Strategic Human Resource Management. Learning Outcomes A DEFINITION OF STRATEGY

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1 Strategic Human Resource Management Learning Outcomes By the end of this module you will be able to: Explain the purpose of strategic planning in an organisation Demonstrate the ability to explain the importance of people in the achievement of strategic change Understand the key areas of human behaviour in sustained organisational performance A DEFINITION OF STRATEGY Strategy is the direction and scope of an organisation over the long term which achieves advantage for the organisation through its configuration of resources within a changing environment to meet the needs of markets and to fulfil stakeholder expectations. Johnson & Scholes (1999) 1

2 Key Words Direction & Scope Long Term Advantage Configuration of Resources Changing Environment Stakeholder Expectations LEVELS OF STRATEGY (1) Corporate Level strategic decisions are concerned with: overall purpose and scope adding value to shareholder investment portfolio issues resource allocation between Strategic Business Units (SBUs) structure and control of SBUs corporate financial strategy LEVELS OF STRATEGY (2) Business Unit Strategy is concerned with: competitive strategy developing market opportunities developing new products/services resource allocation within the SBU structure and control of the SBU 2

3 LEVELS OF STRATEGY (3) Operational Strategies are concerned with: the integration of resources, processes, people and skills to implement strategy STRATEGIC MANAGEMENT IN DIFFERENT CONTEXTS In small businesses, the importance of: the expectations of individuals (e.g. owners and founders) competitive positioning In the multi-national corporation, the importance of: product and geographic scope portfolio decisions corporate structure and control What is strategic human resource management? Strategic human resource management may be regarded as an approach to the management of human resources that provides a strategic framework to support long-term business goals and outcomes. The approach is concerned with longer-term people issues and macro-concerns about structure, quality, culture, values, commitment and matching resources to future need. Institute of Personnel & Development

4 Continuity Incremental Flux Transformational Exhibit 2.2 Patterns of strategy development Amount of change 5 1 Environmental change 2 3 Strategic change 4 Time Phase 1 Phase 2 Phase 3/4 Incremental change Flux Transformational change or demise Exhibit 2.12 The risk of strategic drift 4

5 External Analysis PEST Internal Analysis Resource analysis Physical resources Financial resources Human resources Intangible resources 5

6 SWOT Internal and external analysis leads to a complex assessment of the organisations position Understanding the organisation s competitive position Some tools: Portfolio Analysis Porter s 5 Forces Lifecycle Value Chain 6

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8 Porter s Five Forces Michael Porter argued that an organisation s competitive position was determined by five key factors Porters 5 Forces Threat of new entrants Bargaining Power of buyers Threat of substitute products and services Bargaining Power of suppliers Rivalry among existing Firms Threat of entrants Potential entrants Suppliers Bargaining power COMPETITIVE RIVALRY Bargaining power Buyers Substitutes Threat of substitutes Exhibit 3.6 Five forces analysis Source: Adapted from M.E. Porter, Competitive Strategy, Free Press, 1980, p.4. Copyright by the Free Press, a division of Macmillian Publishing Co., Inc. Reproduced with permission 8

9 FIVE FORCES ANALYSIS Competitive Rivalry is high when: entry is likely substitutes threaten buyers or suppliers exercise control competitors are in balance there is slow market growth global customers increase competition there are high fixed costs in an industry markets are undifferentiated there are high exit barriers FIVE FORCES ANALYSIS: KEY QUESTIONS AND IMPLICATIONS What are the key forces at work in the competitive environment? Are there underlying forces driving competitive forces? Will competitive forces change? What are the strengths and weaknesses of competitors in relation to the competitive forces? Can competitive strategy influence competitive forces (e.g. by building barriers to entry or reducing competitive rivalry)? Michael Porter speaks about 5 Forces 9

10 Support activities Firm infrastructure Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service Primary activities Exhibit 4.4 The value chain Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, Used with permission of The Free Press, a division of Macmillan, Inc. Copyright 1985 Michael E. Porter Supplier value chains Channel value chains Customer value chains Organisation s value chain Exhibit 4.5 The value system Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, Used with permission of The Free Press, a division of Macmillan, Inc. Copyright 1985 Michael E. Porter 10

11 Same as competitors or easy to imitate Better than competitors and difficult to imitate* RESOURCES Necessary resources Unique resources COMPETENCES Threshold competences Core competences * Provides the basis to outperform competitors or demonstrably provide better value for money Exhibit 4.2 Resources, competences and competitive advantage IDENTIFYING CORE COMPETENCES (1) Competences may exist for: Reducing cost continual cost reduction economies of scale or scope control and co-ordination factor costs Identifying marketing skills and experience marketing culture IDENTIFYING CORE COMPETENCES (2) Adding value customer culture value assurance value enhancement innovation They may be core competences if they support / enhance competitive advantage and are difficult to imitate. Source: After Faulkner and Bowman: The Essence of Competitive Strategy: Prentice Hall,

12 SUSTAINABILITY OF COMPETITIVE ADVANTAGE Depends on: Robustness of the competences Extent to which they can be imitated Extent to which they are embedded in routines, tacit knowledge and culture COMPETENCES AND CORE COMPETENCES Competences exist in activities Resources are deployed to create competences Core competences underpin competitive advantage only some competences are core core varies with strategy core varies with time core can be exploited in several ways Mismatches resolved by changing core competences changing strategy Identifying competences Value chain analysis Organisational competences Bases of competences Cost efficiency Value added Managing linkages Robustness Exhibit 4.3 Analysing competences and core competences 12

13 Porter s Generic Strategies Porter then states there are three generic strategies 1. Overall Cost Leadership 2. Differentiation 3. Focus 13

14 High Hybrid 3 Differentiation 4 Focused 5 differentiation PERCEIVED ADDED VALUE Low Price No frills Low Low 8 PRICE 7 Strategies destined for ultimate failure High Exhibit 6.4a The strategy clock: Bowman s competitive strategy options Position 1 No frills 2 Low price 3 Hybrid 4 Differentiation a) Without price premium b) With price premium 5 Focused differentiation 6 Increased price/standard value 7 Increased price/low value 8 Low value/standard price Needs / risks Likely to be segment specific Risk of price war and low margins/need to be cost leader Low cost base and reinvestment in low price and differentiation Perceived added value by user, yielding market share benefits Perceived added value sufficient to bear price premium Perceived added value to a particular segment, warranting price premium Higher margins if competitors do not follow/risk of losing market share Only feasible in monopoly situation Loss of market share Differentiation Likely failure Bowman uses the dimension Perceived Use Value Exhibit 6.4b The strategy clock: Bowman s competitive strategy options Alaska Case 14

15 Types of strategic change Diagnosing strategic change needs Managing strategic change processes Structure and control Styles of managing change Changing routines Change tactics Communicating change Political processes Symbolic processes Roles in the change process Exhibit 11.1 A framework for managing strategic change ORGANISATIONAL SYMPTOMS Questions and challenges Felt need for change Competing views of causes of problems and remedies Information collection Political testing of support New ideas tested out Refreezing (the signalling or confirmation of change) STAGES Unfreezing mechanisms Organisational anticipation Organisational flux Information building Experimentation or PRESSURES FOR CONFORMITY Early signals made sense of within paradigm Political pressures not to rock the boat Attempts to reconcile competing views within current paradigm Information made sense of within paradigm Resistance to new ideas Sustaining change Exhibit 11.3 Unfreezing and the management of change MANAGING EVERYDAY ASPECTS OF STRATEGIC CHANGE FORMAL SYSTEMS Senior executives are often over reliant on structure and control to effect change MANAGING Means MANAGING STRATEGY CHANGE Managing everyday aspects of organisational life is central to effecting change EVERYDAY REALITIES 15

16 Reading andgold/docs/bgcha02.pdf Strategic Role of HR Management Organisational human resources have grown as a strategic emphasis because effective use of people in the organisation can provide a competitive advantage, both domestically and abroad. The strategic role of HR management emphasises that the people in an organisation are valuable resources representing significant organisational investments. For HR to play a strategic role it must focus on the longer-term implications of HR issues. Strategic human resource management may be regarded as an approach to the management of human resources that provides a strategic framework to support long-term business goals and outcomes. The approach is concerned with longerterm people issues and macro-concerns about structure, quality, culture, values, commitment and matching resources to future need. 16

17 The issue of strategic HRM initially came to prominence during around the early 1990s, at which time academics developed definitions of strategic HRM as: The undertaking of all those activities affecting the behaviour of individuals in their efforts to formulate and implement the strategic needs of business. SCHULER, R.S. (1992) Strategic human resource management: linking people with the needs of the business. Organizational Dynamics. Vol 21, No 1. pp The pattern of planned human resource deployments and activities intended to enable the organisation to achieve its goals. WRIGHT, P.M. and MCMAHAN, G.C. (1992) Theoretical perspectives for SHRM. Journal of Management. March. pp Strategic HRM can encompass a number of individual HR strategies. For example, there may be strategies: to deliver fair and equitable reward to improve employee performance to streamline organisational structure. However, in themselves these strategies are not strategic HRM. Rather, strategic HRM is the overall framework that determines the shape and delivery of the individual strategies. Boxall and Purcell assert that strategic HRM is concerned with explaining how HRM influences organisational performance. They also argue that strategy is not the same as strategic planning because: BOXALL, P. and PURCELL, J. (2003) Strategy and human resource management. Basingstoke: Palgrave Macmillan 17

18 Strategic planning is the formal process that takes place, usually in larger organisations, defining how things will be done. Strategy, by contrast, exists in all organisations - even though it may not be written down and articulated - and defines the organisation s behaviour and how it attempts to cope with its environment. A good business strategy, one that is likely to succeed, is informed by people factors. One of the driving factors behind the evaluation and reporting of human capital data (see below) is the need for better information to feed into the process of formulating business strategy. In the majority of organisations, people are now recognised as the biggest asset. Their knowledge, skills and abilities must be deployed to the maximum effect if the organisation is to create value. The intangible value of an organisation relating to the people it employs is gaining recognition among accountants and investors, and it is generally now accepted that this has implications for long-term sustained performance. 18

19 Links with workforce planning Effective workforce planning is an essential element in the management of people to meet the future skills needs of any organisation to support its long-term business goals. There has recently been a renewed interest in this issue, largely driven by the realisation that in a fast-changing economy some degree of planning is vital to ensure the organisation is developing sufficient capacity to adapt to new trends and take advantage of emerging opportunities. Strategic HRM and Human Capital Management(HCM) Human capital may be defined as people at work and their collective knowledge, skills, abilities and capacity to develop and innovate. Both strategic HRM and HCM, then, rest on the assumption that people are treated as assets rather than costs, and both also focus on the importance of adopting an integrated and strategic approach to managing people - which is the concern of all the stakeholders in an organisation, not just the people management function. 19

20 Strategic Role of HR Management Organisational human resources have grown as a strategic emphasis because effective use of people in the organisation can provide a competitive advantage, both domestically and abroad. The strategic role of HR management emphasizes that the people in an organisation are valuable resources representing significant organisational investments. For HR to play a strategic role it must focus on the longer-term implications of HR issues. 20

21 MANAGING STRATEGIC CHANGE 21

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23 Alignment Perceptions of consistency, fit, links or integration between the values, behaviours or objectives of different stakeholders, both internal and external and with the organisation purpose. 23

24 Shared purpose An organisation s purpose is its identity, the reason why it exists and the golden thread to which its strategy should be aligned. Shared purpose takes the connection with the organisational purpose one step further to be shared by all employees and often beyond, to include external stakeholders. Leadership Senior leaders articulate a future-oriented vision in an appropriate style that informs decision-making and empowers employees to achieve organisational effectiveness. The ability to lead, however, is not confined to senior leaders and can be demonstrated at all levels. 24

25 Locus of engagement People can be engaged at different levels and with various aspects of the organisation or the work and their engagement can be transactional or emotional in nature. 25

26 Assessment and evaluation The processes that occur at different organisational levels to gather qualitative and quantitative information, to assess the impact of actions and inform decisionmaking. Balancing short- and long-term horizons Active awareness, management and communication of both known and unknown organisational issues and pressures affecting the short term (of less than a one-year timeframe) while maintaining an active focus on longerterm priorities (with longer than a one-year timeframe) 26

27 Agility The ability to stay open to new directions and be continually proactive, helping to assess the limits or risks of existing approaches and ensuring that leaders and followers have an agile and change-ready mindset to enable them, and ultimately the organisation, to keep moving, changing, adapting. 27

28 Capability-building Equipping the people in the organisation with the skills and knowledge they need to meet both present and future challenges. Also identifying existing necessary and potential capabilities, ensuring they are accessible across the organisation. Capability-building applies not only to individuals, but also to teams and organisations. 28