Module 1

Module 1: Strategic Business Management

12% PHR (27 questions) 29% SPHR (65 questions)

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HR Roles

Historical roles are still important, but roles have broadened into today’s more strategic focus.

Historical: •  Advice •  Service •  Control

Current: •  Strategic •  Operational •  Administrative

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•  Workforce/workplace changes •  Globalization •  Emphasis on ethics •  Flexible organizational boundaries •  Require:

–  Clarification of HR’s contribution to business outcomes

–  Alignment of human capital and corporate strategy –  Technology

Changes in the HR Profession

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Key Trend: Offshoring

•  Domestic HR challenges –  Displaced workers –  Changes in work

requirements –  Decline in employee morale –  Impacts on available skills

in domestic job pool

SPHR only

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•  International HR challenges –  Recruiting, managing, and

motivating the new workforce –  Ensuring communication and

coordination −  Acculturation of new

workforce

Key Trend: Mergers, Acquisitions, and Divestiture

1. Identify issues, form and train teams, and prepare for change. 2. Investigate structural, technological, financial, legal, and cultural

risks. 3. Develop plans to address key issues. 4. Measure activity of new organization against benchmarks.

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SPHR only

Management Functions

Forecast Set goals

Design Assist

Schedule Implement

Measure

Planning Organizing Directing Controlling

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Project Management Steps

Roles Informational •  Communicator •  Information disseminator

Decisional •  Conflict resolver •  Resource allocator

Interpersonal •  Leader •  Liaison

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Project Planning Tool: Gantt Chart

•  Also known as horizontal bar chart, milestone chart, or activity chart.

•  Plots the sequential steps of a project against time.

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Project Planning Tool: PERT Chart

•  An arrow diagram or road map identifying all major events

•  Shows how much time is needed to complete a project.

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Change Management Model

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A company must immediately downsize its workforce by 15% due to shrinking markets. What important role will HR play during the process? A. Form new work teams based on the gaps created by the

layoffs. B. Summarize industry trends and communicate them to

employees. C. Ensure that top management regularly communicates

with employees. D.   Launch a new quality initiative to preserve customer

satisfaction.

Answer: C 1-11 © SHRM

The Outsourcing Process

1.  Analyze needs and define goals.

2.  Define budget. 3.  Create RFP. 4.  Send RFPs to

contractors. 5.  Evaluate contractor

proposals.

6.  Choose contractor. 7.  Negotiate contract. 8.  Implement and

monitor. 9.  Evaluate.

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Managing Technology Trends

E-procurement Electronic record keeping

Electronic signatures

Application service providers

(ASPs)

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Strategic Planning Process

•  Defines where the organization is now, where it wants to be, and how it will get there.

•  Gathers internal and external information. •  Develops alternative strategies. •  Selects appropriate strategies. •  Implements a plan. •  Evaluates and revises the plan as needed.

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Phase 1: Strategy Formulation

Must understand: •  What business the

company is in. •  When to change the

mission and alter strategy.

•  How and when to communicate the mission.

Strategy Formulation

•  Develop vision and mission statements.

•  Define organizational values.

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Phase 2: Strategy Development

S = Internal strengths

W= Internal weaknesses

O = External opportunities

T = External threats

Strategy Development

•  Conduct a SWOT analysis, including an environmental scan.

•  Establish long-term objectives (three to five years).

•  Identify corporate/ organization, business unit,

and functional strategies.

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Phase 3: Strategy Implementation

Resources needed to achieve objectives: •  Financial •  Physical •  Human •  Technological

Strategy Implementation

•  Establish short-term objectives (six months to a year).

•  Develop action plans. •  Allocate resources. •  Motivate employees.

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Phase 4: Strategy Evaluation

•  Assess strategies by noting changes in: –  Internal strengths and

weaknesses. –  External opportunities

and threats. •  Take corrective action

when changes have occurred.

Strategy Evaluation

•  Review strategies at planned intervals.

•  Measure performance. •  Take corrective action.

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Which of the following activities best prepares HR to participate in the strategic planning process?

A. Evaluating a new HRIS system B. Restructuring HR’s recruiting system C. Training line managers on interviewing

techniques D.  Reviewing the company’s key financial data

Answer: D 1-19 © SHRM

Understanding the Internal Environment

•  Understand the perspective of your business partners.

•  Create communication and collaboration.

•  Identify internal needs and emerging issues.

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Finance and Accounting

•  Finance helps business units with financial needs. –  Pricing products –  Creating financial models

•  Accounting balances the checkbook of the company. –  Accounts receivable –  Accounts payable

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Budgeting Methods

Incremental

•  Prior budget and newly identified needs are the basis for funding.

Formula

•  Usually stated as a percentage of increase or decrease to general funding.

Zero-based

•  All objectives and operations are ranked and funds are allocated according to rank.

•  Budgets start at zero; all expenditures must be justified.

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Balance Sheet

•  Basic form of the sheet is: Assets = Liabilities + Equity.

•  Every financial transaction is an exchange, and both sides are recorded.

•  Only records transactions measured in money.

Summarizes the firm’s financial position.

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Balance Sheet

Assets Current assets Fixed assets Investments

Total assets

Liabilities and equity Current liabilities Equity

Total liabilities and equity

$310,000 $70,000 $20,000 $400,000

$145,000 $255,000 $400,000

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Income Statement

•  Basic form of the statement is: Revenues – Expenses = Net income.

•  Some expenses are never cash outflows (depreciation). •  Some expenses may be paid partly in one period and

partly in another (cost of goods sold). •  Owner withdrawals are distributions, not operating

expenses.

Explains revenues, expenses, and profits over a specified period of time.

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Income Statement

Gross sales (revenues) $360,000 Less cost of goods sold $240,000 Gross profit $120,000 Less expenses: $50,000

Salaries $20,000 Rent $18,000 Utilities $7,200 Depreciation $1,800 Interest $3,000 Subtotal of expenses: $50,000

Income less expenses $70,000 Income tax expense $28,000 Net income $42,000

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Marketing and Sales

Promotion

Price

Place

Product Marketing: Plan, price, promote, and distribute goods and services.

Sales: Sell the organization's product to the marketplace.

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Key elements

Operations

Control

Inventory Scheduling

Standards

Capacity

Key concepts

•  Goal: To provide goods and services to customers.

•  Focuses on productivity, quality, cost, delivery, and performance.

•  Affected by supply chain management.

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A company commits to answering all phone calls within 15 seconds. Which operational concept deals with observing and documenting actual results? A. Capacity B. Inventory C. Scheduling D. Control

Answer: D 1-29 © SHRM

Information Technology

Enables an organization to use information to support its strategic objectives. •  Strategic information systems are

designed to achieve competitive superiority. − Airline reservation systems

•  Operational systems focus on reducing costs or improving productivity. − Remote access systems that allow

telecommuting

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Employees

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Engagement Human Capital •  Employees’ willingness to

“go the extra mile” ‐  How employees

describe the organization

‐  Whether employees choose to remain

‐  How employees work

•  Combined knowledge, skills, and experience of employees ‐  Leads to creativity

and competitive advantage

Evolution of Organizations

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Cost Leadership Strategy

• Requires: –  Exploitation of all sources of cost advantage. –  Efficiency and productivity. –  Sharing of information. –  Centralized decision making. –  Cross-training and job rotation. –  Process improvements.

Goal: To be the low-cost producer.

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Differentiation Strategy

• Requires: –  Reduced costs in areas not related to differentiation. –  Strong research and development and marketing. –  Product knowledge and quality training. –  Decentralized decision making for quicker speed to

market.

Goal: Attempt to set the product apart from its competition by giving it unique characteristics for which customers will pay a premium price.

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Other Strategies

Focus

•  Another generic Porter strategy that places emphasis on a buyer group, a segment of the product line, or a specific market within an industry

Human capital

advantage

•  Investment in people

Customer intimacy

•  Emphasis on understanding customer needs and helping them get the most out of their products

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Specialization and Departmentalization

•  Specialization: Degree to which processes are divided into tasks and grouped into jobs – Balances need for productivity with employee

satisfaction

•  Departmentalization: The way an organization groups jobs so work can be coordinated – Functional, divisional, or matrix

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Functional Structure

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Divisional Structure

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Matrix Structure

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Authority and Reporting Issues

Chain of Command •  Line of authority

within an organization •  Defines the boundaries

within which a manager can make decisions

Span of Control •  Number of individuals

who report to a supervisor –  Narrow span (“tall”

organization) – Wide span (“flat”

organization)

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Centralization and Decentralization

Formalization: Degree of discretion individuals have over how to perform their work.

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Environmental Scanning

•  Interprets data related to external opportunities and threats.

•  Prepares HR to participate in strategic planning. •  Examines seven key factors:

–  Demographic – Political –  Economic – Social –  Employment – Technological –  International

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Demographic Factors

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•  Age •  Gender •  Generational

differences •  Population shifts •  Ethnicity

•  Unskilled labor •  Nontraditional labor

force

Economic Factors

Interest rates

Inflation Disposable income

CPI

GDP

Economic Factors

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Employment Factors

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•  Attitude toward careers

•  Immigration •  Occupational and

industry shifts •  Recruitment

•  Unions •  Unemployment •  Turnover •  Relocation

International Factors

•  European Union •  Wage comparisons •  Trade agreements •  International labor

law •  Globalization

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Other Factors

Political

•  Legislation and regulatory guidelines

Social

•  Changing definition of families

•  Strain on health-care systems

Technological

•  Advances •  Skills •  “Digital

divide” •  Process

changes

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ROI

Measures the economic return on a project or investment.

ROI =

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Cost-Benefit Analysis

•  Determines the financial impact that programs have on company profitability.

•  Presents data as a ratio.

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Break-Even Analysis

Determines the point in time at which total revenue associated with an HR program is equal to the total cost of the program.

* Time = The period of time most relevant to the analysis.

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HR is launching a company-wide training initiative. How can HR determine when the anticipated revenue return will exceed the cost of developing the program?

A. Calculate gross margin. B. Calculate return on investment. C. Conduct a cost-benefit analysis. D. Conduct a break-even analysis.

Answer: D

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Balanced Scorecard

•  Aligns business function measures with organizational strategies.

•  Measures the effectiveness of a department or the entire company.

•  Considers perspective of all stakeholders.

Finance

Learning and

growth

Business processes

Customers

Mission Vision Values

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For a balanced scorecard system to be implemented effectively, it should A. be introduced simultaneously to all divisions and

departments. B. start at the bottom of the organization and work its

way to the top. C. focus on specific measures that support business

strategies. D. concentrate on tracking and reporting financial

results. Answer: C

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HR Audit

•  Analyzes effectiveness and efficiency of HR programs.

•  Keeps executives current on HR activities.

•  Allows HR managers to cut or enhance programs and address noncompliance.

•  Conducted by HR staff or a third-party contractor.

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Other Measurement Methods

•  Organization’s most important issues (e.g., dollar sales per employee or percentage of workforce that is unionized)

•  Human capital ROI •  Turnover cost •  Compensation as a

percentage of operating expense

•  Training investment factor

•  Time to start •  Cost per hire

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Inductive and Deductive Reasoning

•  Inductive (from specific to general) –  Looks at a set of

observations and designs a rule.

–  Joe, John, and Mary are top salespeople and have accounting backgrounds. Therefore, for this job accounting background indicates success.

•  Deductive (from general to specific) −  Starts with a general rule and

deduces specific instances. − Research shows that units led

by controlling managers have decreased morale. John is a controlling manager. His unit will suffer morale problems.

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Primary and Secondary Research

Primary (data gathered firsthand)

Secondary (data gathered by others)

•  Experimental •  Pilot projects •  Surveys/questionnaires •  Interviews •  Focus groups •  Direct observation •  Testing

•  Historical data •  Benchmarking and best-

practices reports •  Purchased data •  Professional publications •  Secondhand reports

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Scientific Method

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1 •  Problem specification

2 •  Hypothesis formulation

3 •  Experimental design

4 •  Data collection

5 •  Data analysis

Step 1: Problem Specification

•  State the problem as a question.

•  Identify key factors that contribute to the problem.

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Step 2: Hypothesis Formulation

•  Restate problem as a testable prediction.

•  State the relationship between two factors that can be tested.

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Step 3: Experimental Design (Classic)

•  Subjects are randomly assigned to two equal groups.

•  Experimental group is exposed to the variable; control group is not exposed to the variable.

Experimental group R O X O

Control group R O O

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Step 3: Experimental Design (Quasi-Experimental)

•  Subjects are not assigned at random. •  Experimental group is exposed to the

variable; control group is not exposed to the variable.

Experimental group O X O

Control group O O

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Steps 4 and 5: Data Collection and Analysis

Step 4: Data Collection •  Data is gathered through primary and secondary

research methods.

Step 5: Data Analysis

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•  Data is analyzed and placed into a useful context. –  Quantitative analysis: Based on numeric data that is

analyzed with statistical methods –  Qualitative analysis: Based on research that supplies

non-numeric data

Descriptive Statistics: Measures of Central Tendency

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Given the following data, what is the mode?

A. 3 B. 4 C. 5 D. 6

Answer: C

2 3 3 4 5 5 5 6 6

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Descriptive Statistics: Measures of Variation

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•  Provide an indicator of variation around central tendency values. – Range: Distance between highest and lowest

scores. – Percentile: Specific point that has a given

percentage of cases below it. – Standard deviation: How much scores are

spread out around a mean.

Descriptive Statistics: Measures of Association—Correlation

Shows the relationship between two variables.

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Descriptive Statistics: Measures of Association—Regression

•  Refers to a statistical method used to predict a variable from one or more predictor variables.

•  Determines whether a relationship exists between variables and the strength of the relationship.

•  Causal relationship exists when two variables are related in some way.

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Inferential Statistics

•  Form a conclusion by studying a sample of the population. – Population: Entire group (all employees). – Sample: Part of the population (20 random

employees). – Normal distribution: Expected distribution

given a random sampling of a large population.

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Qualitative Analysis

•  Most useful for: –  Depth of information. –  Brainstorming and

idea generation. –  Discovering

underlying motivation, feelings, values, attitudes, and perceptions.

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•  Gathered from: –  Interviews. –  Surveys and

questionnaires. –  Observation, file

studies, testing.

Reliability

•  Ability of an instrument to measure consistently. •  Test A scores are more consistent. •  This test is considered reliable.

Candidate Test A Test B

Form 1 Form 2 Form 1 Form 2

1 90 92 87 95 2 89 90 79 86 3 92 94 81 93

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Validity

•  Ability of an instrument to measure what it is intended to measure.

•  Answers the questions: – What does the instrument measure? –  How well does it measure it?

•  A reliable instrument is not always valid. •  A valid instrument is always reliable.

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Ethics

•  System of moral principles and values that establish appropriate conduct. –  Ethics is not synonymous with legality.

•  HR assumes a key role in creating an ethical organization by: –  Participating in the creation of an ethics policy. –  Determining supportive procedures and training. –  Creating a culture that values ethics. –  Conducting investigations and applying discipline.

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Which of the following would NOT be an ethical violation for an HR manager? A. Recommending a qualified friend for an open position B. Telling a friend in private that layoffs will occur C.   Having ownership in an outside firm under contract to

the organization D.   Allowing surveillance of locker room areas

Answer: A

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Ethical Issues

•  Board of directors’ training

•  Workplace privacy •  Whistleblowing •  Conflict of interest •  Bribes, payoffs, and

kickbacks

•  Insider trading •  Cultural clashes •  Copyrights •  Corporate responsibility

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Legislative and Regulatory Environment

•  Laws are actions passed by Congress and state legislatures.

•  Regulations reflect how laws will be implemented and often have the force of law. – Regulatory agencies may issue guidelines that

interpret how regulations will be enforced.

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Rule-Making Process

The public may comment via public hearings, conversation, e-mail, or letter for a specified time period.

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Laws are made by legislatures, and rules are made by agencies.