Unit 1: Strategic Management
Role of HR in Organizations
The Major HR Functions: staffing performance evaluations compensation and benefits training and development employee relations safety, health, and security HR research
Discussion Question: How do human resource policies differ from human resource objectives? What is the value of such policies and why should they be written?
Common Issues Treated in HR Policies: discipline problems promotions, transfers, and layoffs compensation, pay increases, and benefits holidays, vacations, and sick leave e-mail, Internet, instant messaging, cell phone, and other technology termination
Human Resource Policies: Human Resource polices serve three major purposes: 1. To reassure employees that they will be treated fairly and objectively. 2. To help managers make rapid and consistent decisions. 3. To give managers the confidence to resolve problems and defend their decisions.
Employee Handbooks: The most important purpose of an employee handbook is that it provides a central information source explaining what employees need to know about their employment relationship.
HR Generalists & HR Specialists: A small organization with fewer than 60-80 employees usually does not have a human resource department or an HR manager. When an organization begins to exceed 100-200 employees, a separate staff position is usually required to coordinate the human resource functions. When the organization becomes too large for one person to handle all human resource functions, separate positions are created and placed under direction of an HR manager. Though HR positions vary from company to company, three major classifications are usually found: (1) general human resource manager, (2) human resource specialists, and (3) supporting positions.
An Organization Chart for a Company Organized by Function President Finance Legal Human Resources Research & Development Public Relations Purchasing Sales Manufacturing Product A Sales Product B Sales Product A Manufacturing Product B Manufacturing
An Organization Chart Showing the Human Resource Department Vice President of Human Resources Employment Manager Human Resources Planning Manager Compensation Manager Benefits & Services Manager Training & Development Manager Labor Relations Manager Risk Management Manager Equal Employment Manager
HR Roles: Human resource management is expected to contribute to a company s bottom line. Dave Ulrich has developed a useful 2x2 model for examining HR roles that is derived from two central issues: (a) a focus on processes versus people, and (b) a focus on future strategic issues versus day-to-day operational issues. Day-To-Day Operational Focus HR Roles in the Organization Organizational Processes Role #1 Management of Firm Infrastructure [Reengineering Organization Processes] (1) advisory or counseling role (2) service role (3) control role People Role #2 Management of Employee Contributions [Listening and responding to employees] Future Strategic Focus Role #3 Management of Strategic Human Resources [Aligning HR and business strategy] Role #4 Management of Transformation and Change [Ensuring capacity for change]
Discussion Question: How much authority should the human resource department have over line managers? Which issues and activities call for the human resource department to serve in an advisory role, which in a service role, and which in a control role?
HR Competencies: The Credible Activist is respected, admired, listened to, and offers an opinion. The Cultural Steward identifies, articulates, and helps to promote a company s culture. The Talent Manager and Organizational Designer excels in theory, research, and practice in developing talent and creating new organizational structures. The Strategy Architect knows how to anticipate future competitive challenges and how to make the right change happen. The Business Ally contributes to the success of the business. The Operational Executor administers the day-to-day work of managing people inside the organization.
HR Control & Evaluation
HR Budgeting Process: A budget is an itemized estimate of the operating results of a company for a future time period. Budgets have three major purposes: 1. Coordination and Integration 2. Motivation 3. Control and Evaluation
Discussion Question: If a human resource manager was required to do an elaborate cost-benefit analysis of the department, what kinds of items should he or she list under costs? What should the manager list under benefits?
Measures of HR Effectiveness Measures of HR effectiveness include the following: subjective attitudinal measures statistical measures human resource accounting economic cost accounting measures
An HR audit evaluates the effectiveness of the human resource department. Human Resource Audit Process Step 1: Step 2: Step 3: Define the responsibilities of the human resource department Collect data Analyze results (statistical analysis) Step 6: Implementation and follow-up Step 4: Step 5: Data feedback and evaluation (review & interpretation of the results by the human resource department) Develop an action plan
One method of assessing the department is a summary assessment, using fivepoint scales. Managers rate the effectiveness of the major HR responsibilities. Subjective Assessment Method 1. Human Resource Forecasts Extremely ineffective Quite ineffective Neutral Quite effective Extremely effective 2. Management Succession Planning Extremely ineffective Quite ineffective Neutral Quite effective Extremely effective 3. Career Planning Extremely ineffective Quite ineffective Neutral Quite effective Extremely effective
A second method asks people to indicate how well they think the HR department is performing certain essential functions. Checklist Method 1. Turnover rates and the number of new replacements have been projected for at least 80 percent of the departments. Yes No 2. At least one qualified replacement has been identified and is listed within each box on the organization chart. 3. The personal development and career planning inventory has been completed by at least 70 percent of the employees.
Discussion Question: What is the value of human resource accounting measures? How could this information help managers or investors make better decisions?
Three of the most frequently recommended measures of human resource accounting include: Outlay cost: includes the costs associated with recruiting, selecting, training, and developing employees. Replacement cost: an estimate of how much it would cost to replace existing human resources. Human resource value: the expected contribution to the firm s net income for individuals at each level in the firm.
Budgeting HR Activities: A superior way to evaluate the value of human resource activities is through a careful cost accounting process that actually calculates their financial contribution to the organization. Managers are usually surprised to discover the financial costs of employee problems, such as absenteeism, tardiness, turnover, alcoholism, smoking, and grievances. Managers also tend to underestimate the financial contribution of HR activities such as training, career counseling, employee assistance programs, and test validation.
Performance Indicators & HR Metrics: Companies need to decide which metrics are their organization s key performance indicators, those that best measure both efficiency and effectiveness. What are some of the most common performance indicators?
Effects of HR Practices on Business Performance: Human resource activities are expected to contribute to a firm s profitability. Research studies regarding the relationship between HR practices and firm performance conclude that the following variables were associated with high-producing firms: Employee involvement in decision making Incentive compensation practices (e.g. profit sharing and gain sharing) Training programs, and A constellation of high-performance practices
Balanced Scorecard: The balanced scorecard involves analyzing the performance of an organization from multiple perspectives. It recognizes that there are three important stakeholders for every company: (1) the stockholders, (2) the customers, and (3) the employees. The balanced scorecard involves analyzing the traditional human resource measures concurrently with performance metrics from other perspectives-financial results, customer satisfaction, and internal business processes. Two key premises for a company to succeed: 1. For businesses to succeed in the long run, the expectations of all three stakeholders need to be simultaneously satisfied. 2. The interests of all three stakeholders are interrelated.
Outsourcing: A significant trend for many companies is to pay outside specialists to perform some of their human resource functions. What are the benefits of outsourcing HR functions?
HR Research
Scientific Method: The scientific method involves a systematic approach of developing and testing new ideas. Some of the major characteristics of the scientific method that distinguish it from the methods of analysis used in literature, art, and daily events concern the use of hypotheses, constructs, and observations.
Discussion Question: What are the strengths and weaknesses of the four basic research designs: case studies, field surveys, field experiments, and laboratory experiments?
Data Gathering Methods: In conducting human resource research, four kinds of data may be available: Archive data Observations Interviews Questionnaires What are the strengths and weaknesses of each technique?
Reliability and Validity: All data collection methods must be both reliable and valid. Reliability refers to the consistency of the measure. Validity is concerned with whether the research instrument actually measures what it is supposed to be measuring.
Statistics: Descriptive statistics are used to summarize data in meaningful ways so the results can be used to make decisions. Inferential statistics are used to make inferences about a larger population of people when data have been obtained from only a small sample. simple random sample stratified random sample
Correlation and Regression: A correlation coefficient is a number that shows the relationship between two variables. A regression analysis shows the relationship between one variable and several other variables.
The Role of HR in International Business
Discussion Question: What are some of the important considerations that should be carefully evaluated before a company decides to locate a manufacturing facility in another country?
Stages of International HR Management: First stage of globalization: Import-Export Firms Second stage of globalization: Multinational Enterprises (MNEs) Final stage of globalization: Global Firms What challenges might be faced by those transacting international business?
International Cultural Differences: Cultural differences influence the psychological contracts between workers and their companies and these differences have occasionally created significant challenges for international companies as they have tried to spread into other countries. Hofstede identified four cultural values used to explain differing reactions to problems in organizational life: power distance uncertainty avoidance individualism versus collectivism masculinity versus femininity
Organizational Leadership & Management Theories
Leadership Theories: Leadership refers to incremental influence and is said to occur when one individual influences others to do something voluntarily that they otherwise would not have done. A need for leadership within organizations stems from the incompleteness of the organization design and the dynamic nature of the internal and external environments. What are the various leadership theories and how do they apply to organizational leadership?
Leaders: Leaders focus their efforts on people as they encourage, inspire, train, empathize, evaluate, and reward. To lead is to inspire, to influence, and to motivate. Effective leaders inspire others to pursue excellence, to extend themselves, and to go beyond their perfunctory job requirements by generating creative ideas. Transactional leaders manage the transactions between the organization and its members. Transformational leaders focus on changing the attitudes and assumptions of employees and building commitment for the organization s mission, objectives, and strategies.
Styles of Leadership: One of the most popular models for selecting an appropriate leadership style is one proposed by Robert Tannenbaum and Warren Schmidt. This model describes seven different leadership styles along a continuum ranging from highly autocratic at one end to highly participative at the other: 1. Leader makes a decision and announces it. 2. Leader presents a tentative decision subject to change. 3. Leader sells the decision. 4. Leader presents ideas and invites questions. 5. Leader presents the problem, gets suggestions, & makes a decision. 6. Leader defines limits for the decision & asks group to make the decision. 7. Leader permits subordinates to make the decision & joins group as an equal group member.
Leadership Training: Since the quality of leadership contributes so greatly to the effectiveness of an organization, knowing how to increase leader effectiveness is a serious issue. Quality leadership is so important that improving the quality of leadership should be an on-going effort in every organization. What are the four most popular methods of increasing leadership effectiveness?
Ethics
Defining Morality: The foundation for deciding whether human resource practices are fair and just is based on an examination of the relationship between the person and the organization. The organization is expected to treat people morally, while employees have duties of loyalty, obedience, and confidentiality. What is HR s role regarding ethics in an organization?
Ethical Issues: Human resource managers are expected to monitor the ethical practices in their companies and protect the interests of employees. Some of the ethical issues organizations deal with are: Privacy in the workplace Conflicts of interest Ethics of technology Bribes, payoffs, and kickbacks Whistle blowing Deceptive practices Forms of organizational abuse: unintentional injury to employees
Conflict of Interest: A conflict of interest is defined as a situation where a person who has a responsibility to act in the best interests of a company may receive direct personal benefit from his or her actions at the expense of or to the detriment of the company. What types of situations would be considered conflicts of interest?
Discussion Question: How do individuals abuse organizations and how do organizations abuse people? How can the abuse of people be prevented?
Sarbanes Oxley Act: Requires publicly traded companies & their independent auditors to demonstrate to the SEC that their numbers are accurate and that they have processes in place to ensure accurate reporting. Implications for HR: Requires companies to establish and maintain a complaint system and an antiretaliation statement Prohibits insider trading and requires at least 30 days advance notice to employees of blackout periods Bans personal loans to members of the board of directors & executive officers Requires each annual report to contain and internal control report Requires firms to have a code of ethics for the executive officers that is designed to deter fraud and promote financial integrity Protects whistle blowers from retaliation when they reveal information about unethical or wrongful actions
Discussion Question: What is the benefit of a code of ethics? What should be the role of the human resource department in creating a code of ethics? What should a code of ethics contain?
Encouraging Ethical Behavior: Organizational leaders need to review all of the organization s policies and programs to make certain they are not injuring people or creating unintended pressures on members to act immorally. How can an organization use systems and policies to encourage ethical behavior?
Organizational Strategy
Organizational Strategy: HR managers are expected to interact with other leaders in developing the organization s competitive advantage and aligning HR functions with business strategies. HR managers serve as strategic partners with other corporate executives in executing strategy.
Vision Statements: A vision statement describes the future of the company as a successful organization. An effective vision statement creates a mental image of what the organization will be like in the future as it succeeds.
Mission Statements: A mission statement explains the essence of an organization why it exists, what it wants to be, who it serves, and why it should continue. It is based on the organization s assumptions about its purpose, its values, its distinctive competencies, and its place in the world. The following elements are usually found in most carefully crafted mission statements: a purpose statement the business statement values statements
Discussion Question: What is the relationship between a generic strategy and the mission of an organization? How are mission statements formed and how are they beneficial?
The Role of Strategy: An organization s strategy determines the direction it will go and serves to coalesce the energies of many people and departments in a unified effort. Strategy is about winning and succeeding.
Goal of Strategy: The goal of strategy is to find a competitive environment where a company has imperfect competition. Perfect Competition The Goal of Strategy: Imperfect Competition Imperfect Competition Numerous sellers/buyers Perfect information Homogeneous products No barriers to entry or exit Average or below- average profits Few competitors, numerous suppliers/buyers Asymmetric information Heterogeneous products Barriers to entry Subnormal profits
Three Grand Strategies: Michael Porter has identified three grand strategies to maintain a competitive edge. What are these three grand strategies?
Business Strategies: Raymond Miles and Charles Snow developed another typology of business strategies based on the idea that managers seek to formulate strategies that will most closely align their internal organizational characteristics and the external environment. They identify four strategies: Prospector: involves innovation, risk-taking, seeking new opportunities, and growth. Defender: concerned with stability and even retrenchment Analyzer: tries to maintain a stable business while innovating on the periphery. Reactor: the organization takes whatever actions appear to be the most expedient at the time to meet immediate needs.
The Value Chain: Every firm s value chain consists of nine generic activities that are linked together in a unique way. These nine activities include five primary and four support activities. Primary Activities 1. Inbound Logistics 2. Operations 3. Outbound Logistics 4. Marketing and Sales 5. Service Support Activities 1. Firm Infrastructure 2. HR Management 3. Technology Development 4. Procurement
Strategy Formulation: Selecting the right competitive strategy is vital to a firm s success. This decision determines how it is positioned in its industry. How are strategies formulated?
Strategic Management Process (SWOT Method): Identify the Organization s Mission and Objectives Analyze the Environment: Identify Opportunities and Threats Analyze the Organization s Resources: Identify Strengths and Weaknesses Formulate Strategy Implement Strategy Evaluate and Monitor Results
Writing a Business Plan: After a company has formulated a strategy for how it plans to compete successfully within it s industry, it needs to prepare a business plan to help it acquire the needed resources. Some common components found in most business plans: An executive summary A description of the company and its history A description of its products and services A market analysis and a marketing plan A description of the management team A budget and a financial analysis showing both resources and needs An operations plan describing responsibilities and actions with timetables and realistic, measurable goals.
Designing Effective Organizations: Vision/Mission Strategy Feedback Structure Systems Culture Processes ORGANIZATION
Strategic Alignment: Organizational strategies need to be aligned with their subsystem activities. Corporate Strategy Identifies what business the organization is, and should be, in. Provides guidance for managing and allocating resources to distinct business units. Business Unit Strategy Identifies the key sources of competitive advantage in the areas of cost or differentiation. Provides a theory of success and a plan that guides functional strategies. R & D Strategy Operations Strategy Sales & Marketing Strategy Human Resource Strategy Strategies and tactics of the functional units should align with and support the overall business unit strategy.
Firm Resources: Sustained competitive advantage results from the ownership and control of resources that are rare, nontradable, nonsubstitutable, valued by the market, and difficult or impossible to imitate. Such resources include: physical assets intangible resources organizational capabilities
Distinctive Competence: Some organizations are able to achieve a sustained competitive advantage and earn above-average profits because they possess unique resources, or they have capabilities that provide a competitive edge and cannot be easily imitated. These resources are often categorized into: human resources physical resources organizational capital resources
Organizational Capabilities: Organizational capabilities refer to what the organization is able to do with the collection of skills, talents, technology, training, and experience possessed by the members of the firm. Human Resource Practices Organizational Capabilities Business Strategy
Michael Porter has developed a five forces model of competition that identifies the major environmental forces of an industry analysis. The Five Forces Model Potential Entrants Suppliers Rival Firms Buyers Substitute Products
Competitor Analysis: Successful companies perform a competitor analysis for each competing firm in their industry. The analysis includes the competitors : future objectives current strategy assumptions capabilities
Organizational Environments
Environmental Sectors: All organizations are required to interact with their environment. The Environmental Sectors of an Organization Human Resource Sector Raw Materials Sector Gov t Labor market, universities, high schools, technical Sector schools, employees in other organizations Federal, state, local laws & agency requirements; judicial system; taxes; political process Economic Sector Organization Suppliers, parts manufacturers Financial Resource Sector Banks, stock market, venture capitalists, savings and loan Consumer Market Sector Economic growth, interest rates, unemployment rates, recession Industry Sector Technology Sector Customers, clients, patients, students Competition, size and composition of similar firms Research institutes, R&D departments, new machines, scientific journals, automation
Environmental Scanning: Environmental scanning involves examining the economic and social forces influencing the organization, especially the longterm composition of the labor force and the future availability of employees. What factors are typically analyzed?
Discussion Question: How are the human resource activities within an organization influenced by changes in the unemployment levels in the surrounding economy? Which human resource activities are easier to perform when the unemployment levels are high and which are easier to perform when unemployment levels are low?
Influencing Legislation: HR managers are expected to actively participate in the formation of state and federal laws as part of their role in the strategic management process. Legislative Process: HR managers need to understand the relationship between laws, agency regulations, and court decisions. Proposed Legislation: Know what is happening in the legislative process. Informing Legislators: Legislators are generally interested in information that comes from credible and informed sources. Protesting a Law or Agency Regulation: When laws or agency regulations create unfair or intolerable conditions, oppose them through some form of active or passive resistance.
Environmental Uncertainty: Environmental uncertainty stems from two variables: 1. The complexity of the environment 2. How rapidly the environment changes
Organizational environments can be complex or simple. The rate of change for an organization may be fast or slow, depending mostly on technological advances and consumer preferences. Rate of Change Rapid Slow Entrepreneurial Organizations Proprietorship Organizations Flexible Organizations Institutional Organizations Simple Complex Environmental Complexity
Discussion Question: What effect does the rate of economic and social change have on human resource strategies? Which human resource activities are appropriate for a rapidly changing environment, and which activities are more appropriate in a stable environment?
Reducing Uncertainty: Because uncertainty threatens organizational survival and reduces its effectiveness, organizations use a variety of strategies to reduce environmental uncertainty. Changing the organizational structure Planning and forecasting Mergers and acquisitions Cooptation Public relations and advertising Political activity Illegal activities
Organizational Design and Development
Discussion Question: What are the differences between organizational efficiency and effectiveness? What are the potential consequences of confusing these two terms?
Differentiation and Integration: The creation of an organizational structure requires an organization to respond to two basic issues: Differentiation - how to divide the work into specialized jobs. Integration - how to coordinate what has been divided.
Departmentalization: Functional Departmentalization - The jobs associated with performing a particular function are grouped together into the same department. Product Departmentalization - Combining jobs that produce similar products into a department.
Discussion Question: The most popular form of departmentalization is functional because it is supposed to be the most efficient. Why is it the most efficient? Why does product departmentalization tend to be more customer oriented?
Decision Making: Centralized - Authority to make organizational decisions is retained by top managers within the central office. Decentralized - Power and authority are extended to supervisors and the production employees at lower hierarchical levels of the organizational structure.
Formal versus Informal Rules: Five different methods of achieving coordination have been identified that vary along a continuum of how much discretion is allowed for the worker. Coordinating mechanisms: Personal discretion Direct supervision and rules Mutual adjustment Direct supervision Standardization of work processes Standardization of outputs Standardization of skills Mutual adjustment
Span of Control: Span of control is the number of individuals in a group under one supervisor. Four situational variables: Contact required Level of subordinate education and training Ability to communicate Nature of the task
Matrix Structure:
Organizational Culture
Climate versus Culture: Climate - describes characteristics that are temporary and capable of being changed Culture - refers to organizational rules and beliefs that are relatively enduring and resistant to change
Levels of Organizational Culture: 1. Cultural artifacts: tangible aspects of culture the behaviors, language, and physical symbols that we can perceive with our senses and that reflect the rules and core beliefs of the organization s culture. 2. Shared norms: the situation-specific rules that are often not directly visible but can be inferred from the organization s artifacts. 3. Cultural values: represent the collective beliefs, ideals, and feelings of members about the things that are good, proper, valuable, and right. 4. Shared assumptions: provide a foundation for how people think about what happens in organizations and represent the deepest level of culture.
Development of Culture: An organization s culture is not created by any single person or event, but by a complex combination of forces that include: Expectations of founders and leaders Member contributions Historical accommodations Internal integration
Maintaining Organizational Culture: Organizational cultures are maintained by a combination of many forces, especially : Employee selection and retention Rewards and status allocation Leaders reactions Rites and ceremonies Stories and symbols Reactions to problems
Changing Organizational Culture: Changing an organization s culture is considerably more dramatic and difficult than modifying other parts of a system. Acquiring new artifacts and symbols may not be too difficult; it may even be possible to change some group norms and patterns of behavior. But at the deepest level, a culture change requires alteration of the basic assumptions of the organization in its essential character. Can you describe the steps for changing an organization s culture?
Creativity and Innovation
The Creative Process: Four phases are typically observed in the creative process. 1. Preparation 2. Incubation 3. Insight 4. Verification Can you describe the four phases of the creative process?