Chapter 2

Part 1: Nature of Human Resource Management Chapter 2: Strategic HR Management and PlanningPrepared by Linda Eligh, University of Western Ontario

Learning ObjectivesAfter you have read this chapter, you should be able to:Explain strategic HR management and how it is linked to organizational strategies.Define HR planning and outline the HR planning process. Describe the process for forecasting HR supply and demand including forecasting methods. Discuss the importance surrounding the retention of employees.Describe the process of developing and using a strategic HR plan including the action to be taken when there is a surplus of employees or a shortage.Identify why HR metrics must consider both strategic and operational HR measures.

Nature of Strategic Human Resources ManagementStrategic Human Resources Management

The process of linking the HR function with the strategic objectives of the organization in order to improve performance.

Organizational Strategy

The pattern of decisions in a company that determines and reveals its objectives, purposes or goals, and produces the principle policies and plans for achieving those goals.

Strategic HR Management Process Fig. 2-1

Linkage of Organizational and HR StrategiesPorters Competitive StrategiesCost LeadershipCompetition on the basis of low price and high quality of product or service. Relies on building employees to fit specialized needs and requires a longer HR planning horizon approach

Linkage of Organizational and HR StrategiesPorters Competitive Strategies (cont.)DifferentiationCompetition through offering distinctively different products or services or establishing an exclusive image for quality products and services. Relies on hiring needed skills. Needs a shorter planning time frame in order to be responsive to dynamic environments.

Linkage of Organizational and HR StrategiesPorters Competitive Strategies (cont.)Focused StrategyOccurs when a firm concentrates effort on serving a distinctively defined market that may include some combination of a portion of a product line, customer segment, geographic area or distribution channel.

Linkage of Organizational and HR StrategiesMiles and Snows Strategy TypologyView of the organization as a complete and integrative system, in dynamic interaction with its environment.Competing firms within a single industry can be categorized into four basic types:DefendersProspectorsAnalyzersReactors

Human Resource PlanningHuman Resource (HR) Planning

The process of analyzing and identifying the need for and availability of human resources so that the organization can meet its objectives.

HR Planning Responsibilities

Top HR executive and subordinates gather information from other managers to use in the development of HR projections for top management to use in strategic planning and setting organizational goals

Purpose of Strategic HR Planning Fig. 2-2

Typical Division of HR Responsibilities: HR Planning Fig. 2-3

Human Resource PlanningSmall Business and HR Planning Issues

Attracting and retaining qualified outsidersManagement succession between generations of ownersEvolution of HR activities as business growsFamily relationships and HR policies

HR Planning Process Fig. 2-4

HR Planning ProcessHR Strategies

The means used to anticipate and manage the supply of and demand for human resources.Provide overall direction for the way in which HR activities will be developed and managed.

Scanning the External EnvironmentEnvironmental Scanning

The process of studying the environment of the organization to pinpoint opportunities and threats.Environmental Changes Impacting HR

Governmental InfluencesEconomic conditionsGeographic and competitive concernsWorkforce composition

Assessing the Internal WorkforceJobs and Skills Audit

What jobs exist now?How many individuals are performing each job?What are the reporting relationships of jobs?How essential is each job?What jobs will be needed to implement future organizational strategies?What are the characteristics of anticipated jobs?

Assessing the Internal WorkforceOrganizational Capabilities Inventory

HRIS databasessources of information about employees knowledge, skills, and abilities (KSAs)Components of an organizational capabilities inventoryIndividual employee demographicsIndividual employee career progressionIndividual job performance data

Forecasting HR Supply and DemandForecasting

The use of information from the past and present to identify expected future conditions.

Forecasting Periods

Short-termless than one yearIntermediateup to five yearsLong-rangemore than five years

HR Forecasting Fig. 2-5

Forecasting HR Supply and DemandForecasting the Demand for Human Resources

Organization-wide estimate for total demandUnit breakdown for specific skill needs by number and type of employeeDevelop decision rules (fill rates) for positions to be filled internally and externally.Develop additional decision rules for positions impacted by the chain effects of internal promotions and transfers.

Forecasting HR Supply and Demand Quantitative (Mathematical)Trend analysis Ratio analysisScatter plotRegression analysisSimulation models Qualitative (Judgmental) Management forecasts Delphi techniqueNominal group technique Methods for Forecasting Demand

Forecasting HR SupplyForecasting External HR Supply

Factors affecting external supplyNet migration for an areaIndividuals entering and leaving the workforceIndividuals graduating from schools and collegesChanging workforce composition and patternsEconomic forecastsTechnological developments and shiftsActions of competing employersGovernment regulations and pressuresOther circumstances affecting the workforce

Forecasting HR SupplyForecasting Internal HR Supply

Review skills inventoriesExamine organizational charts or staffing tablesUtilize a Markov analysisReplacement chartsImplement succession planningThe process of identifying longer-term plan for the orderly replacement of key employees.

Markov Analysis for a Hypothetical Sales Office Fig. 2-6

Executive Replacement Chart for Hypothetical Company Fig. 2-7

Estimating Internal Labour Supply for a Given Unit Fig. 2-8

Retention of Human ResourcesWhy People Stay or LeaveLinks, Fit, and Sacrifice

Culture and ValuesA positive, distinctive company culture aids retention by creating a great work environment Management and RetentionIf a firm is not effectively managed, employees may be turned off by ineffective responses and inefficiencies they deal with in their jobs. Visionary leadership is important.Job SecurityThe extent to which high-caliber top performers are retained by the company is a key issue with other employees who view high turnover in this group as a negative.

Drivers of Retention Fig. 2-9

Keys to Managing Retention Fig. 2-10

Managing RetentionRetention Measurement and Assessment

Employee SurveysExit Interviews

Determining Retention Management Actions

Retention Evaluation and FollowupRegular review of turnover dataTracking of intervention results and adjustment of intervention efforts

Developing and Using a Strategic HR PlanThe ultimate purpose of the plan is to enable managers to match the supply of labour with the demand expected, given the strategies of the organization.

Managing a Human Resources SurplusOutplacement ServicesHR Planning in Mergers and AcquisitionsManaging Shortages of Labour

Managing a Human Resources SurplusWorkforce Reductions and Legislation

Employment Standards Acts and Canada Labour Code sets out employer requirements for advance notice of a layoff or facility closing.Sufficient notice to employees and the local community before a layoff or facility closing involving more than 50 people.Also covers part-time or seasonal workers in Canada

Managing a Human Resources SurplusWorkforce Downsizing

Downsizing, Rightsizing, and Reduction in Force (RIF) all mean reducing the number of employees in an organization.CausesEconomicweak product demand, loss of market share to competitorsStructuraltechnological change, mergers and acquisitions

Managing a Human Resource SurplusWorkforce Downsizing (contd)

Positive consequencesIncreased competitivenessIncreased productivityNegative consequencesCannibalization of HR resourcesLoss of specialized skills and experienceSurviving employees feel overburdened and demoralizedManaging survivorsProvide explanations for actions and the futureInvolve survivors in transition/regrouping activities

Managing a Human Resource SurplusAttrition and hiring freezes

Not replacing departing employees and not hiring new employeesVoluntary Separation Programs

Early retirement buyouts offer incentives to encourage senior employees to leave the organization early. Layoffs

Employees are placed on unpaid leave until called back to work when business conditions improve.Employees are selected for layoff on the basis of their seniority or performance or a combination of both.Employees cannot be laid off indefinitely

Managing a Human Resource SurplusTerminations

Legislation requires that a certain amount of notice must be provided based and severance may also have to be paid depending on years of service.Reducing Hours

Reducing an employees hours until such time that things can get back to normal. Options include working fewer days in the week, job sharing and changing to part time status.

Managing a Human Resource SurplusOutplacement Services

provided to displaced employees to give them support and assistance:Personal career counselingResume preparation and typing servicesInterviewing workshopsReferral assistanceSeverance payments Continuance of medical benefitsJob retraining

Making Downsizing More Effective Fig. 2-11

Managing Shortages of LabourCanadas aging population a lack of skilled labour will result in more labour shortages than surplus situations.

OvertimeHiring temporary employeesExternal recruitment

Measuring HR Effectiveness Using HR MetricsHR Metrics

Specific measures tied to HR performance indicators.Development and use of metrics that can better demonstrate HRs value and track its performance.Characteristics of good HR metrics:Accurate data can be collected.Measures are linked to strategic and operational objectives.Calculations can be clearly understood.Measures provide information expected by executives.Results can be compared both externally and internally.Measurement data drives HR management efforts.

Measures of Strategic HR EffectivenessReturn on Investment (ROI)

Calculation showing the value of expenditures for HR activities.A = Operating costs for a new or enhance system for the time periodB = One-time cost of acquisition and implementationC = Value of gains from productivity improvements for the time period

Measures of Strategic HR EffectivenessEconomic Value Added (EVA)

A firms net operating profit after the cost of capital (required return) is deducted.Cost of capital is the benchmark for returns for all HR activities.HR and the Balanced Scorecard

FinancialInternal business processesCustomerLearning and growth

HR Metrics: Measuring AbsenteeismMeasuring Absenteeism

Sample formula for measuring or computing absenteeism:Other Measures of Absenteeism:

Incidence ratethe number of absences per 100 employees/dayInactivity ratethe percentage of time lost to absenteeismSeverity rateThe average time lost per absent employee during a specified period of time

HR Metrics: Measuring AbsenteeismCalculations of the costs of absenteeism should usually include:

Lost wagesBenefitsOvertime for replacementsFees for temporary employees, if incurredSupervisors timeSubstandard productionOverstaffing necessary to cover absences

HR Metrics: Measuring TurnoverWays to Measure Turnover:

Job and job levelsDepartment, units, and locationReason for leavingLength of serviceDemographic characteristicsEducation and trainingKnowledge, skills and abilitiesPerformance ratings/levels.

HR Metrics: Measuring TurnoverComputing the Turnover Rate:

Costs of TurnoverSeparation costsReplacement costsTraining costsHidden costs

Simplified Turnover Costing Model Fig. 2-13$20,00040%$28,000203$ 3,500$70,000

HR Measurement and BenchmarkingBenchmarking

Comparing specific measures of performance against data on those measures in other best practice organizationsCommon Benchmarks

Total compensation as a percentage of net income before taxesPercent of management positions filled internallyDollar sales per employeeBenefits as a percentage of payroll cost

Performance Benchmarking Fig. 2-14

Assessing HR EffectivenessHR Audit

A formal research effort that evaluates the current state of HR management in an organizationAudit areas:Legal compliance (e.g. Employment Equity, OH&S)Current job specifications and descriptionsValid recruiting and selection processCompensation and benefits systemEmployee handbookAbsenteeism and turnover controlGrievance resolution processOrientation, training and developmentPerformance management system