, and practices with the goal of enabling the organization to achieve its strategy. HR strategy is embedded in theories of the resource based view of the firm, the behavioural perspective, and the human capital approach. By involving HR in the discussion of strategic policies, an organization has a better chance of being effective in its implementation. There are various approaches to linking HRM strategies to organizational strategies. We can begin with the corporate strategy that leads to the HR strategy, or starts with the HR competencies that lead to business strategy or use a blend of the interrelationship of the HR strategy with the corporate strategy. Aligning HR strategy with the corporate strategy and that of other functional areas is important. Class Outline Instructor’s Teaching Notes Students’ Learning Activities Strategic HRM Interrelated philosophies, policies, and practices that facilitate the attainment of organizational strategy. These values influence the organization’s: HR philosophies—that specify the values that inform an organization’s policies and practices. HR policies—these direct and partially constrain the development of specific practices. HR practices—such as recruitment, selection, an appraisal. Theories of the Strategic Management of Human Resources HRM Making Strategic Contributions • Historically, HRM was called personnel management, where the focus was on its administration function. • In 1980s research was done on whether investment in HR would lead to higher financial performance. • Eventually, employees became viewed as human capital that could contribute to competitive advantage with best practices found in successful organizations. Resource-based View In order to determine whether an organization’s resources will contribute to competitive advantage, four criteria must be satisfied: 1. Valuable—employees who have superior performance because of their skills, commitment, or flexibility. 2. Difficult to imitate by competitors. 3. Rare—a “talent war” describes fierce competition among firms. 4. Hard to substitute—a firm’s human resources are more valuable for sustained competitive advantage than technological and physical resources. Employees can provide a firm with competitive advantage: • If an organization manages its resources and capabilities, these advantages will result in competitive advantage. • Typical resources might include human resources, proprietary knowledge, and reputation. • Typical capabilities might include organizational adaptability, flexibility, and the speed of bringing new products to market. The Contingency Perspective Human capital theory: the sum of employees’ knowledge, skills, experience, and commitment invested in the organization. Human = Total Rev – (Op Exp – Total Comp Costs) Capital Total Compensation Costs Behavioural Theory • Different strategies require varied behaviours from employees and thus different HR practices. • HR practices should always be linked to particular organizational behaviours and goals such as risk taking or rule following. Strategic HR Planning The Importance of Strategic HR Planning The Conference Board of Canada names HR planning as the most important long-term HR priority. There are two main reasons it is important: 1. Employees help an organization achieve success because they are its strategic resources. 2. The planning process itself results in improved goal attainment. HR managers must consider what skills will be important for the organization in the future, not just the current time. Improved Goal Attainment • The goals of HRM strategies are to shape employee behaviour to be consistent with the organization’s strategic plans. • Clear strategies provide direction and meaning to employees by offering consistency of purpose; i.e., a mission. This vision may increase motivation and performance, lower absenteeism and turnover, and increase stability, satisfaction, and involvement. Linking HR Processes to Strategy 1. Start with organizational strategy then create HR strategy. 2. Start with HR competencies and then craft corporate strategies based on these competencies. 3. Do a combination of both in a form of reciprocal relationship. Corporate Strategy Leads to HR Strategy Traditionally it was thought that HR programs always flow from corporate strategy (business plans); however, this can change when HRM is the key to competitive advantage. HR Competencies Lead to Business Strategy Reciprocal Interdependency between HR Strategy and Business Strategy HR plans strategies based on business problems and goals, i.e., to be a leader in innovation a company would need highly educated and trained employees. HR Becomes a Business Partner Note important term: Concurrent strategy formulation—Strategy is developed at the same time HRM issues are considered. HR managers must understand the numbers language of business and outcomes expected. They must be able to understand analysis presented by marketing, financial, and operational managers. HR must be a full partner in the business to have total credibility. • HR professionals need to develop strong partnerships with line managers in the organization to best achieve business goals. Strategic Partnering Becoming More Strategic HR departments are restructuring in order to be able to do the basics right (compensation, training, etc.) while enhancing the performance of business units and supporting strategic moves. HR Strategy Differentiation Firms with more than one business strategy are likely to have more than one approach to HR strategy. • The challenge is to treat employees across divisions equitably while motivating different behaviours. • Equitable treatment of employees is important irrespective of their independent divisional strategies (e.g., 3M adopted HR practices that support innovation in the research and development branch while adopting policies that support low costs in the manufacturing branch. Characteristics of an Effective HRM Strategy The purpose of HR strategy is to capitalize on the distinctive competencies of the organization and to add value through the effective use of human resources. Effective HRM strategies include: • External fit—Fitting HR strategy to organizational strategy. • Internal fit—Linking the various HR programs to other functional areas and to each other. Focus on results: Strategy implementation must be tracked and measured to determine if the goals have been reached. Learning Activity From the chapter, read the opening vignette on “HR Structure at Johnson and Johnson” Ask Students: How does Johnson and Johnson work towards profitability? Ans. • Talent management. • Researches best indicators of success. • Implements best HR practices to use worldwide. Learning Activity: Panel Discussion Students can benefit greatly by hearing industry HR professionals at the senior decision making level of an organization address the following questions: • How do employees provide your organization with a competitive advantage? • How do HR programs within your organization represent an investment? • What emphasis does your organization place on training and development of staff? • How do HRM strategies within your organization assist with improved goal attainment? Learning Activity Ask students to generate a list of everything that constitutes human capital. Note: Human capital is also synonymous with intellectual capital. Learning Activity: Think‒Pair‒Share individually, and then in pairs. Ask students to consider why it is important to plan for human resources strategically. 1. What are the advantages of planning? Ans. • So you have the right people when you need them and can take advantage of opportunities. • So that you can plan for extra efforts; e.g., the need to go to a recruiter for specialized IT skills. 2. What are the risks of NOT performing HR planning? Ans. • Might not have staff when employer needs them. Ask Students: 1. If they think knowledge-based jobs (e.g., IT workers, teachers, software engineers) will ever be replaced by machines. Why or why not? Ans. None of us knows for sure; however, currently the ability to implement new ideas and adapt while meeting demands of interpersonal interactions simultaneously, is a human characteristic. 2. Some surgeons now complete operations remotely using robotic hands. Will this help the current shortage in health care staffing? Ans. It might, although nurses, orderlies, general practitioners, and management will still be necessary for other tasks and emergencies wherever the patient is physically located. Figure 2.1—A Workforce Planning Continuum The columns represent the lowest to highest levels of complexity in HR planning. Learning Activity: Ask the class if there is a downside to NOT doing strategic HR planning. Ans. No, as long as the plan and employees are adaptable if things change. Strategy 1: Low-Cost Provider Strategy Learning Activity: Using HR Planning Notebook 2.1—Practical and Perception Barriers to Workforce Planning. Ask student groups to discuss: 1. How might two of the listed practical barriers affect a business you have heard about in the news? 2. What effect might two of the listed perception and attitude barriers have? Ask Students: To review HR Planning Today 2.1—HR Alignment with Two Strategies. Both Timex and McDonald’s use low-cost provider strategy. The two strategies to be discussed are: 1. Low-cost provider strategy 2. The differentiation strategy Each strategy is subdivided into the following categories; The Employee; HR Planning; Selection; Compensation; Training; Performance Evaluation; Labour Relations. Ask Students: What other business examples can you think of where the business did not reflect current day reality? Ans. Toys R Us, Target, Sears Ask Students: To discuss whether it is easier to change HR to fit the strategy or change the strategy to fit HR. Ans. All employees are not the same so a one size fits all strategy does not work. 1. Using the example of a great coach, explain why all is not lost if some of the team members quit. 2. Describe the ways you would use HR programs to train waiters. 3. HR Planning Notebook 2.1, Practical and Perception Barriers to Workforce Planning, outlines some barriers to HR planning. Review HR Planning Notebook 2.2—Are You a Strategic Partner? A facilitator can lead this debate to examine views on both sides. Emphasize that both sets of reasons are dilemmas within the HR profession. Learning Activity If there is a panel discussion and/or a guest speaker who is a senior HR professional, they could be asked which of the three models is reflected by their organization. Strategy 2: The Differentiation Strategy A firm can differentiate itself in many ways: • Quality products • Superior customer service • Convenient location • Proprietary technology • Offering valuable features • Unique styling • Brand-name reputation Homework Assignment: Read HR Planning Notebook 2.3—A Strategic Vision of HR. Ans. See pages 2–7 of the Instructor’s Manual. 1. Identify the unique attributes of the following services of a strategic HR department, including Corporate HR, Services Inc., Solutions Inc., and Organization Capability Consultants. 2. What are the advantages of this structure? 3. Would managers and employees of an organization prefer this model to the traditional functional structure? 4. Which structure do you think HR professionals would prefer? Why? Ans. HR might prefer the more traditional structure as easier to use and explain to others. Read HR Planning Today 2.2—How Canadian Companies Differentiate. Ask Students: How does Dollarama differentiate itself from its competitors to achieve high efficiency at low cost? Ans. Different stores tend to mostly have similar items, which helps customers find what they want. Many products are made by Dollarama, so the company can control cost and quality. Learning Activity Ask students to review the strategic HRM chain to determine whether they can think of any other activities that need to be incorporated into the chain. HR Program ↓ Employee Human Capital and Behaviours ↓ Organizational Strategy ↓ Organizational Outcome CHAPTER 3 Environmental Influences on HRM Chapter Learning Outcomes After reading this chapter, you should be able to: • Identify the sources that HR planners use to keep current with business and HR trends. • Understand how environmental scanning is practised. • Discuss the challenges in scanning the environment. • Explain the environmental factors, such as the economic climate, the political and regulatory context, and the social and cultural climate, that influence the practice of HRM. • Describe the role of the stakeholder and list several examples. Chapter Summary HRM strategy is determined primarily by organizational strategy. However, there are environmental factors that shape HRM strategy, so HR managers and planners must continually monitor the environment. Typically, they monitor by reading publications, retaining memberships in professional associations, attending conferences, or using professional scanners. A number of methods, such as trend and impact analyses, scenario planning, and the Delphi technique, are used to identify future trends. The environmental factors that are monitored include economic climate and social norms. Stakeholders such as shareholders, unions, customers, and executives contribute strongly to the formulation and implementation of strategy. Class Outline Instructor’s Teaching Notes Students’ Learning Activities Environmental Scanning Sources and Methods Environmental scanning: the systematic monitoring of trends affecting the organization. The goal of environmental scanning is to identify trends in the external environment that might affect the formulation and implementation of both organizational and HR strategies. Four Stages • Scanning: attempting to identify signals of changes and trends in the environment. • • Monitoring: a systematic approach to following key indicators that may affect the organization, such as legislative changes. • • Forecasting: after monitoring a trend, an attempt is made to project the possible impact on the organization. • • Assessing: an attempt to describe the impact of the monitored trend on the organization and make a judgment of the probability of each of several possible outcomes. Sources of Information HR professionals can rely on many sources of information including: • Publications • Professional associations • Conferences and seminars • Professional consultants Professional Association Note: Canadian HR managers can benefit strategically by reading U.S. publications and attending U.S. conferences. Many HR trends are seen in the United States one to two years before they are present in Canada. Professional Consultants Methods of Forecasting Competitive intelligence: a formal approach to obtaining information about competitors. Challenges in Environmental Scanning Environmental scanning needs to consider the potential impact on the organization and its strategy and how HRM should be adapted as a result. Isolating the Critical from the Significant Identifying significant trends: 1. Are there ripple effects for both friendships and professional relationships? 2. How profound are the impacts on people's priorities, roles, and expectations? 3. How large is the impact scope (number of people impacted)? 4. Will there be changes over time? As there has been a significant gap in the number of workers in skilled trades for many years, how can the government assist? • Increase the number of spaces for apprentices in trade programs. • Adjust pension rules so tradespeople can keep working without penalty. • Recruit tradespeople from other countries through immigration. Environmental Factors Economic climate: anything to do with the economy affects HR management, such as unemployment, globalization, the strength of the Canadian dollar, the cost of fuel, and the ability to sell internationally. Globalization: the growth in the flow of trade and financial capital across the border. It affects sovereignty, prosperity, jobs, wages, and social legislation. One in 5 Canadian businesses is related to international trade. Political and Legislative Factors Government may use tax incentives to develop jobs, provide job training, and develop labour legislation. Technological factors: the process by which inputs from an organization’s environment are transformed into outputs. Some new issues include online HR functions with employee self-editing of information, privacy, identity theft, and e-learning. Every workplace function can potentially be managed electronically. There is a trend to increased virtual work and better technology. Demographic Factors Demographics: the study of population statistics. Labour market: the most important demographic factor that influences an organization’s strategy. Diversity • Disconnect between actions and words. Many organizations acknowledge the importance of diversity but do not work toward it. • Companies must tap into underutilized pools of educated workers. • Many organizations find they hire more new employees (50% from ethnic groups, but only 17% for leadership roles). Generational differences: the greatest trend is the huge impact of retiring baby boomers, job vacancies, needed tax changes, and the effect on the workplace. • Baby busters: born between 1966 and mid-1970s. • GenX: born between the mid-1970s and 1908. • GenZ or iGen: born after mid-1990s. Social and Cultural Factors • Right to privacy – Data breaches are challenging today such as government information on health care being hacked, or Equifax accidentally sharing customer information. – Workers will be required to design and implement solutions. • Work‒life balance: desire to have better quality of life; related to elder care, child care, flextime, wellness, telecommuting and reduced hours. • Contingent workers: aimed at part time, seasonal, temporary, and contract employees; however, the ratio of contingent to permanent jobs continues to increase as they are viewed as costs rather than assets (human capital). Issues of employee commitment, loyalty, and productivity are apparent. Stakeholders: groups of people who have vested interests in an organization’s decisions. They are also known as constituent groups. Powerful stakeholders affect strategy formulation. They include: • Boards of directors and senior executives • Senior management • Supervisors • Employees • Unions – Currently organization will work with new and existing unions. – Some create resistance while others are more cooperative. – Up-to-date trends including large union benchmarks for hours and wages. Other stakeholders include: • Customers. • Suppliers. • Governments. • Regulatory agencies. • The public. • NGOs—non-governmental organizations • Anyone who can influence or be affected by management decision making. Responding to External Factors: 1. The probability of these trends actually occurring. 2. The likely impact of each of these trends on the organization. A Proactive Approach HR is no longer a passive function. It must take a proactive, strategic role using information from environmental scanning and determining organizational impact and future actions. Ask Students: Read the chapter-opening vignette “Environmental Scanning at GM.” 1. Why did GM not identify changes to the external environment? Ans. • GM did not understand how factors interact; e.g., high demand for fuel can increase the price of gas, causing consumers to want smaller, fuel-efficient cars. • GM did not anticipate the increase in retiree benefits. The company needs to keep up to date with industry trends. • Could not keep up to date with the quality of cars made in Asia, especially when the price of fuel rose. 2. How can HR professionals monitor these trends? Ans. By keeping up with publications; professional associations, conferences, and seminars; and professional consultants. If students are interested in exploring further, Discuss: How the corporation moved from 50% market share in the 1930s to 21% in 2008. See HR Planning Notebook 3.1—Publications of Interest to HR Professionals. Learning Activity Ask students to prepare a comprehensive list of all of the elements that need to be considered in the external environment. Ans. • Competition • Socio-economic factors • Legal and ethical factors including regulations including taxes and tariffs • Political climate • Technological advances • Labour market situation Review HR Planning Notebook 3.1— Publications of Interest to HR Professionals. See HR Planning Notebook 3.3—Scenario-based HR Planning. See HR Planning Notebook 3.3—Scenario-based HR Planning. Learning Activity Have a business librarian visit the class with a range of resources similar to those listed in HR Planning Today 3.1—The Experts Predict the Future of HRM. Learning Activity Refer to HR Planning Notebook 3.3—Scenario-based HR Planning, and present this to students as an in-class activity, choosing three distinct business scenarios for one business. Ask Students: To brainstorm the major challenges involved in environmental scanning for the effects of globalization on the labour market in Canada. Ans. Relevant factors include • Consumer trends • Demographics • Economy • Government policy, e.g., Brexit • Natural disasters Learning Activity Environment factors can be reviewed by initiating six stations in the classroom. A large piece of flip chart paper and markers should be available at each station. Review HR Planning Today 3.2—The Gig Economy. Independent workers in this type of project-related work environment tend to be: • Free agents who choose it for income. • Casual earners who may have multiple incomes from different sources. • Reluctant workers who would prefer traditional jobs. • Financially strapped individuals who work like this out of necessity. Learning Activity Divide the class into groups of six. Have each group go to one of the stations. Without using the text as a reference, give each group ten minutes to identify as many as possible of the factors within the six environmental influences (economic climate, globalization, political and legislative, etc.). Have half of the group rotate to the next station, while the other half of the group remains to clarify to the next group the points that have been made. Continue this rotation. This is a great method to provide a review and get a high level of interaction among the class members. Review HR Planning Notebook 3.4—Impact of Technology on Organizations. This short article highlights the skills gap that will be created with technology and also the impact technology will have on recruitment, selection, communications, and organizational structure. See Table 3.1—Issues Priority Matrix, which is an example of how to determine which important trends might affect an organization. Review HR Planning Today 3.3—The Global Wood Group. This is a good example of how one company has structured its human resources to be able to scan the external environment and identify threats and opportunities. Do You Have to Accept Financial Advertising? Refer students to the following publication: Task Force on the Future of the Canadian Financial Services Sector http://publications.gc.ca/collections/ Collection/F21-6-1998-11E.pdf Ask Students: To brainstorm to generate potential issues that might plague HRM in the next 10 to 20 years. Ans. • New opportunities such as workers researching more into habitation in space. • The trend of increasing numbers of workers in the service industry will continue. • Employment in computer design and professional services, and health care will be healthy. • Immigration will make up new growth in the labour force. • There will likely be pressure due to a shortage in management and health care workers. • Continued efforts to encourage women to go into STEM (science, technology, engineering, and math) careers. • Continued push to increase people going to trade careers. Review Figure 3.1—The Environmental Analysis Process to determine the comprehensiveness of this model.
