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HRM604: Strategic Human Resource Management Topic 2: Goal Setting – A Strategic Path to Success 7/4/2017 1 Learning Objectives Analyze Human Resource Department functions and their linkages to business goals. Evaluate the approach to the development of Human Resource strategies Discuss the difference between SHRM and HR strategies Analyze the approach to achieving strategic fit 7/4/2017 2 Introduction Success does not happen by accident It is the result of the thoughtful execution of a well designed plan/strategy Example: Strategic/Business plan A corporate strategy/business plan helps an organization begin with end in sight, and To develop long term plans, and identify immediate actions Imagine planning your family vacation; Like corporate strategy/business plans, both requires good planning 7/4/2017 3 Introduction First, is agreeing on where you want to go? (Where do I want to be?) The same is true for organizational and individual planning After determining the desired destination, use a logical process; and Move backwards towards the present state and define a clear path to success You will find critical decision points which call for you to make choices; and Take actions where deemed necessary/appropriate 7/4/2017 4 Introduction You move from deciding on our vacation destination all the way back; and To determine which way to turn after leaving the driveway With an organization’s path defined, each member of the team can now use the same process; and To establish individual goals in support of the organization’s overall mission, vision, goals & objectives Some key points to effective planning and goal setting are: Begin with End in Mind Determine destination before you begin the journey 7/4/2017 5 Introduction You wouldn’t leave for vacation without first knowing your destination; and Once you visualize the future, work backward towards the present and determine what to do next • • Develop a Road Map for Success After determining both your destination and your starting point, you should now break the journey into manageable parts; and Develop a method to guide you along the way 7/4/2017 6 Introduction Celebrate Success A critical but often overlooked part of any planning process is to recognize success Celebrating success encourage people to seek it out. Make sure to plan a celebration once mission is accomplished 7/4/2017 7 Key Concepts of Strategy Strategy may be defined as a statement of what the organization wants to become, where it wants to go and, broadly, how it means to get there Strategy determines the direction in which the enterprise is going in relation to its environment in order to achieve sustainable competitive advantage. Strategies define longer-term goals but they are more concerned with how those goals should be achieved. Strategy is the means to create value. A good strategy is one that works, one that guides purposeful action to deliver the required result. 7/4/2017 8 Key Concepts of Strategy The concept of strategy is based on three subsidiary concepts: competitive advantage, distinctive capabilities and strategic fit Competitive advantage Formulated by Michael Porter (1985) Competitive advantage arises out of a firm creating value for its customers. To achieve it, firms select markets in which they can excel and present a moving target to their competitors by continually improving their position. 7/4/2017 9 Key Concepts of Strategy Cont. Competitive advantage He developed three generic strategies that organizations can use to gain CA: innovation – being the unique producer; quality – delivering high-quality goods and services to customers; cost leadership – the planned result of policies aimed at ‘managing away expense’. 7/4/2017 10 Key Concepts of Strategy Cont. Distinctive capabilities ‘The opportunities for companies to sustain…competitive advantage are determined by their capabilities’ (Kay, 1999) A distinctive capability or competence can be described as an important feature that ‘confers superiority on the organization’ There is a difference between distinctive capabilities and reproducible capabilities Distinctive capabilities are those characteristics that cannot be replicated by competitors, or can only be imitated with great difficulty. 7/4/2017 11 Key Concepts of Strategy Cont. Distinctive capabilities Reproducible capabilities are those that can be bought or created by any company with reasonable management skills, diligence and financial resources. Most technical capabilities are reproducible. Distinctive capabilities or core competences describe what the organization is specially or uniquely capable of doing. They are what the company does particularly well in comparison with its competitors. 7/4/2017 12 Key Concepts of Strategy Cont. Strategic fit The concept of strategic fit states that to maximize competitive advantage a firm must match its capabilities and resources to the opportunities available in the external environment As Hofer and Schendel (1986) conclude: ‘A critical aspect of top management’s work today involves matching organizational competences (internal resources and skills) with the opportunities and risks created by environmental change in ways that will be both effective and efficient over the time such resources will be deployed.’ 7/4/2017 13 THE FUNDAMENTALS OF STRATEGY Fundamentally, strategy is about defining intentions (strategic intent) and achieving strategic fit by allocating or matching resources to opportunities (resource-based strategy). The effective development and implementation of strategy depends on the strategic capability of the organization, which will include the ability not only to formulate strategic goals but also to develop and implement strategic plans through the processes of strategic management and strategic planning. 7/4/2017 14 THE FUNDAMENTALS OF STRATEGY Strategic intent In its simplest form, strategy could be described as an expression of the intentions of the organization – what it means to do and how the business means to ‘get from here to there Strategic intent could be a very broad statement of vision or mission and/or it could more specifically spell out the goals and objectives to be attained over the longer term. The strategic intent sequence has been defined by Miller and Dess (1996) as: 1. a broad vision of what the organization should be; 2. the organization’s mission; 3. specific goals, which are operationalized as: 4. strategic objectives. 7/4/2017 15 THE FUNDAMENTALS OF STRATEGY Resource-based strategy The resource-based view of strategy is that the strategic capability of a firm depends on its resource capability. Resource-based strategy theorists argue that sustained competitive advantage stems from the acquisition and effective use of bundles of distinctive resources that competitors cannot imitate. Competitive success does not come simply from making choices in the present; it stems from building up distinctive capabilities over significant periods of time.’ 7/4/2017 16 THE FUNDAMENTALS OF STRATEGY Strategic capability Strategic capability is a concept that refers to the ability of an organization to develop and implement strategies that will achieve sustained competitive advantage. It is therefore about the capacity to select the most appropriate vision, to define realistic intentions, to match resources to opportunities and to prepare and implement strategic plans. 7/4/2017 17 THE FORMULATION OF STRATEGY The formulation of corporate strategy can be defined as a process for developing a sense of direction. It has often been described as a logical, step-by-step affair, the outcome of which is a formal written statement that provides a ultimate guide to the organization’s long-term intentions. The process of formulating strategy consists of the following steps: 1. Define the mission. 2. Set objectives. 7/4/2017 18 THE FORMULATION OF STRATEGY 3. Conduct internal and external environmental scans to assess internal strengths and weaknesses and external opportunities and threats (a SWOT analysis). 4. Analyze existing strategies to determine their relevance in the light of the internal and external appraisal. This may include gap analysis, which will establish the extent to which environmental factors might lead to gaps between what could be achieved if no changes were made and what needs to be achieved. The analysis would also cover resource capability, answering the question: ‘Have we sufficient human or financial resources available now or that can readily be made available in the future to enable us to achieve our objectives?’ 7/4/2017 19 THE FORMULATION OF STRATEGY 5. Define in the light of this analysis the distinctive capabilities of the organization. 6. Define the key strategic issues emerging from the previous analysis. These will be concerned with such matters as product-market scope, enhancing shareholder value and resource capability. 7/4/2017 20 THE FORMULATION OF STRATEGY 7. Determine corporate and functional strategies for achieving goals and competitive advantage, taking into account the key strategic issues. These may include business strategies for growth or diversification, or broad generic strategies for innovation, quality or cost leadership; or they could take the form of specific corporate/functional strategies concerned with product-market scope, technological development or human resource development Prepare integrated strategic plans for implementing strategies. 9. Implement the strategies. 10. Monitor implementation and revise existing strategies or develop new strategies as necessary. 8. 7/4/2017 21 Difference between SHRM and HR strategies The terms ‘strategic HRM’ and ‘HR strategy’ are often used interchangeably, but a distinction can be made between the two. In general sense, the difference between SHRM and HR strategies is similar to that between strategic management and corporate business strategies. Both SHRM and strategic management describe an approach adopted by the management and focus on the long –term issues and provide direction to the organization. 7/4/2017 22 Difference between SHRM and HR strategies HR strategies and business strategies are outcomes of this approach which focus on the organizational view concerning key issues and specific functions or activities. SHRM deals with macro concerns such as quality, commitment, performance, culture, and management development It defines the areas in which specific HR strategies need to be developed. HR strategies, on the other hand, are concerned with ensuring the availability of an efficient workforce, training, rewards, good employee relations, etc HR strategies are more specific and facilitate the successful achievement of the corporate objectives and goals 7/4/2017 23 Difference between SHRM and HR strategies SHRM HR Strategies •A general approach to strategic • Outcome (manifestation) of the general management of human resources SHRM approach •Aligned with the organizational intention • Focus on specific organizational about its future direction intentions about what needs to be done • Focus on long-term people issue • Defines the areas in which specific HR • Focus on specific issues that facilitate the achievement of corporate strategy strategies need to be developed • Focus on macro concerns such as • Human resource strategy decisions are structure, culture derived from SHRM • Strategic HRM decisions are built into the strategic business plan 7/4/2017 24 APPROACHES TO STRATEGIC HRM There are five approaches to strategic HRM. These consist of resource-based strategy, achieving strategic fit, highperformance management, high- commitment management and high-involvement management The resource-based approach A fundamental aim of resource-based HR strategy, as Barney (1991) indicates, is to develop strategic capability – achieving strategic fit between resources and opportunities and obtaining added value from the effective deployment of resources. 7/4/2017 25 APPROACHES TO STRATEGIC HRM The resource-based approach A resource-based approach will address methods of increasing the firm’s strategic capability by the development of managers and other staff who can think and plan strategically and who understand the key strategic issues The resource-based approach is founded on the belief that competitive advantage is obtained if a firm can obtain and develop human resources that enable it to learn faster and apply its learning more effectively than its rivals Human resources include all the experience, knowledge, judgment, risk-taking propensity and wisdom of individuals associated with the firm 7/4/2017 26 APPROACHES TO STRATEGIC HRM The resource-based approach Resource-based theory emphasizes that investment in people adds to their value in the firm. The strategic goal will be to ‘create firms which are more intelligent and flexible than their competitors’ by hiring and developing more talented staff and by extending their skills base Strategic fit The HR strategy should be aligned to the business strategy (vertical fit). HR strategy should be an integral part of the business strategy, contributing to the business planning process as it happens 7/4/2017 27 APPROACHES TO STRATEGIC HRM Strategic fit Vertical integration is necessary to provide congruence between business and human resource strategy so that the latter supports the accomplishment of the former and, indeed, helps to define it. Horizontal integration with other aspects of the HR strategy is required so that its different elements fit together. The aim is to achieve a coherent approach to managing people in which the various practices are mutually supportive. 7/4/2017 28 APPROACHES TO STRATEGIC HRM High-performance management High-performance management aims to make an impact on the performance of the firm through its people in such areas as productivity, quality, levels of customer service, growth, profits and, ultimately, the delivery of increased shareholder value High-performance management practices include precise recruitment and selection procedures, extensive and relevant training and management development activities, incentive pay systems and performance management processes. 7/4/2017 29 APPROACHES TO STRATEGIC HRM High-commitment management One of the defining characteristics of HRM is its emphasis on the importance of enhancing mutual commitment (Walton, 1985). High-commitment management has been described as ‘A form of management which is aimed at eliciting a commitment so that behaviour is primarily self-regulated rather than controlled by sanctions and pressures external to the individual, and relations within the organization are based on high levels of trust.’ 7/4/2017 30 APPROACHES TO STRATEGIC HRM High-commitment management The approaches to achieving high commitment as described by Beer et al (1984) and Walton (1985) are: the development of career ladders and emphasis on trainability and commitment as highly valued characteristics of employees at all levels in the organization; a high level of functional flexibility with the abandonment of potentially rigid job descriptions; the reduction of hierarchies and the ending of status differentials; a heavy reliance on team structure for disseminating information (team briefing), structuring work (team working) and problem solving (improvement groups or quality circles). 7/4/2017 31 APPROACHES TO STRATEGIC HRM High-involvement management This approach involves treating employees as partners in the enterprise whose interests are respected and who have a voice on matters that concern them It is concerned with communication and involvement The aim is to create a climate in which a continuing dialogue between managers and the members of their teams takes place in order to define expectations and share information on the organization’s mission, values and objectives This establishes mutual understanding of what is to be achieved and a framework for managing and developing people to ensure that it will be achieved. 7/4/2017 32 Best Fit Approach The focus of the best fit approach is on the linkage of HR strategies with the business strategies. This linkage is also referred to as external fit or vertical integration Best fit also means that HR strategies should match the stages of development of the firm, namely start-up, maturity, decline or degeneration, and regeneration or transformation. Business strategies, and therefore HR strategies, will differ between a service firm transformational stage. 7/4/2017 and one that is in the 33 Best Fit Approach Whenever an organization embarks upon a change or a transformational programme as part of its business strategy, appropriate change strategies need to be developed. Human resource strategies, supportive of business initiatives, should be developed to manage the organizational transition from present state to the future state. 7/4/2017 34 Best Fit Approach Stages in the business or product cycle HR practices are related to variations in the life cycle stages of a business- Start-up, growth, maturity, and decline. Different dimensions of HR practices are important at various stages of the business life cycle For example, in the growth stage, an organisation recruits an adequate number and mix of qualified people. In the maturity stage, the organisation encourages sufficient turnover to minimise layoffs and facilitate reorganisation. At the decline stage, the organization plans and implements workforce reductions and reallocation 7/4/2017 35 Life Cycle Stages HR Practices Start-up • Flexible patterns of work •Recruitment of highly motivated and committed employees •Competitive pay •Little formality •No unions Growth • More sophisticated recruitment and selection • Training and development • Performance Management processes •Reward systems •Focus on high commitment •Developing stable employee relations Maturity • Attention to the control of labour costs • Focus on increasing productivity •Strained employee relations •Control compensation Decline • Emphasis on rationalization of workforce and downsizing • Abandoning some longstanding practices to cut costs •Trade unions have marginalized role 36 •Retraining and consulting service 7/4/2017 Linking Business Strategy and HR Strategy Business Strategy HR Strategy Cost Leadership Utilization HR Strategy Suitable for repetitive and predictable behaviour Concerned with short-term focus and quantities (volumes) Result-oriented HR strategy focussed on short-term performance measures, that is results or outcomes Efficiency is the norm, job assignments are specialized, explicit job descriptions Hierarchical pay, few incentives Narrow career paths, limited training Limited employment security Cost-cutting may involve incentives for employees to leave the firm Limited participation 7/4/2017 37 Linking Business Strategy and HR Strategy Business Strategy HR Strategy Differentiation Long-term focus Creative job behaviour Moderate concern for quality and quantity Facilitation HR Strategy Broad career paths Extensive training Equal and fair pay, many incentives for creativity Long-term performance measures External recruitment and hiring of people who bring in new ideas High employee participation Some employment security Focus High concern for quality Moderate concern for quantity Long/medium-term focus Accumulation HR Strategy Equal and fair pay with many incentives Hiring employees belonging to the target market Broad career paths with extensive training High employee participation 38 Some employee security 7/4/2017 Framework linking Business and HR Strategy 7/4/2017 39 Framework linking Business and HR Strategy Golden and Ramanujam (1985) proposed the following four types of linkages between HRM and strategy planning process: 1. Administrative Linkage: HR department adopts the traditional personnel role, provides routine operational support, and handles paperwork. Functional managers see HR function as relatively unimportant 2. One Way Linkage: There is a sequential relationship between strategic planning and the HR function. The HR function reacts to and designs HR programmes to support the strategic objectives of the firm. 7/4/2017 40 Framework linking Business and HR Strategy Golden and Ramanujam (1985) proposed the following four types of linkages between HRM and strategy planning process: 3. Two Way linkage: There is a reciprocal, interdependent relationship between strategic planning and HR function. Business plans affect and are affected by HR activities. HR function is seen as important. 4. Integrative linkage: There is dynamic interaction, formal as well as informal, between HR function and strategic linkage. The senior HR executive is a strategic business partner with other senior executive of the firm. 7/4/2017 41 The ‘HR Bundles’ Approach Bundling refers to the development and implementation of several HR practices together so that they are interrelated and internally consistent. Each HR practice complements and reinforces other. In general terms, bundles approach is also termed as internal fit or horizontal integration. The purpose of bundling is to bring about coherence between HR practices. Coherence exists when a mutually reinforcing set of HR practices is developed to contribute to the strategic objectives of the organization, so that these practices ensure the matching of resources to the needs of the organization, and bring about improvement in performance and quality. 7/4/2017 42 The Best Practice Approach Contrary to the internal and external contingency perspectives, is the view that organizations should adopt the best practice irrespective of the context. According to this view, superior management practices are readily identified and are transferable across organizations. An organization, therefore, should identify any organization with a reputation for excellence in some functions, and copy its practices in order to perform well. That is, all organizations can attain performance improvements if they identify and implement the best practice or benchmark. 7/4/2017 43 HR PRACTICES & ORGANIZATION’S BUSINESS GOALS 1. Change Management 2. Compensation & Benefits 3. Employee Relations 4. Staffing 5.Training & Development HR PRACTICES & ORGANIZATION’S BUSINESS GOALS CHANGE MANAGEMENT When business group merge, through acquisition or otherwise, HR department is responsible to effectively blend the individual corporate values into one; Example: Inculcate new values & behaviors COMPENSATION & BENEFITS Administering external salary surveys and industry benchmarking; HR professionals to ensure compensation & benefits offered by employers are competitive in the market place. Example: salary relativity/competitive HR PRACTICES & ORGANIZATION’S BUSINESS GOALS EMPLOYEE RELATIONS Keeping the employees happy and motivated is an important goal of any business; HR department is to resolve any employee issues through investigation and counseling STAFFING Human resources practices source and recruit the best talent that an organization can afford; Thus, building a strong and workforce competent/professional HR PRACTICES & ORGANIZATION’S BUSINESS GOALS TRAINING & DEVELOPMENT Training employees in both business-related & soft skills is critical; HR professionals help enhance business level talent & develop high-potential employees for advancement within the Company CORPORATE HR STRATEGY Corporate HR strategy is a system of personnel practices that helps employees perform at the highest level possible to meet organizational goals Example, Strategic HR audit HR PRACTICES & ORGANIZATION’S BUSINESS GOALS CORPORATE HR STRATEGY (CONT) It is clearly linked to the overall business or strategic plan; and Is focused on the company's specific human resource needs Components An effective corporate HR strategy begins with a formal planning process that starts from the top; and Cascading down the ranks & files in the organization. Example, management involvement a must Communicating the plan to employees is essential; and To successfully execute the strategy, a formal process to review organizational performance must be in place. Example: feedback mechanism ROLE OF HR For HR to become a strategic partner in the organization; HR strategies must be aligned with the overall corporate strategy/business plans. Example, complimentary role With training & experience, HR professionals should provide valuable input on HR issues; Provide professional advice to senior management, Board of Directors on SHRM BUSINESS PARTNER MODEL This model demands that HR become more strategic, besides 1. 2. 3. 4. building relationship; Model made famous by David Ulrich (2005) & defines the basic role of HR into four (4) areas: Service Delivery – customer focus/centric Employee Commitment – show of commitment to work & business Change Management – act as change agents Strategic Action – focus on execution/implementation, monitoring & feedback on business/strategic plans; and Check whether HR strategy is aligned (‘strategic fit’) with the overall Corporate or Business Plan Summary The shaping of an organization, for example reflected in its structure, culture, systems and HRM, is affected by the context of that specific organization. A better fit between the organization and its context is thought to be more effective than the lack of fit or a misfit. Fit is an important feature of SHRM aimed at the alignment of HRM with the organizational context Three conceptual approaches to SHRM that is, ‘best practice’, ‘best fit’, and ‘HR bundles’ approach, were examined to understand the concept of ‘fit’ between business strategy and HR strategy The best fit approach assumes that HRM is more effective when it is aligned with its internal and external organization context 7/4/2017 51