hrm 660 lecture 1
DESCRIPTION
Strategic ManagementTRANSCRIPT
6/5/2015 HRM 660 Summer 2015
Strategic Human
Resource Management
Professor Mohammad Khasro Miah Ph.D.
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Thinking Strategically: The Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
Business(es) to be in and market positions
to stake out?
Buyer needs and groups to serve?
Outcomes to achieve?
3. How do we get there?
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What is Strategy?
A company‟s strategy consists of the set of competitive moves and business approaches that management is employing to run the company
Strategy is management‟s “game plan” to
Attract and please customers
Stake out a market position
Conduct operations
Compete successfully
Achieve organizational objectives 6/5/2015 HRM 660 Summer 2015 3
Why Are Strategies Needed? To proactively
shape how a
company‟s
business will
be conducted
To mold the
independent actions
and decisions of
managers and
employees into a
coordinated,
company-wide
game plan
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Developing a Strategic Vision
Involves thinking strategically about
Firm‟s future business plans
Where to “go”
Tasks include
Creating a roadmap of the future
Deciding future business position
to stake out
Providing long-term direction
Giving firm a strong identity
First Task of Strategic Management
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Missions vs. Strategic Visions
A mission statement
focuses on current
business activities --
“who we are and
what we do”
Current product and
service offerings
Customer needs
being served
Technological and
business capabilities
A strategic vision
concerns a firm‟s future
business path -- “where
we are going”
Markets to be pursued
Future technology-
product-customer
focus
Kind of company that
management is
trying to create
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Examples: Mission and Vision Statements
Empower people
through great software
anytime, anyplace, and
on any device.
Microsoft Corporation
“People can be our most
important asset if we make the
HR function our strategic
partner”
HRM
HRM can be defined as a specific combination of HR practices, work structures, and processes that maximizes employee knowledge, skill, commitment, and flexibility.
It composed of many interrelated parts that complement one another to reach the goals of an organization, large or small.
Set of activities directed at attracting, developing, and maintaining an effective workforce capable of achieving the firm‟s objective.
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The Meaning of “Strategy”
A critical factor that affects Firm Performance;
A factor that contributes to Competitive Advantage in markets;
Having a long-term focus;
Plans that involve the top executives and/or board of directors of the firm;
A general framework that provides a perspective for selecting specific policies and procedures;
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SHRM is the process of linking the human
resource function with the strategic
objectives of the organization in order to
improve performance.
Strategic Human Resource Management
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• Achieve integration or „fit‟ between HR and business strategies
is achieved
• Take a longer-term view of where HR should be going and how
to get there
• Decide how coherent and mutually supporting HR strategies
should be developed and implemented How members of HR
function should adopt a strategic approach
THE ESSENCE OF STRATEGIC HRM
KEY CONCEPTS OF STRATEGIC HRM
The resource-based view
• This states that it is the range of resources in an organization, including its human
resources, that produces its unique character and creates competitive advantage.
• Competitive advantage will be achieved if the organization‟s resources are
valuable, rare, inimitable, and non-substitutable.
• „The resource-based view of the firm provides a conceptual basis, if we needed
one, for asserting that key human resources are sources of competitive
advantage‟. Boxall (1996)
Strategic fit
• Wright and Snell (1998) wrote that: „The primary role of strategic HRM should be
to promote a fit with the demands of the competitive environment‟. In more detail,
• Schuler (1992:18) stated that: „Strategic human resource management is largely
about integration and adaptation. Its concern is to ensure that: (1) human
resources (HR) management is fully integrated with the strategy and strategic
needs of the firm (vertical fit); (2) HR policies cohere both across policy areas and
across hierarchies (horizontal fit); and (3) HR practices are adjusted, accepted
and used by line managers and employees as part of their everyday work‟.
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The universalistic perspective
The contingency perspective
The configurational perspective
(Delery and Doty, 1996)
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• The universalistic perspective – some HR practices are better than others
and all organizations should adopt these best practices. There is a
universal relationship between individual „best‟ practices and firm
performance.
• The contingency perspective – to be effective, an organization‟s HR
policies must be consistent with other aspects of the organization. The
primary contingency factor is the organization‟s strategy. This can be
described as „vertical fit‟.
• The configurational perspective – this is an holistic approach which
emphasises the importance of the pattern of HR practices and is
concerned with how this pattern of independent variables is related to the
dependent variable of organizational performance.
PERSPECTIVES ON SHRM
1980- 20000
Maturing of HR Function
1960- 1980 HR’s
Teenage Years
1930- 1960 HR’s
Childhood
1910- 1930
Birth of the HR
Function
The Future of the Human
Resource Function
Pre-1910 Production Centered
The next decade: The practice of HRM faces many Challenges and offers many opportunities. HR professionals recommend: • HR function take a more strategic position within the firm
• Executives understand that HR activities are important for survival • HR managers should report directly to the CEO • HR managers become CEOs themselves.
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Sources of Sustainable Competitive
Advantage
Valuable to the firm in that it exploits
weaknesses or neutralizes threats;
Must be rare among competitors;
Must be difficult for competitors to imitate;
Must not be easily substitutable;
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HR is a key lever in addressing
these challenges!
The New Competitive Environment
Shortened product life-cycles
Erosion of patent protection
Decreased regulation and protected markets
Increased access to capital markets
Increasing importance of innovation, both process and product
HR is a key lever in addressing
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An integrated approach to people resourcing
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HR strategy: the integration of HR activities to manage performance
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HR & Competitive Advantage
The International Motor Vehicle Study, a worldwide
research study of the automobile industry conducted at
MIT showed that people-centered practices were
associated with almost twice the productivity and quality
as conventional mass production.
Similar studies in steel, apparel, and semiconductors,
sponsored by the Alfred P. Sloan Foundation, reveal
similar positive effects for people-centered practices.
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Prominent HR Issues
in the 21stCentury United States
Widespread corporate restructuring
Increases in contingent work
New work organizations
Growing diversity
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Behaviors Driven by HR
Recruitment and Turnover
Commitment to Organization
Loyalty
Effort
Innovation
Attitude towards customers
Ability to do the job (skills)
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A MODEL OF HUMAN RESOURCES
Pay Selection Socialization
Equity Opportunity
Training Selection
Monitoring Pay
motivation
capacity
control
effort
productivity
Work organization
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Human Resource Management
Strategy
Why is HR critical to firm performance?
85% of all firms in the US are service firms.
Service is delivered by people.
Low quality HR leads to low quality customer service.
In the 21st century effective knowledge management translates into competitive advantage and profits.
Knowledge comes from a firm‟s people.
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Human Resource Management
Strategy
What is unique about Human Resource Management?
HR is multidisciplinary: It applies the disciplines of Economics (wages, markets, resources), Psychology (motivation, satisfaction), Sociology (organization structure, culture) and Law (min. wage, labor contracts, EEOC)
HR is embedded within the work of all managers, and most individual contributors due to the need of managing people (subordinates, peers and superiors) as well as teams to get things done.
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HR CHOICES: FUNCTIONAL
Individual work v. team work
Pay for job v. pay for individual v. pay for
group v. pay for need
Make or buy skills
Promote form within v. recruit at all levels
Job security v. no commitments
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HR CHOICES: PHILOSOPHY
Motivate by money v. peers v. the work
Egalitarianism v. meritocracy
Assume shirking v. assume inherent
desire to do good work
Centralized v. decentralized control
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WHY DIFFERENT CHOICES ARE MADE
EXTERNAL FACTORS
External Labor Market
Government Policy
Business and
Union organization
INTERNAL FACTORS
•Technology/Work •Organization •Business Strategy/ •Markets Values
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SOME TECHNICAL CONSIDERATIONS
Degree of proximity
Degree of skill specificity
Degree of coupling across worker tasks
Ease of monitoring
Ambiguity of worker tasks
Importance of creativity/discretion
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MOTIVATIONS
LOAFING/FREE RIDING
OUTPUT RESTRICTION
CRAFT PRIDE
ORGANIZATIONAL COMMITMENT
GIFT EXCHANGE
MONEY=EFFORT
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Business organizations engage in generic
strategies that often fit into some strategic
type.
One example is “ Cost, Differentiation and or
Focus.” ( M. Porter, 1980)
Another is “Defender, Analyzer, Prospector,
or Reactor.” ( Miles and Snow ,1978)
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Porter‟s Generic Strategies
Michael Porter has argued that a firm‟s strengths ultimately fall into one of two headings:
cost advantage and
differentiation.
By applying these strengths in either a broad or narrow scope, three generic strategies result:
cost leadership,
differentiation, and
focus.
These strategies are applied at the business unit level.
They are called generic strategies because they are not firm or industry dependent.
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Cost Leadership Strategy
This generic strategy calls for being the low
cost producer in an industry for a given level
of quality. The firm sells its products either at
average industry prices to earn a profit higher
than that of rivals, or below the average
industry prices to gain market share.
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Differentiation Strategy
A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition.
The value added by the uniqueness of the product may allow the firm to charge a premium price for it.
Because of the product‟s unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily.
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Focus Strategy
The focus strategy concentrates on a narrow
segment and within that segment attempts to
achieve either a cost advantage or
differentiation.
A firm using a focus strategy often enjoys a
high degree of customer loyalty, and this
entrenched loyalty discourages other firms
from competing directly.
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The concept of Generic Strategies is that
Competitive Advantage is at the heart of any
Strategy
Texas Instruments and North-West Airlines
Are two low-cost firms that fell into this trap
NWA # recognized its problems in time;
# instituted efforts to improve marketing;
# passenger service;
# service to travel agents to make its product more comparable;
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However, generic strategy is only small part
of SM. Second aspect of SM is the process of developing strategies for
achieving the company's goals in light of its current environment.
Business organization engage in generic strategies, but they also make choices about such things as ;
• How to scare off competitors;
• How to keep competitors weaker;
• How to react to and influence pending legislation;
• How to deal with various stakeholders and special interest groups;
• How to lower production costs, how to raise revenues,
• What technology to implement;
• How many and what types of people to employ;
Each of these decisions may present competitive challenges that have to be considered.
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strategic management appears
as a cycle in which several activities follow
and feed upon one another.
The strategic management process is
typically broken down into five steps:
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Mission and goals;
Environmental analysis;
Strategic formulation;
Strategy implementation;
Strategy evaluation;
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Figure 1: illustrates how the five steps interact. At the corporate level, the
strategic management process includes activities that range from
appraising the organization‟s current mission and goals to strategic
evaluation.
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First step in the strategic management model begins with senior managers evaluating their position in relation to the organization‟s current mission and goals.
Environmental analysis looks at the internal organizational strengths and weaknesses and the external environment for opportunities and threats. The factors that are most important to the organization‟s future are referred to as strategic factors and can be summarized by the acronym SWOT – Strengths, Weaknesses, Opportunities and Threats.
Strategy formulation involves senior managers evaluating the interaction between strategic factors and making strategic choices that guide managers to meet the organization‟s goals.
Strategy implementation is an area of activity that focuses on the techniques used by managers to implement their strategies.
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A Model of the Strategic Human Resource Management process
External analysis •Opportunities
•Threats
Mission Goals
Internal analysis Strengths
Weaknesses
Strategic choice
Human resource
Needs Skills
Behaviors Culture
HR practices
Human resource Capability
Skills Abilities
Knowledge
Human resource Actions
Behaviors Results
(Productivity Absenteeism,
turnover)
Recruitment Training
Performance Management
Labor relations Employee relations
Job analysis Job design Selection
Development Pay structure
Incentives Benefits
Strategy implementation
Firm Performance
Productivity Quality
Profitability
Str
ate
gy e
valu
atio
n
Strategy formulation
Emergent strategies
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Four levels of integration seem to exist between the HRM function and the strategic management
function: Administrative linkage:
Lowest level of integration
Simply engages in administrative work
HRM department is completely divorced from any component of the SM process
One-way linkage:
recognize the importance of human resources in implementing the strategic plan
Two-way linkage:
Strategic planning team informs the HRM function of the various strategies the company is considering
Analyze the results of this analysis to the strategic planning team
Strategic plan is passed on to the HRM executive , who develops programs to implement it.
Integrative linkage:
dynamic and multifaceted
The HRM function is involved in both strategy formulation and strategy implementation
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Linkage of Strategic Planning and HRM
Strategic Planning
HRM function
Strategic Planning
Strategic Planning
Strategic Planning
HRM function
HRM function
HRM function
Administrative linkage
One-way linkage
Two-way linkage
Interactive linkage
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External analysis Opportunities
Threats
Mission Goals Strategic Choice
Internal analysis Strengths
Weaknesses
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Five major components of the SM process are relevant to strategy
formulation
Goals: what an organization hopes to achieve in the medium-to long term future
Organization mission: The mission statement is often accompanied by a statement of a company‟s
vision and / or values.
External analysis: Consist of examining the organization‟s operating environment to identify the
strategic opportunities a) customer markets that are not being served,
b) technological advances that can aid the company,
c) labor pools that have not been tapped,
Threats a) potential labor shortage,
b) new competitors entering the market,
c) pending legislation that might adversely affect the firm,
d) competitors technological innovations,
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Internal analysis Attempts to identify the organization‟s strengths weaknesses. It focuses on the
quantity and quality of resources available to the organization
Financial,
capital,
technological, and
human resources.
Organizations have to honestly and accurately assess each resource to decide whether it
is a strength or a weakness
Strategic Choice: External and internal analysis combined constitute what has come to be called the SWOT ( strengths, weaknesses, opportunities, threats) analysis. The strategic managers compare
these alternatives‟ ability to attain the organization‟s strategic goals;
then they make strategic Choice. The strategic choice is the organization‟s strategy; it describes the ways the organization will attempt
to fulfill its mission and achieve its long-term goals.
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How Human Resource Involved in Strategy
Formulation?
Many of the opportunities and threats in the external environment are
people related
Potential labor shortages
Competitor wage rates
Government regulations
Firms internal strengths and weaknesses also requires input from the HRM
function;
One third of the total growth in U.S. GNP between 1943 and 1990 was the
result of increases in human capital
Recent number of research work has supported the need to have HRM
executives integrally involved in strategy formulation
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Strategy Implementation
Product Market strategy
Task design Types of
information
Performance
Reward systems
Organizational Structure
Selection, training and
development people
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task, people, and reward systems. In addition, HRM can directly
affect the two remaining variables : org. Structure and
information
1. for the strategy to be successfully implemented, the tasks must be
designed and grouped into jobs in a way that is efficient and effective.
2. the HRM function must ensure that the organization is staffed with
people who have the necessary knowledge, skill, and ability to
perform their part in implementing the strategy.
HRM has primary responsibility for three of
these five implementation variables:
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Strategy Implementation
Strategic choice
Human resource Needs
Skills Behavior Culture
Recruitment Training
Performance Management,
Labor relations Employee relations
Job analysis Job design Selection
Developmental Pay structure
Incentives Benefits
Human resource Capability
Skills Ability
Knowledge
Human resource Action
Behavior Results
(Productivity, Absenteeism,
Turnover)
Firm Performance
Productivity Quality
Profitability
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The low-cost leadership strategy attempts to increase the organization‟s market share by having the lowest unit cost and price compared with competitors.
The simple alternative to cost leadership is differentiation strategy.
This assumes that managers distinguish their services and products from those of their competitors in the same industry by providing distinctive levels of service, product or high quality such that the
customer is prepared to pay a premium price. With the focus strategy, managers focus on a specific buyer group or regional market.
This allows the firm to choose from four generic business-level strategies – low-cost leadership, differentiation, focused differentiation and focused low-cost leadership –in
order to establish and exploit a competitive advantage within a particular competitive
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Miles and Snow (1984) have identified four modes
of strategic orientation:
Defenders: Defenders are companies with a limited product line and a management focus on improving the efficiency of their existing operations. Commitment to this cost orientation makes senior managers unlikely to explore new areas.
Prospectors: Prospectors are companies with fairly broad product lines that focus on product innovation and market opportunities. This sales orientation makes senior managers emphasize „creativity over efficiency‟.
Analyzers: Analyzers are companies that operate in at least two different product market areas, one stable and one variable. In this situation, senior managers emphasize efficiency in the stable areas and innovation in the variable areas.
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Reactors are companies that lack a consistent strategy–structure–culture relationship. In this reactive orientation, senior management‟s responses to environmental changes and pressures thus tend to be piecemeal strategic adjustments.
Competing companies within a single industry can choose any one of these four types of strategy and adopt a corresponding combination of structure, culture and processes consistent with that strategy in response to the environment.
The different competitive strategies influence the ‘downstream’ functional strategies.
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Functional-level strategy
Functional-level strategy pertains to the major functional operations within the business unit, including research and development, marketing, manufacturing, finance and HR.
This strategy level is typically primarily concerned with maximizing resource productivity and addresses the question, „How do we support the business-level competitive strategy?‟
Consistent with this, at the functional level, HRM policies and practices support the business strategy goals.
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Human Resource Management
Strategy
Why is HR critical to firm performance?
85% of all firms in the US are service firms.
Service is delivered by people.
Low quality HR leads to low quality customer service.
In the 21st century effective knowledge management translates into competitive advantage and profits.
Knowledge comes from a firm‟s people.
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HR Strategy: Strategic Fit
Training Rewards
Corporate Strategy
Business Strategy
HR Strategy
HR System
(Performance Mgmt.)
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HR Strategy: HR System
Internal Fit
Performance Management System
HR Strategy Goal Setting
Performance
Measurement
Coaching
Rewards
Appeal
Performance Evaluation
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HR Strategy: Context of HR
System
1. The “Five Factors” Influencing the HR
System
External Environment
Social: social values, roles, trends, etc.
Political: political forces, changes. Ex. Bush
presidency and its agenda for Social Security.
Legal: laws, court decisions, regulatory rules.
Economic: product, labor, capital, factor
markets.
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HR Strategy: Context of HR
System
4. Organization Strategy
What are a firm‟s distinctive competencies?
What is the basis that competitive strategy be
sustained?
What are a firm‟s strategic objectives?
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