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© 2001 by Prentice Hall 1-1
PART 2 The Human Resource Environment
Chapter TwoStrategic
HR Management
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2004 by UIBE Liu yuxin 2-2
Chapter Outline
I. HR and Strategy Management II. The Role of HR in Strategy FormulationIII. Selecting HR Strategies to Increase Firm
Performance IV. LEADERSHIP: How HR can be a
Strategic PartnerV. Management Skills Builder: Issues and
Discussions
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2004 by UIBE Liu yuxin 2-3
Learning Objectives
1. Discuss the role of the HR function in strategy formulation.
2. Describe the linkages between HR and strategy formulation.
3. Discuss the more popular typologies of generic strategies and the various HR practices associated with each.
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2004 by UIBE Liu yuxin 2-4
4. Describe the different HR issues and practices associated with various directional strategies.
5. List the competencies the HR executive needs to become a strategic partner m the company.
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2004 by UIBE Liu yuxin 2-5
I HR AND STRTEGY MANAGEMENT
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2004 by UIBE Liu yuxin 2-6
Strategic HRM
Strategic HRMStrategic HRM- is the pattern of planned HR deployments and activitiesintended to enable an organization to achieve its goals.
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2004 by UIBE Liu yuxin 2-7
Strategic Management Process
Chart Title
Strategy Formulation Strategy Implementation Strategy Evaluation
Strategic Management Process
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2004 by UIBE Liu yuxin 2-8
Strategy Formulation
Mission
- reason forbeing
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2004 by UIBE Liu yuxin 2-9
Blazing Graphics’Mission Statement
Blazing Graphics will provide you with the most effective visual communication attainable. We will help you achieve all of your goals while providing you with the greatest value both seen and unseen.
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2004 by UIBE Liu yuxin 2-10
Strategy Formulation
Mission
- reason forbeing
Goals
- what ithopes toachieve
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2004 by UIBE Liu yuxin 2-11
Strategy Formulation
Mission
- reason forbeing
Goals
- what ithopes toachieve
ExternalAnalysis
- opportunities- threats
InternalAnalysis
- strengths- weaknesses
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2004 by UIBE Liu yuxin 2-12
Strategy Formulation
Mission
- reason forbeing
Goals
- what ithopes toachieve
StrategicChoice
ExternalAnalysis
- opportunities- threats
InternalAnalysis
- strengths- weaknesses
- ways to fulfill goalsand mission
HR Input
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2004 by UIBE Liu yuxin 2-13
Strategy—--Decisions about Competition
1. Where to compete?In what market or markets (industries, products, etc.) will we
compete?
2. How to compete?On what criterion or differentiating characteristic(s) will we
compete? Cost?Quality? Reliability? Delivery?
3. With what will we compete?What resources will allow us to beat our competition?
How will we acquire, develop, and deploy those resources to compete?
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2004 by UIBE Liu yuxin 2-14
II.The Role of HR in Strategy Formulation
Four levels of integration exist between the HR function and the strategic management function :1. Administrative Linkage2. One-Way Linkage3. Two-Way Linkage4. Integrative Linkage
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2004 by UIBE Liu yuxin 2-15
The Role of HR in Strategy Formulation
AdministrativeLinkage
StrategicPlanning
HRFunction
This is the lowest level of integration, in which the HRM function’s attention is focused
on day-to-day activities. No input from the HRM function to the company’s strategic plan is given.
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2004 by UIBE Liu yuxin 2-16
The Role of HR in Strategy Formulation
AdministrativeLinkage
One-WayLinkage
StrategicPlanning
StrategicPlanning
HRFunction
HRFunction
The firm’s strategicbusiness planning
function develops the plan and then informs the HRMfunction of the plan. HRM
then helps in the implementation.
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2004 by UIBE Liu yuxin 2-17
The Role of HR in Strategy Formulation
AdministrativeLinkage
One-WayLinkage
Two-WayLinkage
StrategicPlanning
StrategicPlanning
StrategicPlanning
HRFunction
HRFunction
HRFunction
The HRMfunction is
expected to provideinput to potential
strategic choices and
then helpimplement the
chosen option.
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2004 by UIBE Liu yuxin 2-18
The Role of HR in Strategy Formulation
AdministrativeLinkage
One-WayLinkage
Two-WayLinkage
IntegrativeLinkage
StrategicPlanning
StrategicPlanning
StrategicPlanning Strategic
Planning
HRFunction
HRFunction
HRFunction
HRFunction
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2004 by UIBE Liu yuxin 2-19
No HR Strategy is “good” or “bad” in and of itself.
Fit refers to the consistency or compatibility between HR strategies and other important aspects of the organization.
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2004 by UIBE Liu yuxin 2-20
III. Selecting HR Strategies to Increase Firm Performance
OrganizationalStrategies
OrganizationalStrategies
OrganizationalCharacteristics
OrganizationalCharacteristics
OrganizationalCapabilities
OrganizationalCapabilities
EnvironmentEnvironment
HR Strategies
Consistency
Consistency
Con
sist
ency
Consistency
ImprovedFirm
Performance
ImprovedFirm
Performance
FitFitFitFit
FitFitFitFit
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2004 by UIBE Liu yuxin 2-21
Product Life Cycle and Operating Strategies
Formation
Growth Maturity
Sales
Porterstrategies
PorterPorterstrategiesstrategies Differentiation Cost Leadership
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2004 by UIBE Liu yuxin 2-22
Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies
BusinessStrategy
Common OrganizationalCharacteristics HR Strategies
Overallcostleadership
• Sustained capital investment and access to capital
• Intense supervision of labor
• Tight cost control requiring frequent, detailed control reports
• Low-cost distribution system
• Structured organizationand responsibilities
• Products designed for ease in manufacture
• Efficient production• Explicit job descriptions• Detailed work planning• Emphasis on technical
qualifications and skills• Emphasis on job-specific
training• Emphasis on job-based
pay• Use of performance
appraisal as a controldevice
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2004 by UIBE Liu yuxin 2-23
Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies (cont.)
BusinessStrategy
Common OrganizationalCharacteristics HR Strategies
Differ-entiation
•Strong marketing abilities
•Product engineering•Strong capability in basic research
•Corporate reputation forquality or technologicalleadership
•Amenities to attract highly skilled labor, scientists, or creative people.
• Emphasis on innovationand flexibility
• Broad job classes• Loose work planning• External recruitment• Team-based training• Emphasis on individual-
based pay• Use of performance
appraisal as development tool
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2004 by UIBE Liu yuxin 2-24
Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies (cont.)
BusinessStrategy
Common OrganizationalCharacteristics HR Strategies
Focus •Combination of cost-leadership and differentiation strategy directed at a particular strategic target.
• Combination of HR strategies above.
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2004 by UIBE Liu yuxin 2-25
Competing by Meeting Stakeholders Needs:A Cost Strategy That May Cost Children
Their Health
In Columbia, the cut flower industry is booming at the expense of child labor. In order to keep costs low, farms employ children at illegal pay rates, for long hours, and under conditions that include the inhalation of pesticides. The employment “contracts” for these children do not include health benefits. As the word leaks out to the marketplace, pressure is being placed on the worst offenders to change their strategies.
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2004 by UIBE Liu yuxin 2-26
Selected HR Strategies That Fit Miles and Snow’s Two Major Types of Business Strategies
StrategicHR Area Defender Strategy Prospector Strategy
Work flows • Efficient production• Control emphasis• Explicit job descriptions
• Detailed work planning
• Innovation
• Flexibility
• Broad job classes
• Loose work
planning
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2004 by UIBE Liu yuxin 2-27
Miles and SnowDefender Strategy -- RECRUITING
Internal recruitmentHR makes selection decisionEmphasis on qualifications and skillsFormal hiring and socialization process
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2004 by UIBE Liu yuxin 2-28
Miles and SnowProspector Strategy -- RECRUITING
External recruitmentSupervisor makes selection decisionEmphasis on applicant fit with cultureInformal hiring and socialization process of new employees
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2004 by UIBE Liu yuxin 2-29
Miles and SnowDefender Strategy -- Compensation
Fixed payJob-based paySeniority-based payCentralized pay decisions
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2004 by UIBE Liu yuxin 2-30
Miles and Snow Prospector Strategy -- Compensation
Variable payIndividual-based payPerformance-based payDecentralized pay decisions
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2004 by UIBE Liu yuxin 2-31
In a recent national survey of HR executives in more
than 400 companies, most respondents reported that thepriorities of top management at their firms are to counter competition, cut costs, and improve performance.
Yet only 12% of these HR executives said that theirdepartment had a major responsibility for improving productivity, quality, and customer service in their companies.
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2004 by UIBE Liu yuxin 2-32
Discussion 1Discussion 1What do you think are some of the reasons
for this gap between top management’s priorities and the responsibility of the HR department?
How do you think an HR department cangain top management’s support for its programs and goals?
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2004 by UIBE Liu yuxin 2-33
IV. LEADERSHIP:How HR can be a Strategic Partner
Understand styles of leadership
Display appropriate leadership
Demonstrate leadership at all levels of performance – team, individual, unit or organization
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2004 by UIBE Liu yuxin 2-34
KNOWLEDGE OF BUSINESSHow HR can be a Strategic Partner
HR must understand…internal / external customers
key business disciplines
business structure, vision, values, goals, strategies, finances
competitors, products, technology and sources of competitive advantage
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2004 by UIBE Liu yuxin 2-35
STRATEGIC THINKINGHow HR can be a Strategic Partner
Understand strategic business planning
Apply a systematic HR planning process
Integrate HR systems to build capability and competitive advantage for the firm
Develop and integrate department strategies within corporate framework
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2004 by UIBE Liu yuxin 2-36
PROCESS SKILLSHow HR can be a Strategic Partner
Know management processes
Know process skills: consulting, problem solving, evaluation and communication
Understand organizational development
Facilitate and manage change
Manage under uncertainty and instability
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2004 by UIBE Liu yuxin 2-37
V.Management Skills Builder:
Issues and Discussions
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2004 by UIBE Liu yuxin 2-38
Management Skills Builder:
Discussion 2Discussion 2
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2004 by UIBE Liu yuxin 2-39
Case Summary
3M’s competitive business strategy is based on innovation. 3M requires that at least 25% of its annual sales come from products introduced over the previous 5 years.
To implement this strategy,What types of HR policies might 3M adopt to Spur product innovation?
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2004 by UIBE Liu yuxin 2-40
Suggested keys
the creation of a special fund that allows employees
to start new projects or follow up on ideas.
“release time” program, in which workers are given
time off during the day to pursue their own interests,
give credit for the creation of new products that
management would not have thought of by itself.
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2004 by UIBE Liu yuxin 2-41
3M’s appraisal process encourages risk taking.
Innovation culture: A senior manager at 3M says,
“If you are threatened with dismissal after working
on a project that fails, you will never try again.”
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2004 by UIBE Liu yuxin 2-42
Discussion 3Discussion 3
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2004 by UIBE Liu yuxin 2-43
Case Summary
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2004 by UIBE Liu yuxin 2-44
Frost, Inc. is a manufacturer of overhead conveyor trolleys, used primarily in the auto industry with sales of $20 million. Frost is located in Grand Rapids, Michigan. Concerned about depending too heavily on one cyclical industry, Frost’s president made several attempts to diversify the business.
The attempts to move into manufacturing lawn mower components and material handling systems, such as floor conveyors and hoists, failed. The engineers did not know how to design unfamiliar components, production people did not know how to make them, and sales people did not know how to sell them.
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2004 by UIBE Liu yuxin 2-45
The president diagnosed the problem as inflexibility (“We have single-purpose machines and single-purpose people, including single-purpose managers.”).
He decided that automating production was the key to flexibility. Twenty-six old-fashioned screw machines on the factory floor were replaced with 11 computer numerically controlled machines and 18 robots. He decided to build an automated store and retrieval inventory-control system and to completely automate the front office to reduce indirect labor costs. He did not plan to approve additional hires as a result of the automation.
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2004 by UIBE Liu yuxin 2-46
QuestionsQuestions1.What directional strategy was Frost pursuing?
2 .What HR practices should be in place to
support this strategy?
3. What types of information should the HR
function provide to support the new strategy?
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Suggested keys
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2004 by UIBE Liu yuxin 2-48
1. Frost initially pursued a concentration strategy and then
changed to an external-growth strategy—diversification.
2. In order to successfully pursue a strategy of diversification, people with the needed skills must be hired or developed. Therefore, as the company moved into a new area, engineers with experience in lawn mower components, etc., would need to be hired, or current employees would need to be provided with training.
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2004 by UIBE Liu yuxin 2-49
While automation may resolve some production problems, it does not solve the design-engineering issues. Additionally, even with automated lines, people must be available who have the skills to monitor production activity and who can maintain and repair the equipment. Once again, HR could provide the human side of the automation process so that planning for the change process would include all necessary elements for a successful corporate culture change.
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2004 by UIBE Liu yuxin 2-50
In this case, the CEO had decided that no new hiring would take place. Therefore, the emphasis should be on the provision of training for new skills. To support the engineers and production people in this development effort, a skill-based compensation program along with profit-sharing would be useful.
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2004 by UIBE Liu yuxin 2-51
End of Chapter Question 1
Why is it important for a company to make its human resources into a competitive advantage? How can HR contribute to doing so?
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2004 by UIBE Liu yuxin 2-52
End of Chapter Question 2
Many believe that top managers care little about human resources compared to such areas as marketing, finance, production, and engineering. What might account for this perception, and what would you do to change it?